Group Members
- Dibyendu Mukherjee (71610020)
- Chaitanya Prakash (71610011)
- Nischal N (71610043)
- Chandrajit Das (71610014)
rm(list=ls()) # Clear the workspace
library("tm")
library("wordcloud")
library("maptpx")
library("igraph")
textdata = readRDS(file.choose())
dtm1 = readRDS(file.choose())
K = 3 # Choose number of topics in the model
simfit = topics(dtm1, K = K, verb = 2) # Fit the K topic model
##
## Estimating on a 85 document collection.
## Fitting the 3 topic model.
## log posterior increase: 4189.1, 1706.6, done. (L = -2397182.5)
summary(simfit, nwrd = 12)
##
## Top 12 phrases by topic-over-null term lift (and usage %):
##
## [1] 'adhesion', 'advantedge', 'appliedmaterials', 'baccini', 'centura', 'chipmaking', 'dpn', 'duv', 'endura', 'epitaxy', 'equipment-services', 'eterna' (69)
## [2] 'teradata-division', 'aster', 'mapreduce', 'joining-teradata', 'mcdonald', 'langos', 'nyquist', 'platform-family', 'wimmer', 'blanton', 'koehler', 'scheppmann' (16.5)
## [3] 'lien', 'prepares', 'protests', 'reynolds', 'submission', 'ira', 'trail', 'backgrounds', 'compile', 'custodian', 'custodians', 'depository' (14.5)
##
## Dispersion = 2.64
simfit$theta[1:10,1]
## aberle abi-research abide abilities ability
## 1.048846e-08 1.730882e-06 2.261884e-06 1.456643e-07 1.885960e-03
## abroad absence absolute absorption abundant
## 6.137769e-05 1.447981e-06 2.796881e-07 3.865326e-08 3.727291e-08
a0 = apply(simfit$theta, 1, sum)
head(a0)
## aberle abi-research abide abilities ability
## 6.209805e-05 1.187667e-04 9.637123e-05 1.065663e-04 3.271389e-03
## abroad
## 1.480829e-04
a01 = order(a0, decreasing = TRUE)
simfit$theta[a01[1:10],]
## topic
## phrase 1 2 3
## services 6.822479e-03 2.624353e-06 1.160616e-02
## solutions 3.084437e-03 8.406747e-05 9.128283e-03
## products 1.091979e-02 3.111718e-07 3.106755e-04
## business 4.307310e-03 7.076063e-06 5.805670e-03
## customers 9.436238e-03 3.148863e-07 3.064247e-08
## company 4.016365e-03 6.067617e-07 4.320089e-03
## clients 6.240051e-05 4.951274e-09 8.055256e-03
## provide 4.369962e-03 6.308906e-07 3.116367e-03
## information 2.560277e-03 2.780112e-06 4.616670e-03
## content 6.315863e-04 2.635999e-05 6.259498e-03
simfit$omega[1:10,]
## topic
## document 1 2 3
## 1 0.99981305 6.693992e-05 0.0001200120
## 2 0.99963670 1.353498e-04 0.0002279463
## 3 0.99983087 6.838078e-05 0.0001007477
## 4 0.04862695 1.473530e-04 0.9512256930
## 5 0.99977716 7.502209e-05 0.0001478197
## 6 0.88745625 1.115747e-01 0.0009690774
## 7 0.64201252 1.828276e-01 0.1751598777
## 8 0.68601405 3.137507e-01 0.0002352900
## 9 0.70572260 9.754706e-02 0.1967303405
## 10 0.66359037 1.090356e-01 0.2273740408
t = Sys.time()
theta = simfit$theta
lift = theta*0
sum1 = sum(dtm1)
for (i in 1:nrow(theta)){
for (j in 1:ncol(theta)){
ptermtopic = 0
pterm = 0
ptermtopic = theta[i, j]
pterm = sum(dtm1[,i])/sum1
lift[i, j] = ptermtopic/pterm
}
}
Sys.time() - t # Total time for calculating lift
## Time difference of 2.884865 mins
lift[1:10,]
## topic
## phrase 1 2 3
## aberle 0.001019517 6.0350821306 5.615240e-05
## abi-research 0.084124021 5.6881283121 2.810429e-05
## abide 0.131918071 5.4886300011 3.381322e-05
## abilities 0.008495463 4.7050410163 1.501643e+00
## ability 1.255631905 0.0001351673 9.222535e-01
## abroad 1.118650555 0.0209573890 1.559305e+00
## absence 0.084449428 3.6370497365 2.369840e+00
## absolute 0.011651448 4.6103491280 1.595861e+00
## absorption 0.002254343 6.0298887416 3.370285e-05
## abundant 0.005434595 6.0167006568 8.424925e-05
for (i in 1:K){
a0 = which(lift[,i] > 1)
freq = theta[a0,i]
freq = sort(freq,decreasing = T)
n = ifelse(length(freq) >= 100, 100, length(freq))
top_word = as.matrix(freq[1:n])
wordcloud(rownames(top_word), top_word, scale=c(4,0.5), 1,
random.order=FALSE, random.color=FALSE,
colors=brewer.pal(8, "Dark2"))
mtext(paste("Latent Topic",i), side = 3, line = 2, cex=2)
}
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## components could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## advanced could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## competition could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## patents could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## production could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## wireless could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## software-products could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## public-safety could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## european could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## operators could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## big-data could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## organization could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## latin-america could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## mission-critical could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## dish-network could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## consulting could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## competitive-advantage could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## acquire could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## interoperability could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## teledyne could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## education could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## plexus could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## wireless-communications could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## cloud-services could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## assemblies could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## ground could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## changing could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## networking-products could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## upgrade could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## database could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## order-fulfillment could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## supports could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## backup could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## corning-rsquo could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## manager could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## solar-modules could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## scalability could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## partnerships could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## autocad could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## routing could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## microsoft could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## cover could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## analytics could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## sunpower could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## licensees could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## measures could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## interfaces could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## patent-portfolio could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## specialty could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## management-solutions could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## management-services could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## financial-institutions could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## digital-marketing could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## investments could not be fit on page. It will not be plotted.
## Warning in wordcloud(rownames(top_word), top_word, scale = c(4, 0.5), 1, :
## reporting could not be fit on page. It will not be plotted.
for (i in 1:K){
a0 = which(lift[,i] > 1)
freq = theta[a0,i]
freq = sort(freq,decreasing = T)
# Auto Correction - Sometime terms in topic with lift above 1 are less than 30. So auto correction
n = ifelse(length(freq) >= 20, 20, length(freq))
top_word = as.matrix(freq[1:n])
# now for top 30 words let's find Document Term Matrix
mat = dtm1[,match(row.names(top_word),colnames(dtm1))]
mat = as.matrix(mat)
cmat = t(mat) %*% (mat)
diag(cmat) = 0
# Let's limit number of connections to 2
for (p in 1:nrow(cmat)){
vec = cmat[p,]
cutoff = sort(vec, decreasing = T)[2]
cmat[p,][cmat[p,] < cutoff] = 0
}
graph <- graph.adjacency(cmat, mode = "undirected",weighted=T)
plot(graph, #the graph to be plotted
layout=layout.fruchterman.reingold, # the layout method.
vertex.frame.color='blue', #the color of the border of the dots
vertex.label.color='black', #the color of the name labels
vertex.label.font=1, #the font of the name labels
vertex.size = .00001, # Dots size
vertex.label.cex=1.3)
mtext(paste("Topic",i), side = 3, line = 2, cex=2)
}
eta = function(mat, dtm){
mat1 = mat/mean(mat); terms1 = rownames(mat1);
eta.mat = matrix(0, 1, ncol(mat1))
for (i in 1:nrow(dtm)){
a11 = as.data.frame(matrix(dtm[i,]));
rownames(a11) = colnames(dtm)
a12 = as.matrix(a11[(a11>0),]);
rownames(a12) = rownames(a11)[(a11>0)];
rownames(a12)[1:4]
a13 = intersect(terms1, rownames(a12));
a13[1:15]; length(a13)
a14a = match(a13, terms1); # positions of matching terms in mat1 matrix
a14b = match(a13, rownames(a12))
a15 = mat1[a14a,]*matrix(rep(a12[a14b,],
ncol(mat1)),
ncol = ncol(mat1))
eta.mat = rbind(eta.mat, apply(a15, 2, mean))
rm(a11, a12, a13, a14a, a14b, a15)
}
eta.mat = eta.mat[2:nrow(eta.mat), ] # remove top zeroes row
8
row.names(eta.mat)=row.names(dtm)
return(eta.mat)
}
twc = eta(lift, dtm1)
head(twc)
## 1 2 3
## 1 2.444581 0.01068431 0.6390536
## 2 1.687751 0.01428670 0.4558064
## 3 2.539287 0.01710608 0.5575338
## 4 1.226948 0.31564554 4.6157593
## 5 2.248299 0.01565627 0.7026517
## 6 1.931055 0.99765525 0.8907726
eta.file.name = function(mat,calib,n) {
s = list() # Blank List
for (i in 1: ncol(mat)) # For each topic
{
read_doc = mat[order(mat[,i], decreasing= T),] # Sort document prop matrix (twc)
read_names = row.names(read_doc[1:n,]) # docuemnt index for first n document
s[[i]] = calib[as.numeric(read_names),1] # Store first n companies name in list
}
return(s)
}
temp1 = eta.file.name(twc,textdata,5)
for (i in 1:length(temp1)){
print(paste('Companies loading heavily on topic',i,'are'))
print(temp1[[i]])
print('--------------------------')
}
## [1] "Companies loading heavily on topic 1 are"
## [1] "APPLIED MATERIALS INC" "ADVANCED MICRO DEVICES"
## [3] "TELEPHONE & DATA SYSTEMS INC" "ADOBE SYSTEMS INC"
## [5] "CENTURYLINK INC"
## [1] "--------------------------"
## [1] "Companies loading heavily on topic 2 are"
## [1] "QUALCOMM INC" "CORNING INC"
## [3] "TRIMBLE NAVIGATION LTD" "HARRIS CORP"
## [5] "ECHOSTAR CORP"
## [1] "--------------------------"
## [1] "Companies loading heavily on topic 3 are"
## [1] "ADOBE SYSTEMS INC" "DST SYSTEMS INC"
## [3] "AUTOMATIC DATA PROCESSING" "BROADRIDGE FINANCIAL SOLUTNS"
## [5] "IAC/INTERACTIVECORP"
## [1] "--------------------------"
eta.file = function(mat,calib,n) {
s = list() # Blank List
for (i in 1: ncol(mat)) # For each topic
{
read_doc = mat[order(mat[,i], decreasing= T),] # Sort document prop matrix (twc)
read_names = row.names(read_doc[1:n,]) # docuemnt index for first n document
s[[i]] = calib[as.numeric(read_names),2] # Store first n documents in list
}
return(s)
}
temp2 = eta.file(twc,textdata,5)
for (i in 1:length(temp2)){
print(paste('Documents loading heavily on topic',i,'are'))
print(temp2[[i]])
print('--------------------------')
}
## [1] "Documents loading heavily on topic 1 are"
## [1] "item 1:businessincorporated in 1967, applied, a delaware corporation, provides manufacturing equipment, services and software to the global semiconductor, flat panel display, solar photovoltaic (pv) and related industries. applied s customers include manufacturers of semiconductor wafers and chips, flat panel liquid crystal displays (lcds), solar pv cells and modules, and other electronic devices. these customers may use what they manufacture in their own end products or sell the items to other companies for use in advanced electronic components. applied s fiscal year ends on the last sunday in october.applied is one of the world s largest semiconductor fabrication equipment suppliers based on revenue, with the capability to provide global deployment and support services. applied also is a leading supplier of lcd fabrication equipment to the flat panel display industry, and a leading supplier of solar pv manufacturing systems to the solar industry, based on revenue.applied operates in four reportable segments: silicon systems group, applied global services, display, and energy and environmental solutions. applied manages its business based upon these segments. a summary of financial information for each reportable segment is found in note 16 of notes to consolidated financial statements. a discussion of factors that could affect operations is set forth under risk factors in item 1a, which is incorporated herein by reference.in november 2011, applied completed the acquisition of varian semiconductor equipment associates, inc. (varian), the leading supplier of ion implantation equipment to the semiconductor and solar industries. the acquisition broadened applied's extensive portfolio of technologies for chip and solar module manufacturing. the acquired business is included in consolidated results of operations and the results of the silicon systems group and applied global services segments.net sales by reportable segment for the past three fiscal years were as follows: 2012 2011 2010 (in millions, except percentages)silicon systems group$5,536 64% $5,415 51% $5,304 56%applied global services2,285 26% 2,413 23% 1,865 20%display473 5% 699 7% 899 9%energy and environmental solutions425 5% 1,990 19% 1,481 15%total$8,719 100% $10,517 100% $9,549 100%silicon systems group segmentthe silicon systems group segment develops, manufactures and sells a wide range of manufacturing equipment used to fabricate semiconductor chips, also referred to as integrated circuits (ics). most chips are built on a silicon wafer base and include a variety of circuit components, such as transistors and other devices, that are connected by multiple layers of wiring (interconnects). applied offers systems that perform most of the primary processes used in chip fabrication, including atomic layer deposition (ald), chemical vapor deposition (cvd), physical vapor deposition (pvd), electrochemical deposition (ecd), rapid thermal processing (rtp), ion implantation, chemical mechanical planarization (cmp), wet cleaning, and wafer metrology and inspection, as well as systems that etch or inspect circuit patterns on masks used in the photolithography process. applied s semiconductor manufacturing systems are used by integrated device manufacturers and foundries to build and package memory, logic and other types of chips.most chips are currently fabricated using 32 nanometer (nm) and larger linewidth dimensions, although applied is also working with customers on leading-edge technology for advanced nodes using 28nm and smaller dimensions. to build a chip, the transistors, capacitors and other circuit components are first created on the surface of the wafer by performing a series of processes to deposit and selectively remove portions of successive film layers. similar processes are then used to build the layers of wiring structures on the wafer. as the density of the circuit components increases to enable greater computing capability in the same or smaller physical area, the complexity of building the chip also increases, necessitating more process steps to form smaller structures and more intricate wiring schemes. a typical, simplified process sequence for building the wiring or interconnect portion of a chip involves initially depositing a dielectric film layer onto the base layer of circuit components using a cvd system. an etch system is then used to create openings and patterns in the dielectric layer. to form the metal interconnects, these openings and patterns are filled with conducting material using pvd and ecd technologies. a cmp step then polishes the wafer to achieve a flat surface. additional deposition, etch and cmp steps are then performed to build up the layers needed to complete the interconnection of the circuit elements. advanced chip designs require more than 500 steps involving these and other processes to complete the manufacturing cycle.4table of contentstoday's advanced interconnects are made using copper as the main wiring material. copper has low resistance and can carry a large amount of current in a small area, which allows signals to travel quickly. applied is the leading supplier of systems for manufacturing copper-based interconnects, including equipment for depositing, etching and planarizing these multi-layer structures. in 2012, the company introduced the applied endura amber pvd system, which uses innovative copper reflow technology to achieve rapid, void-free fill of interconnect structures at virtually any device node.to increase the speed of interconnect signals even further, low dielectric constant (low k) films are used to insulate the copper wiring. applied also leads the industry in providing systems for depositing low k dielectric films. in 2012, the company launched the applied producer onyx process, an innovative film treatment that optimizes the molecular structure of low k films to enable higher device performance and longer battery life. the transistor is another key area of the chip where semiconductor manufacturers are improving their device designs to enhance performance. applied has the industry s largest portfolio of technically advanced products for building smaller and faster transistors. one method of enhancing chip performance is strain engineering, a technique that stretches or compresses the space between atoms, allowing electrical current to flow more quickly. multiple strain films are typically used in advanced devices since they have an additive effect on increasing transistor speed. applied has a comprehensive portfolio of systems to enable these applications using cvd and epitaxial deposition technologies.major chipmakers are integrating new high dielectric constant (high-k) and metal materials and processes in their transistor gate structures to increase chip performance and reduce power consumption. applied has a comprehensive portfolio of fully characterized processes for building these high-k/metal gates. these solutions include an integrated dielectric gate stack tool that combines four critical processes in a single system, a portfolio of metallization technologies using ald and pvd, and an innovative high temperature etch system.to address the need for higher performance in a smaller space driven by new consumer products, a new type of chip packaging is emerging, known as three-dimensional (3d) ics. providing greater functionality in a smaller footprint, 3d ics stack multiple chips together and electrically connect them using deep holes, called through-silicon via (tsv) structures. applied has the industry s most comprehensive line of production-proven systems and processes required for the majority of advanced packaging manufacturing steps, including etch, cvd, pvd, ecd, wafer cleaning and cmp systems. in 2012, the company introduced the applied producer optiva cvd system, which employs ultra-low process temperatures to deposit conformal insulating liner films for tsvs. the optiva system is also used to manufacture advanced image sensors used in smartphones, tablet pcs and high-end cameras, covering the microlens with a tough, thin, transparent film layer that boosts the low-light performance of the sensor while improving its durability.some chip manufacturers have announced that they will be employing new manufacturing methods to enhance chip performance, one of which is based on new transistor designs that replace the traditional two-dimensional gate with a thin 3d gate. this new structure, targeted for the 22nm technology node and below, improves the performance and energy efficiency of the chip. the applied centura conforma system uses conformal plasma doping technology to modify the electrical properties of 3d and planar transistor structures. chip manufacturers are also beginning to employ 3d architectures in advanced memory chips to provide higher-density storage capability. these structures require the precise etching of exceptionally deep and narrow structures. in 2012, the company launched its applied centura avatar dielectric etch system that can etch holes and trenches with up to 80:1 depth-to-width aspect ratios.most of applied s semiconductor equipment products are single-wafer systems with multiple process chambers attached to a base platform. this enables each wafer to be processed separately in its own environment, allowing precise process control, while the system s multiple chambers enable simultaneous, high productivity manufacturing. applied sells most of its single-wafer, multi-chamber systems on six basic platforms: the endura ,, centura , producer , raider , viista and vantage platforms. these platforms support ald, cvd, ecd, pvd, etch, ion implantation, and rtp technologies.over time, the semiconductor industry has migrated to increasingly larger wafers to build chips. the predominant or common wafer size used today for volume production of advanced chips is 300 millimeter (mm), or 12-inch, wafers. applied offers a comprehensive range of 300mm systems through its silicon systems group segment. applied also offers earlier-generation 200mm systems, as well as products and services to support all of its systems, which are reported under its applied global services segment.5table of contentsthe following summarizes the portfolio of products and their associated process technology areas reported under the silicon systems group segment.depositiondeposition is a fundamental step in fabricating a chip. during deposition, layers of dielectric (an insulator), barrier, or electrically conductive (typically metal) films are deposited or grown on a wafer. applied provides equipment to perform four types of deposition: ald, cvd, ecd and pvd. in addition, applied s rtp systems can be used to perform certain types of dielectric deposition.atomic layer depositionald is an advanced technology in which atoms are deposited one layer at a time to build chip structures. this technology enables customers to fabricate thin films of either conducting or insulating material with uniform coverage in nanometer-sized structures. one of the most critical areas of the transistor is its gate, which is built by depositing layers of dielectric films. at the 22nm node and below, these film layers are so thin that they must be atomically engineered. the applied centura integrated gate stack system features advanced ald technology that builds ultrathin high-k film layers less than 2nm in thickness about one hundred thousandth the width of a human hair.chemical vapor depositioncvd is used to deposit dielectric and metal films on a wafer. during the cvd process, gases that contain atoms of the material to be deposited react on the wafer surface, forming a thin film of solid material. films deposited by cvd may be silicon oxide, single-crystal epitaxial silicon, amorphous silicon, silicon nitride, dielectric anti-reflective coatings, low k dielectric (for highly-efficient insulating materials), aluminum, titanium, titanium nitride, polysilicon, tungsten, refractory metals or silicides. applied offers the following cvd products and technologies:the applied producer cvd platform this high-throughput platform features twin-chamber modules that have two single-wafer process chambers per unit. up to three twin-chamber modules can be mounted on each producer platform, giving it a simultaneous processing capacity of six wafers. many dielectric cvd processes can be performed on this platform. the highest productivity model of this system is the applied producer gt, which features fast wafer handling performance and compact design.low k dielectric films low k dielectric materials are used in copper-based chip designs to further improve interconnect speed. using conventional cvd equipment, the applied producer black diamond family of low k systems provides customers with a proven, cost-effective way to integrate a variety of low k films into advanced interconnect structures. the company's latest third-generation low k technologies are featured on the applied producer black diamond 3 system and applied producer nanocure 3 system. together, these products are designed to enable smaller, higher performance and more power-efficient devices at 22nm and below.lithography-enabling solutions applied offers several technologies on the producer system to help chipmakers extend their current 193nm lithography tools, including a line of applied apf (advanced patterning film) films and applied darc (dielectric anti-reflective coating) films. together, they provide a film stack with the precise dimensional control and compatibility needed to cost-effectively pattern nano-scale features without additional integration complexity.gap fill films there are many steps during the chipmaking process in which very small and deep, or high aspect ratio (har), structures must be filled void-free with a dielectric film. many of these applications include the deposition of silicon oxides in substrate isolation structures, contacts, and interconnects. applied's most advanced gap fill system is its applied producer eterna fcvd system. targeted for 20nm and below chips, the eterna system delivers a liquid-like film that flows freely into virtually any structure to provide void-free dielectric fill.strain engineering solutions the applied producer harp system plays a key role in enhancing transistor performance, enabling chipmakers to boost chip speed by depositing strain-inducing dielectric films. offering the industry s first integrated stress nitride deposition and ultraviolet (uv) cure solution, the applied producer celera cvd delivers benchmark levels of high-stress tensile silicon nitride films. the company also offers the applied centura singenplus low pressure cvd system for low temperature silicon nitride films. used together, and in conjunction with silicon germanium (sige) films using applied s epitaxial deposition technologies, these systems can provide additive strain engineering benefits.6table of contentsthrough-silicon via films applied has a comprehensive portfolio of products for tsv fabrication, including the applied producer invia system. this product uses a unique process to deposit the critical oxide liner film layer in har tsv structures, enabling robust electrical isolation of the tsv, which is vital for reliable device performance. for applications where higher temperatures can damage the manufacturing process, the applied producer avila cvd system and applied producer optiva cvd system allow high quality dielectric film deposition at stable substrate temperatures at a low cost of ownership.epitaxial deposition epitaxial silicon (epitaxy or epi) is a layer of pure silicon grown in a uniform crystalline structure on the wafer to form a high quality base for the device circuitry. epi technology is used in an increasing number of integrated circuit devices in both the wafer substrate and transistor areas of a chip to enhance speed. the applied centura epi system integrates pre- and post-epi processes on the same system to improve film quality and reduce production costs. this system is also used for sige epi technology, which reduces power usage and increases speed in certain types of advanced chips. for emerging transistor designs, the applied centura rp epi system offers selective epi processes to enable faster transistor switching through strain engineering techniques.polysilicon deposition polysilicon is a type of silicon used to form portions of the transistor structure within the integrated circuit device. the applied centura polygen lpcvd system is a single-wafer, multi-chamber product that deposits thin polysilicon films at high temperatures to create transistor gate structures. to address the challenging requirements of shrinking gate dimensions, the applied centura dpn gate stack system integrates chambers for decoupled plasma nitridation (dpn), rtp anneal, and polysilicon deposition on one platform to enable superior film quality and material properties.tungsten deposition tungsten is used in the contact area of a chip that connects the transistors to the wiring circuitry. in aluminum-based devices, tungsten is also used in the structures that connect the multiple layers of aluminum wiring. applied has two products for depositing tungsten: the applied centura sprint tungsten cvd system for 90nm and below devices and the applied centura isprint ald/cvd system for more advanced applications. the latter product combines ald technology and cvd chambers on the same platform.electrochemical depositionelectrochemical deposition is a process by which metal atoms from a chemical fluid (an electrolyte) are deposited on the surface of an immersed object. its main application in the semiconductor industry is to deposit copper in interconnect wiring structures. this process step follows the deposition of barrier and seed layers which prevent the copper from contaminating other areas of the device, improve the adhesion of the copper film and enable electrodeposition to occur. applied offers two ecd systems: the applied raider gt ecd system for electroplating advanced chip interconnect structures, and the applied raider s ecd system for advanced tsv packaging applications.physical vapor depositionpvd is a physical process in which atoms of a gas, such as argon, are accelerated toward a metal target. the metal atoms chip off, or sputter away, and are then deposited on the wafer. the applied endura pvd system offers a broad range of advanced metal deposition processes, including aluminum, aluminum alloys, cobalt, titanium/titanium nitride, tantalum/tantalum nitride, tungsten/tungsten nitride, nickel, vanadium and copper. introduced 22 years ago, the company's applied endura platform is the most successful metal deposition system in the history of the semiconductor industry.the applied endura cubs (copper barrier/seed) pvd system is widely used by customers for fabricating copper-based chips. using pvd technology, the system deposits a tantalum-based barrier film that prevents copper material from entering other areas of the device and then a copper seed layer that primes the structure for the subsequent deposition of bulk copper. the applied endura cubs rfx pvd system extends cost-effective cubs technology to the 22nm node. the applied endura avenir rf pvd system sequentially deposits the multiple metal film layers that form the heart of the industry s new, faster, metal gate transistors. the applied endura ilb pvd/ald system advances the state-of-the-art in ald technology, enabling customers to shrink their speed-critical contact structures for 20nm and below devices.applied s endura system has also been used for many years in back-end applications to deposit metal layers before final bump or wire bonding packaging steps are performed. additionally, the applied charger ubm pvd system, which is specifically designed for under-bump metallization (ubm) and other back-end processes, features linear architecture for reliable performance and very high productivity at a low cost per wafer.7table of contentsetchetching is used many times throughout the integrated circuit manufacturing process to selectively remove material from the surface of a wafer. before etching begins, the wafer is coated with a light-sensitive film, called photoresist. a photolithography process then projects the circuit pattern onto the wafer. etching removes material only from areas dictated by the photoresist pattern. applied offers a wide range of systems for etching dielectric, metal, and silicon films to meet the requirements of advanced processing.applied s producer etch system utilizes the twin-chamber producer platform to target cost-sensitive dielectric etch applications. to address advanced dielectric etch applications, the applied centura enabler e5 etch system enables customers to create the 40:1 har contact features that are critical to the yield and performance of 32nm and below dram and flash memory chips. the applied centura carina system uses innovative, high-temperature technology to deliver the etch capability essential for scaling logic and memory devices with high-k/metal gates at 45nm and below.for etching silicon, the applied centris advantedge mesa system features eight process chambers for high wafer output and proprietary system intelligence software to assure every process on every chamber precisely matches. the system also saves on power, water and gas consumption, helping customers to lower operating costs and support their sustainable manufacturing initiatives. the applied centura mariana trench etch system provides customers with the capability to scale dram capacitors by enabling the etching of 80:1 aspect ratio structures. the applied centura silvia system is specifically designed for etching small, deep holes for tsv applications in 3d-ics. for etching metals, the applied opus advantedge metal etch system uses an optimized 5-chamber platform configuration that enables customers to extend aluminum interconnect technology and productivity for flash and dram memory applications.rapid thermal processingrtp is a process in which a wafer is subjected to rapid bursts of intense heat that can take the wafer from room temperature to more than 1,000 degrees celsius in less than 10 seconds. a rapid thermal process is used mainly for annealing, which modifies the properties of deposited films. the applied centura radiance plus and applied vantage radox rtp systems feature advanced rtp technology with differing platform designs. while the multi-chamber centura platform offers exceptional process flexibility, the streamlined two-chamber vantage platform is designed for dedicated high-volume manufacturing. these single-wafer rtp systems are also used for growing high quality oxide and oxynitride films, deposition steps that traditional large batch furnaces can no longer achieve with the necessary precision and control.applied s latest rtp systems address the critical need for controlling wafer temperature to increase chip performance and yield. the laser-based applied vantage astra millisecond anneal system abruptly raises the surface temperature of the wafer locally to modify material properties at the atomic level. the applied vantage vulcan system, the first rtp system to heat the wafer entirely from the backside, brings a new level of precision and control to the anneal process, allowing chipmakers to produce more high performance devices per wafer.ion implantationion implantation is a key technology for forming transistors and is used many times during chip fabrication. during ion implantation, wafers are bombarded by a beam of electrically-charged ions, called dopants, which change the electrical properties of the exposed surface films. these dopants are accelerated to an energy that permits them to penetrate the substrate at a precise quantity and depth. dopant concentration is determined by controlling the number of ions in the beam and the number of times the wafer passes through the beam; the depth of the dopants is determined by the energy of beam. ion implantation systems may also be used in other areas of ic manufacturing to modify the material properties of the semiconductor devices, as well as in manufacturing crystalline-silicon solar cells.as a result of applied's acquisition of varian, applied now offers a comprehensive line of single-wafer ion implantation equipment that covers the entire energy and current range required to manufacture advanced devices. the viista 3000xp implanter delivers the angle precision required for advanced high-energy applications, while the viista 900xp implanter provides medium current doping and the industry's highest implant productivity. the viista plad implanter enables manufacturers to rapidly implant high dopant concentrations over the entire wafer using a low-energy process that preserves sensitive circuit features in next-generation devices. in 2012, applied introduced the viista trident high current ion implanter that provides the precise dose and angle control needed for advanced transistor structures.with the acquisition of varian, applied also acquired ion implantation technology for c-si cell manufacturing. the applied soliontm ion implanter provides unique advantages over traditional thermal diffusion doping to create higher efficiency p-n junctions, which are the electronic pathways of the cell. the solion system is based on the successful viista ribbon beam architecture and provides the precision and process control needed to support advanced solar cell structures.8table of contentschemical mechanical planarizationthe cmp process removes material from a wafer to create a flat (planarized) surface. this process allows subsequent photolithography patterning steps to occur with greater accuracy and enables film layers to build with minimal height variations. applied has led the industry with its 300mm applied reflexion lk system, with features such as integrated cleaning, film measurement and process control capabilities. applied s latest cmp product, the applied reflexion gt system, has an innovative dual-wafer design that increases performance while lowering system cost of ownership in fabricating copper interconnects and tungsten contacts.surface preparationcleaning the surface of the wafer is critical to the adhesion and quality of films that are subsequently deposited in the chip fabrication process. applied offers several surface preparation systems. the applied raider sp tool can incorporate several types of cleaning methods, including spray, vapor, immersion, megasonics, and anneal technologies, with automated single or dual-side wafer processing for high volume manufacturing.metrology and wafer inspectionapplied offers several products for measuring features and inspecting defects on the wafer during various stages of the fabrication process. these systems enable customers to characterize and control critical dimension (cd) and defect issues, especially at advanced generation technology nodes.critical dimension and defect review scanning electron microscopes (cd-sems and dr-sems)scanning electron microscopes (sems) use an electron beam to form images of microscopic features of a patterned wafer at extremely high magnification. applied s sem products provide customers with full automation, along with the high accuracy and sensitivity needed for measuring very small cds. the applied veritysem 4i metrology system uses proprietary sem imaging technology to enable precise control of the lithography and etching processes, measuring cds at a precision of less than 0.3nm. applied s opc check software for the veritysem system performs automated qualification of opc-based (optical proximity correction) chip designs, significantly reducing mask (see mask making section below) verification time over conventional manual methods.dr-sems review defects on the wafer (such as particles, scratches or residues) that are first located by a defect detection system and then classify the defects to identify their source. the high-throughput, fully automatic applied semvision defect analysis products enable customers to use this technology as an integral part of their production lines to analyze defects as small as 30nm with industry-leading throughput.wafer inspectionusing deep ultraviolet (duv) laser-based technology, defects can be detected on patterned wafers (wafers with printed circuit images) as they move between processing steps. defects include particles, open circuit lines, and shorts between lines. the applied uvision 5 wafer inspection system detects yield-limiting defects in the critical patterning layers of 22nm and below logic and memory devices. applied also offers the applied dfinder system, the first darkfield wafer inspection system to use duv laser scanning to detect particles as small as 40nm in interconnect layers.mask makingmasks are used by photolithography systems to transfer microscopic circuit designs onto wafers. since an imperfection in a mask may be replicated on the wafer, the mask must be virtually defect-free. applied provides systems for etching and inspecting masks.applied's tetra line of systems has been used by mask makers worldwide to etch the majority of high-end masks over the last five years. the applied centura tetra euv (extreme ultraviolet) advanced reticle etch system is an advanced etch tool for fabricating leading-edge masks at 22nm and below. the applied aera3 mask inspection system also addresses the challenges of detecting defects on 22nm masks, using sophisticated aerial imaging technology that allows users to immediately see how the pattern on the mask will appear on the wafer, revealing only the defects most likely to print and significantly reducing inspection time. these systems also address the challenge of fabricating emerging euv lithography masks.9table of contentsapplied global services segmentthe applied global services segment encompasses products and services designed to improve the performance and productivity, and reduce the environmental impact, of the fab operations of semiconductor, lcd, and solar pv manufacturers. the in-depth expertise and best known methods of applied s extensive global support infrastructure enable applied to continuously support customers production requirements. trained customer engineers and process support engineers are deployed in more than a dozen countries. these engineers are usually located at or near customers fab sites and service over 33,000 installed applied systems, as well as non-applied systems. applied offers the following general types of services and products under the applied global services segment:fab and equipment services applied offers a portfolio of fab-wide operations services to maintain and optimize customers fabrication facilities. applied performance services offers customers comprehensive equipment support with performance-based pricing and predictable costs to enable improved cost of ownership. included in this program is applied s expertconnect remote diagnostic capability, providing expert support around the clock. in addition to these value-added services, applied offers its fabvantage team of technology, equipment and engineering experts who provide key insights to helping customers solve some of their most difficult manufacturing challenges.applied also offers its total parts management program with spare parts manufactured to applied s strict technical specifications and quality standards.in addition, applied offers a wide range of products and services to extend the productive life of 200mm semiconductor fabs, including new and remanufactured 200mm equipment, system enhancements and fab transition services. designed to maximize productivity and lower cost of ownership, these products also assist customers in implementing green manufacturing solutions. applied s 200mm systems are available in a broad range of production-proven technologies, including cvd, pvd, etch, implant, rtp, cmp, epitaxy, metrology, and inspection tools.automation systems applied offers automated factory-level and tool-level control software systems for semiconductor, lcd, and solar pv manufacturing facilities. these enterprise solutions include manufacturing execution systems (mes) to automate the production of wafers and lcd and solar substrates, advanced process control systems, and scheduling and materials handling control systems. the applied smartfactory mes software is a factory automation solution designed to help accelerate the production ramp of emerging technologies for solar pv, chip-packaging, and light-emitting diode (led) applications.applied also offers computerized maintenance management systems, performance tracking, and modeling and simulation tools for improving asset utilization. applied s e3 equipment engineering system solution, for example, integrates all critical equipment automation and process control components. the applied smartsched system is the semiconductor industry s first predictive scheduling solution for optimizing the movement of wafers during the lithography process to reduce cycle time and increase tool utilization.thin film solar - as a result of applied's restructuring of its energy and environmental solutions segment in fiscal 2010, the company discontinued sales to new customers of its fully-integrated sunfab thin film solar production lines, but continues to support existing sunfab customers with services, upgrades and capacity increases through the applied global services segment. thin film solar technologies are suitable for large-scale applications, such as utility scale solar farms and commercial rooftops, where space is not a constraint. display segmentapplied s products for manufacturing thin film transistor liquid crystal displays (tft- lcds) for televisions, personal computers (pcs), tablet pcs, smartphones, and other consumer-oriented electronic applications are reported under its display segment. while similarities exist between the technologies utilized in chipmaking and lcd fabrication, the most significant differences are in the size and composition of the substrate. substrates used to manufacture lcd panels can be more than 120 times larger in area than 300mm wafers and are made of glass, while wafers used in semiconductor fabrication are made of silicon.applied supplies a wide range of systems that process and test different glass substrate sizes. to meet consumer demand for larger, more cost-effective lcd tvs, applied s latest generation (gen) 10 systems can process substrates sized at approximately 2.85 x 3.05 meters, with each substrate enabling the production of up to six 65-inch lcd tv screens. applied is also extending its core lcd technology to enable ultra-high resolution displays for next-generation smartphones, tablet pcs, and organic led (oled) tvs. these higher-performance displays are fabricated using newer materials such as low-temperature polysilicon (ltps) and metal oxide films in the transistor layer of the panel to gain significantly faster switching speeds. in 2012, applied added to its line of plasma-enhanced cvd (pecvd) systems for depositing ltps films with the akt-15k px, akt-25k px, and akt-55k px systems. these cvd systems are offered for a range of display substrate sizes to enable manufacturers to achieve economies of scale. 10table of contentsin 2012, applied also introduced technology for fabricating advanced metal oxide-based transistors in displays. the akt-pivot pvd system, which features rotary cathode array technology, deposits indium gallium zinc oxide (izgo) film to form the transistor channel. the akt-pecvd system is used to deposit the dielectric film needed to insulate the transistor gate. together, these systems offer a cost-effective solution for producing smaller, faster switching pixels to create higher resolution screens.for manufacturing the color filter of lcd panels, applied offers the akt-new aristo system for transparent conductive oxide film deposition. providing customers with new levels of productivity and flexibility, the applied akt-aristotwin system is used for manufacturing touch-enabled displays. the system features two independent processing tracks on a single system, enabling customers to achieve 50% more capacity using half the manufacturing space.to complement these systems, applied also offers a line of electron beam array test (ebt) systems for testing substrates during production for defective pixels and other imperfections, including the gen-10 akt-90k ebt product. featuring one of the industry s fastest and most accurate pixel test technologies with the lowest operating cost, the ebt systems non-contact test technology enables the safe testing of high-value lcd tv panels without damaging or scratching the display.energy and environmental solutions segmentthe energy and environmental solutions segment includes manufacturing systems to produce products for the generation and conservation of energy. to increase the conversion efficiency and yields of solar pv devices and help reduce the cost per watt of solar-generated electricity, applied offers manufacturing solutions for wafer-based crystalline silicon (c-si) applications.applied s portfolio of solar pv wafer and cell fabrication technologies has made it one of the leading suppliers of c-si equipment worldwide in terms of revenue. in addition to innovative technology, these systems offer key manufacturing benefits to customers in high productivity, advanced ultra-thin wafer handling, and extensive automation.wafer manufacturing applied s precision wafering systems crop and square silicon ingots into bricks and slice silicon bricks into thin wafers. these wafers are subsequently processed by cell manufacturing systems to create the pv cells used in making c-si solar panels. the applied hct wire saw cropper and squarer systems cut silicon ingots into bricks with high productivity and minimal silicon loss. the applied hct b5 wire saw was designed for large load capacity in volume manufacturing and has a unique four-position architecture that provides load flexibility for optimizing yield and productivity.cell manufacturing applied offers a comprehensive line of automated metallization and test systems for c-si cell manufacturing with its applied baccini products. these systems include high-precision printing capability for increasing the efficiency of c-si solar cells. the latest metallization system is the applied baccini pegaso platform for next-generation solar cell manufacturing. in addition to increased yield and output, a key feature of the pegaso system is its proprietary smart capabilities that bring a new level of precision and control to the cell manufacturing process. the system s modular architecture allows customers to rapidly add modules for additional processing capability, while reducing the time, cost, and risk of implementing new cell designs.other products offered under the energy and environmental solutions segment include roll-to-roll, vacuum web coating systems for high-performance deposition of a range of films on flexible substrates for functional, aesthetic, or optical properties. the applied topmet 4450 system is the world s largest and fastest roll-to-roll machine for depositing ultra-thin aluminum films for flexible packaging applications. the applied smartweb system uses pvd technology to deposit critical multi-layer films required for fabricating advanced touch panels in mobile devices and other flexible electronic substrates. the system s modular design allows up to 12 different thin film layers to be deposited simultaneously on flexible material, enabling complex structures to be created in a single pass.11table of contentsbacklogapplied manufactures systems to meet demand represented by order backlog and customer commitments. backlog consists of: (1) orders for which written authorizations have been accepted and assigned shipment dates are within the next 12 months, or shipment has occurred but revenue has not been recognized; and (2) contractual service revenue and maintenance fees to be earned within the next 12 months.backlog by reportable segment as of october 28, 2012 and october 30, 2011 was as follows: 2012 2011 (in millions, except percentages)silicon systems group$705 44% $913 38%applied global services580 36% 662 28%display206 13% 337 14%energy and environmental solutions115 7% 480 20%total$1,606 100% $2,392 100% applied s backlog on any particular date is not necessarily indicative of actual sales for any future periods, due to the potential for customer changes in delivery schedules or cancellation of orders. customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. delays in delivery schedules and/or a reduction of backlog during any particular period could have a material adverse effect on applied s business and results of operations.manufacturing, raw materials and suppliesapplied s manufacturing activities consist primarily of assembly, test and integration of various proprietary and commercial parts, components and subassemblies (collectively, parts) that are used to manufacture systems. applied has implemented a distributed manufacturing model under which manufacturing and supply chain activities are conducted in various countries, including the united states, europe, israel, singapore, taiwan, and other countries in asia, and assembly of some systems is completed at customer sites. applied uses numerous vendors, including contract manufacturers, to supply parts and assembly services for the manufacture and support of its products. although applied makes reasonable efforts to assure that parts are available from multiple qualified suppliers, this is not always possible. accordingly, some key parts may be obtained from only a single supplier or a limited group of suppliers. applied seeks to reduce costs and to lower the risks of manufacturing and service interruptions by: (1) selecting and qualifying alternate suppliers for key parts; (2) monitoring the financial condition of key suppliers; (3) maintaining appropriate inventories of key parts; (4) qualifying new parts on a timely basis; and (5) locating certain manufacturing operations in close proximity to suppliers and customers.research, development and engineeringapplied s long-term growth strategy requires continued development of new products. the company s significant investment in research, development and engineering (rd&e) has generally enabled it to deliver new products and technologies before the emergence of strong demand, thus allowing customers to incorporate these products into their manufacturing plans at an early stage in the technology selection cycle. applied works closely with its global customers to design systems and processes that meet their planned technical and production requirements. product development and engineering organizations are located primarily in the united states, as well as in europe, israel, taiwan, and china. in addition, applied outsources certain rd&e activities, some of which are performed outside the united states, primarily in india. process support and customer demonstration laboratories are located in the united states, china, taiwan, europe, and israel.applied s investments in rd&e for product development and engineering programs to create or improve products and technologies over the last three years were as follows: $1.2 billion (14 percent of net sales) in fiscal 2012, $1.1 billion (11 percent of net sales) in fiscal 2011, and $1.1 billion (12 percent of net sales) in fiscal 2010. applied has spent an average of 13 percent of net sales in rd&e over the last five years. in addition to rd&e for specific product technologies, applied maintains ongoing programs for automation control systems, materials research and environmental control that are applicable to its products.12table of contentsmarketing and salesnet sales by geographic region, determined by the location of customers' facilities to which products were shipped, were as follows: 2012 2011 2010 (in millions, except percentages)taiwan2,411 28% 2,093 20% 2,750 29%china783 9% 2,574 24% 1,557 16%korea1,897 22% 1,263 12% 1,768 19%japan704 8% 912 9% 768 8%southeast asia312 3% 592 5% 578 6%asia pacific6,107 70% 7,434 70% 7,421 78%united states1,749 20% 1,963 19% 1,147 12%europe863 10% 1,120 11% 981 10%total$8,719 100% $10,517 100% $9,549 100%because of the highly technical nature of its products, applied markets and sells products worldwide almost entirely through a direct sales force. approximately 80 percent of applied s fiscal 2012 net sales were to regions outside of the united states.general economic conditions impact applied s business and financial results. from time to time, the markets in which products are sold experience weak economic conditions that may negatively impact sales. applied s business is usually not seasonal in nature, but it is highly cyclical, based on capital equipment investment by major semiconductor, flat panel display, solar pv and other manufacturers. customers expenditures depend on many factors, including: anticipated market demand and pricing for semiconductors, lcds, solar cells and modules, and other substrates; the development of new technologies; customers factory utilization; capital resources and financing; government policies and incentives; and global and regional economic conditions.information on net sales to unaffiliated customers and long-lived assets attributable to applied s geographic regions is included in note 16 of notes to consolidated financial statements. the following companies accounted for at least 10 percent of applied s net sales in 2012, 2011, and/or 2010, which were for products in multiple reportable segments. 2012 2011 2010samsung electronics co., ltd.20% 12% 14%taiwan semiconductor manufacturing company limited16% 10% 11%intel corporation* 10% * ________________________*less than 10%.13table of contentscompetitionthe industries in which applied operates are highly competitive and characterized by rapid technological change. applied s ability to compete generally depends on its ability to timely commercialize its technology, continually improve its products and develop new products that meet constantly evolving customer requirements. significant competitive factors include technical capability and differentiation, productivity and cost-effectiveness. the importance of these factors varies according to customers needs, including product mix and respective product requirements, applications, and the timing and circumstances of purchasing decisions. substantial competition exists in all areas of applied s business. competitors range from small companies that compete with a single product and/or in a single region, to global, diversified companies with a range of products. applied s ability to compete requires a high level of investment in rd&e, marketing and sales and global customer support activities. management believes that many of applied s products have strong competitive positions.the competitive environment for each segment is described below.the semiconductor industry has been increasingly driven by consumer demand for lower-cost electronic products with increased capability. as a result, products within the silicon systems group segment are subject to significant changes in customer requirements, including transitions to smaller dimensions, new materials and an increasing number of applications. while certain existing technologies may be adapted to new requirements, some applications create the need for an entirely different technological approach. the rapid pace of technological change can quickly diminish the value of current technologies and products and create opportunities for existing and new competitors. applied offers a broad portfolio of technologically differentiated products that must continuously evolve to satisfy customers requirements in order to compete effectively. applied allocates resources among its numerous product offerings and therefore may decide not to invest in an individual product to the same degree as competitors who specialize in fewer products. there are a number of competitors serving the semiconductor manufacturing equipment industry, with some offering a single product line and others offering multiple product lines. these competitors range from suppliers serving a single region to global, diversified companies. the competitive environment for the silicon systems group in fiscal 2012 reflected continued investment in the semiconductor industry driven by capacity demand for mobile computing. foundry customers led capacity additions for advanced technology nodes and were the primary drivers for net sales of the silicon systems group. products and services within the applied global services segment complement the silicon systems group, display, and energy and environmental solutions segments products, in markets that are characterized by demanding worldwide service requirements and a diverse group of numerous competitors. to compete effectively, applied offers products and services to improve tool performance, lower overall cost of ownership, and increase the productivity and energy efficiency of customers fab operations. significant competitive factors include productivity, cost-effectiveness, and the level of technical service and support. the importance of these factors varies according to customers needs and the type of products or services offered. industry conditions that affected applied global services sales of spares and services in fiscal 2012 were principally semiconductor manufacturers' wafer starts and factory utilization rates.products in the display segment are generally subject to strong competition from a number of major competitors. applied holds established market positions with its technically-differentiated tft-lcd manufacturing solutions for pecvd, color filter pvd, pvd array, pvd touch panel, and tft array testing, although its market position could change quickly due to customers' evolving requirements. the competitive environment for the display segment in fiscal 2012 was characterized by the weakest level of industry investment in tv manufacturing equipment in recent history, while investment continued in equipment to make touch screen and high-end mobile devices. important factors affecting the competitive position of applied's display products include: industry trends, applied's ability to innovate and develop new products, and the extent to which applied's products are technically-differentiated, as well as which customers within a highly concentrated customer base are making capital equipment investments and applied's existing position at these customers.applied's products within the energy and environmental solutions segment compete in several diverse market areas, including primarily the c-si solar equipment market. all of these markets are characterized by extreme pressure to reduce customers' overall production costs and improve performance. in relation to solar, for fiscal 2012, end-market demand continued to be robust as the industry further reduced manufacturing costs and made conversion efficiency improvements, enabling pv-generated electricity to reach parity with retail electricity rates in an increasing number of areas around the world. however, excess manufacturing capacity relative to end-demand created an exceptionally challenging environment, causing solar cell and wafering customers to defer purchases of new capacity to preserve capital and resulting in some industry consolidation. the rationalization of capacity will be an important factor in determining when supply and demand come back into balance. adding to market uncertainty are international trade actions against chinese solar manufacturers commenced in the u.s. and other regions that have resulted in the imposition of sanctions. with respect to its c-si equipment products, applied competes with a number of other companies, some of which have significant experience with solar applications and some of which are new entrants to the solar equipment market. the solar industry downturn has affected many of applied's competitors and customers adversely, with some companies going through extensive financial and organizational restructuring. 14table of contentspatents and licensesmanagement believes that applied s competitive position significantly depends upon the company s research, development, engineering, manufacturing and marketing capabilities, and not just on its patent position. however, protection of applied s technological assets through enforcement of its intellectual property rights, including patents, is important. therefore, applied s practice is to file patent applications in the united states and other countries for inventions that applied considers significant. applied has a substantial number of patents in the united states and other countries, and additional applications are pending for new inventions. although applied does not consider its business materially dependent upon any one patent, the rights of applied and the products made and sold under its patents, taken as a whole, are a significant element of applied s business. in addition to patents, applied also possesses other intellectual property, including trademarks, know-how, trade secrets, and copyrights.applied enters into patent and technology licensing agreements with other companies when management determines that it is in applied s best interest to do so. applied pays royalties under existing patent license agreements for the use, in several of its products, of certain patented technologies that are licensed to applied. applied also receives royalties from licenses granted to third parties. royalties received from or paid to third parties have not been, and are not expected to be, material to applied s consolidated results of operations.in the normal course of business, applied periodically receives and makes inquiries regarding possible patent infringement. in responding to such inquiries, it may become necessary or useful for applied to obtain or grant licenses or other rights. however, there can be no assurance that such licenses or rights will be available to applied on commercially reasonable terms, or at all. if applied is not able to resolve or settle claims, obtain necessary licenses on commercially reasonable terms, and/or successfully prosecute or defend its position, applied s business, financial condition and results of operations could be materially and adversely affected.environmental mattersapplied maintains a number of environmental, health, and safety programs that are primarily preventive in nature. as part of these programs, applied regularly monitors ongoing compliance with applicable laws and regulations. in addition, applied has trained personnel to conduct investigations of any environmental, health, or safety incidents, including, but not limited to, spills, releases, or possible contamination.compliance with federal, state and local environmental, health, and safety provisions, including, but not limited to, those regulating the discharge of materials into the environment, remedial agreements, and other actions relating to the environment have not had, and are not expected to have, a material effect on applied s capital expenditures, competitive position, financial condition, or results of operations.the most recent report on applied s environmental, health, and safety activities can be found in the company s latest citizenship report on its website at http://www.appliedmaterials.com/about/cr/sustainability. the citizenship report is updated periodically. this website address is intended to be an inactive textual reference only. none of the information on, or accessible through, applied s website is part of this form 10-k or is incorporated by reference herein.employeesat october 28, 2012, applied employed approximately 14,500 regular employees and 500 temporary employees. in the high-technology industry, competition for highly-skilled employees is intense. applied believes that its future success is highly dependent upon its continued ability to attract, retain, and motivate qualified employees. there can be no assurance that applied will be able to attract, hire, assimilate, motivate, and retain a sufficient number of qualified employees.15table of contentsexecutive officers of the registrantthe following table and notes set forth information about applied s executive officers as of november 30, 2012: name of individualpositionmichael r. splinter(1)chairman of board of directors, chief executive officergary e. dickerson(2)presidentgeorge s. davis(3)executive vice president, chief financial officerrandhir thakur(4)executive vice president, general manager silicon systemsjoseph flanagan(5)senior vice president, worldwide operations and supply chainmary humiston(6)senior vice president, global human resourcesmanfred kerschbaum(7)senior vice president, chief of staffthomas f. larkins(8)senior vice president, general counsel and corporate secretaryomkaram nalamasu(9)group vice president, chief technology officercharlie pappis(10)group vice president, general manager applied global servicesali salehpour(11)group vice president, general manager energy and environmental solutions and display business groupsthomas s. timko(12)corporate vice president, corporate controller and chief accounting officer(1)mr. splinter, age 62, has been chief executive officer of applied since april 2003 and chairman of the board of directors since march 2009. prior to joining applied, mr. splinter was an executive at intel corporation (intel), a manufacturer of chips and computer, networking and communications products, where mr. splinter held a number of positions, including executive vice president and director of sales and marketing and executive vice president and general manager of the technology and manufacturing group.(2)mr. dickerson, age 55, was named president of applied in june 2012, after working on merger integration matters since joining applied following its acquisition of varian in november 2011. mr. dickerson was chief executive officer and a director of varian from 2004. prior to joining varian in 2004, mr. dickerson served 18 years with kla-tencor corporation (kla-tencor), a supplier of process control and yield management solutions for the semiconductor and related industries, where he held a variety of operations and product development roles before being appointed chief operating officer in 1999 and then president and chief operating officer in 2002. mr. dickerson started his semiconductor career in manufacturing and engineering management at general motors' delco electronics division and then at&t, inc.(3)mr. davis, age 55, has been executive vice president, chief financial officer of applied since december 2009, after serving as senior vice president, chief financial officer, since december 2006, and group vice president, chief financial officer from november 2006. previously, he had been group vice president, general manager, corporate business development since march 2005. from november 1999 to february 2005, mr. davis served as vice president and corporate treasurer, where he managed applied s worldwide treasury operations and was responsible for investments, tax, financial risk management, and trade and export matters. mr. davis joined applied in 1999. prior to joining applied, mr. davis served 19 years with atlantic richfield company, a global oil, gas and chemical company, in a number of finance and other corporate positions.(4)dr. thakur, age 50, has been executive vice president, general manager silicon systems group since december 2009, after serving as senior vice president, general manager silicon systems group since october 2009. previously, he was senior vice president, general manager, thin film solar and display. he was appointed senior vice president, general manager, strategic operations when he rejoined applied in may 2008. he previously was with applied from 2000 to 2005 in a variety of executive roles including group vice president, general manager for front end products. from september 2005 to may 2008, dr. thakur served as executive vice president of technology and fab operations at sandisk corporation, a data storage solutions manufacturer, and as head of sandisk s worldwide operations. prior to joining applied in 2000, dr. thakur served in leadership roles at steag electronic systems, an electronics company, and micron technology, inc., a semiconductor manufacturer.(5)mr. flanagan, age 41, joined applied as senior vice president, worldwide operations and supply chain in february 2010. prior to joining applied, mr. flanagan held executive positions in global operations for nortel networks corporation, a telecommunications equipment manufacturer, since 2006, including president of nortel business services from august 2009 to february 2010, and senior vice president of global operations from august 2007 until august 2009. previously, mr. flanagan held a number of positions from 1993 to 2006 at general electric company (ge), a global infrastructure, finance and media company.16table of contents(6)ms. humiston, age 47, was named senior vice president, global human resources in july 2011. she was corporate vice president, global human resources from june 2009 to june 2010 and then promoted to group vice president in july 2010. prior to june 2009, she served as the corporate vice president of human resources for both the energy and environmental solutions and display groups. prior to joining applied, ms. humiston was vice president of human resources at honeywell international inc., which provides technologies to address safety, security and energy, from october 2002 to june 2008, with responsibility for various corporate and international organizations. she previously held executive positions with peoplepc, an internet service provider; gap, inc., an apparel retailer; and ge.(7)mr. kerschbaum, age 58, was named senior vice president, chief of staff in september 2009. prior to that, he served as senior vice president, general manager, applied global services from january 2005 to september 2009. mr. kerschbaum was senior vice president, global operations from july 2004 to january 2005 and from october 2002 to may 2003. from may 2003 to july 2004, he was group vice president, foundation engineering and operations. from january 1996 to october 2002, he held various positions in applied materials north america, most recently as group vice president, general manager, applied materials north america. mr. kerschbaum has served in various other operations, customer service and engineering positions since joining applied in 1983. mr. kerschbaum has announced his intent to retire from the company in january 2013.(8)mr. larkins, age 51, was named senior vice president, general counsel and corporate secretary of applied in november 2012, with responsibility for global legal affairs, intellectual property and security. previously, mr. larkins was employed by honeywell international (honeywell), a diversified global technology and manufacturing company, where he was vice president, corporate secretary and deputy general counsel from 2002 until joining applied. mr. larkins served in various other positions at honeywell (formerly alliedsignal) after joining the company in 1997, including vice president and general counsel of its automation and control solutions business segment, and general counsel of its aerospace services business unit.(9)dr. nalamasu, age 54, was promoted to group vice president, chief technology officer for applied in january 2012, after serving as corporate vice president, chief technology officer since january 2011. upon joining applied in june 2006 and until january 2011, dr. nalamasu was an appointed vice president of research and served as deputy chief technology officer and general manager for advanced technologies group. from 2002 to 2006, dr. nalamasu was a nystar distinguished professor of materials science and engineering at rensselaer polytechnic institute, where he also served as vice president of research from 2005 to 2006. prior to that, he held various r&d leadership positions at bell labs and later lucent technologies, inc., a telecommunications company, for 17 years.(10)mr. pappis, age 51, has been group vice president and general manager of applied global services since september 2009. he previously held positions in applied global services as corporate vice president and general manager for the semiconductor service solutions group and as general manager for equipment productivity services. he has held various other management positions since joining applied in 1986.(11)mr. salehpour, age 51, joined applied in november 2012 as group vice president, general manager energy and environmental solutions and display business groups. prior to applied, mr. salehpour worked at kla-tencor for 16 years, where he served most recently as senior vice president and general manager sfs-ade divisions from 2008. previous positions at kla-tencor included president north america field operations from 2005 to 2008, and senior vice president and general manager intel business unit from 2001 to 2005. prior to kla-tencor, mr. salehpour worked in the schlumberger test systems unit of schlumberger ltd. in marketing, account management and engineering roles.(12)mr. timko, age 44, joined applied in march 2010 as corporate vice president, corporate controller and chief accounting officer. from june 2006 until march 2010, mr. timko was with delphi automotive llp, a supplier to the automotive, computing, communications, energy and consumer accessories markets, where he was most recently chief accounting officer and controller. he served as assistant controller for the interpublic group of companies, inc., a global provider of advertising and marketing services, from december 2004 to june 2006, and previously at dover corporation, a manufacturer of industrial products. mr. timko began his career in 1991 with pricewaterhousecoopers llc, a provider of audit and assurance, tax and advisory services, and is a certified public accountant.17table of contentsavailable informationapplied s website is http://www.appliedmaterials.com. applied makes available free of charge, on or through its website, its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the sec. this website address is intended to be an inactive textual reference only. none of the information on, or accessible through, applied s website is part of this form 10-k or is incorporated by reference herein. i"
## [2] "item 1. business cautionary statement regarding forward-looking statements the statements in this report include forward-looking statements. these forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. these forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. you can identify forward-looking statements by the use of forward-looking terminology including believes, expects, may, will, should, seeks, intends, plans, pro forma, estimates, or anticipates or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. the forward-looking statements relate to, among other things: demand for our products; the growth, change and competitive landscape of the markets in which we participate; our ability to obtain sufficient external financing on favorable terms, or at all; the nature and extent of our future payments to globalfoundries inc. (gf) under the wafer supply agreement (wsa) and the materiality of these payments; our ability to negotiate future amendments to the wsa; pc market conditions; our restructuring plan implemented in the fourth quarter of 2012, including, cash expenditures, and operational savings; the level of international sales as compared to total sales; our ability to sell our auction rate securities within the next twelve months; that our first arm technology-based amd opteron processor for servers is targeted for production in 2014; that our cash, cash equivalents and marketable securities and available external financing will be sufficient to fund our operations including capital expenditures over the next twelve months; our dependence on a small number of customers; our hedging strategy; and the timing of the implementation of certain energystar specifications. material factors and assumptions that were applied in making these forward-looking statements include, without limitation, the following: the expected rate of market growth and demand for our products and technologies (and the mix thereof); gf s manufacturing yields and wafer volumes; our expected market share; our expected product costs and average selling price; our overall competitive position and the competitiveness of our current and future products; our ability to introduce new products, consistent with our current roadmap; our ability to make additional investment in research and development and that such opportunities will be available; the expected demand for computers; and the state of credit markets and macroeconomic conditions. material factors that could cause actual results to differ materially from current expectations include, without limitation, the following: that intel corporation s pricing, marketing and rebating programs, product bundling, standard setting, new product introductions or other activities may negatively impact our plans; that we will require additional funding and may be unable to raise sufficient capital on favorable terms, or at all; that customers stop buying our products or materially reduce their operations or demand for our products; that we may be unable to develop, launch and ramp new products and technologies in the volumes that are required by the market at mature yields on a timely basis; that our third party foundry suppliers will be unable to transition our products to advanced manufacturing process technologies in a timely and effective way or to manufacture our products on a timely basis in sufficient quantities and using competitive process technologies; that we will be unable to obtain sufficient manufacturing capacity or components to meet demand for our products or will not fully utilize our projected manufacturing capacity needs at gfs microprocessor manufacturing facilities; that our requirements for wafers will be less than the fixed number of wafers that we agreed to purchase from gf or gf encounters problems that significantly reduce the number of functional die we receive from each wafer; that we are unable to successfully implement our long-term business strategy; that we inaccurately estimate the quantity or type of products that our customers will want in the future or will ultimately end up purchasing, resulting in excess or obsolete inventory; that we are unable to manage the risks related to the use of our third-party distributors and add-in-board (aib) partners or offer the appropriate incentives to focus them on the sale of our products; that we may be unable to maintain the level of investment in research and development that is required to remain competitive; that there may be unexpected variations in market growth and demand for our products and technologies in light of the product mix that we may have available at any particular time; that global business and economic conditions will not improve or will worsen; that pc market conditions do not improve or will worsen; that demand for computers will be lower than currently expected; and the effect of political or economic instability, domestically or internationally, on our sales or supply chain. 1 table of contents for a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see part i, item 1a risk factors and the financial condition section set forth in part ii, item 7 management s discussion and analysis of financial condition and results of operations, or md&a, beginning on page 41 below and such other risks and uncertainties as set forth below in this report or detailed in our other securities and exchange commission (sec) reports and filings. we assume no obligation to update forward-looking statements. general we are a global semiconductor company with facilities around the world. within the global semiconductor industry, we offer primarily: (i) x86 microprocessors, as standalone devices or as incorporated as an accelerated processing unit (apu), for the commercial and consumer markets, embedded microprocessors for commercial, commercial client and consumer markets and chipsets for desktop and mobile devices, including mobile personal computers, or pcs, and tablets, professional workstations and servers; and (ii) graphics, video and multimedia products for desktop and mobile devices, including mobile pcs and tablets, home media pcs and professional workstations, servers and technology for game consoles. for financial information about geographic areas and for segment information with respect to revenues and operating results, refer to the information set forth in note 12 of our consolidated financial statements, beginning on page 101 below. additional information we were incorporated under the laws of delaware on may 1, 1969 and became a publicly held company in 1972. since 1979 our common stock has been listed on the new york stock exchange under the symbol amd. our mailing address and executive offices are located at one amd place, sunnyvale, california 94088, and our telephone number is (408) 749-4000. references in this report to amd, we, us, management, our, or the company mean advanced micro devices, inc. and our consolidated subsidiaries. amd, the amd arrow logo, ati, the ati logo, amd athlon, amd opteron, amd phenom, amd sempron, amd turion, firepro, firestream, crossfire, radeon, and combinations thereof are trademarks of advanced micro devices, inc. microsoft, windows, and directx are registered trademarks of microsoft corporation in the united states and/or other jurisdictions. hypertransport is a licensed trademark of the hypertransport technology consortium. other names are for informational purposes only and are used to identify companies and products and may be trademarks of their respective owners. website access to company reports and corporate governance documents we post on the investor relations pages of our web site, www.amd.com, a link to our filings with the sec, our principles of corporate governance, our code of ethics for our executive officers and all other senior finance executives, our worldwide standards of business conduct, which applies to our board of directors and all of our employees, and the charters of the audit and finance, compensation and nominating and corporate governance committees of our board of directors. our filings with the sec are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the sec. you can also obtain copies of these documents by writing to us at: corporate secretary, amd, 7171 southwest parkway, m/s 100, austin, texas 78735, or emailing us at: corporate.secretary@amd.com. all of these documents and filings are available free of charge. 2 table of contents if we make substantive amendments to our code of ethics, or grant any waiver, including any implicit waiver, to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, we intend to disclose the nature of such amendment or waiver on our web site or in a current report on form 8-k in accordance with applicable rules and regulations. please note that information contained on our web site is not incorporated by reference in, or considered to be a part of, this report. our industry semiconductors are components used in a variety of electronic products and systems. an integrated circuit, or ic, is a semiconductor device that consists of many interconnected transistors on a single chip. since the invention of the transistor in 1948, improvements in ic process and design technologies have led to the development of smaller, more complex and more reliable ics at a lower cost per function. in order to satisfy the demand for faster, smaller and lower-cost ics, semiconductor companies have continually developed improvements in manufacturing and process technology and design. ics are increasingly being manufactured using smaller geometries on larger silicon wafers. use of smaller process geometries can result in products that are higher performing, use less power and cost less to manufacture on a per unit basis. computing solutions the x86 microprocessor market central processing unit (cpu) a microprocessor is an ic that serves as the central processing unit, or cpu, of a computer. it generally consists of millions of transistors that process data and control other devices in the system, acting as the brain of the computer. the performance of a microprocessor is a critical factor impacting the performance of a computer and numerous other electronic systems. the principal indicators of cpu performance are work-per-cycle, or how many instructions are executed per cycle, clock speed, representing the rate at which a cpus internal logic operates, measured in units of gigahertz, or billions of cycles per second, and power consumption. other factors impacting microprocessor performance include the number of cores in a microprocessor, the bit rating of the microprocessor, memory size and data access speed. developments in circuit design and manufacturing process technologies have resulted in significant advances in microprocessor performance. currently, microprocessors are designed to process 32 bits or 64 bits of information at one time. the bit rating of a microprocessor generally denotes the largest size of numerical data that a microprocessor can handle. microprocessors with 64-bit processing capabilities enable systems to have greater performance by allowing software applications and operating systems to access more memory. moreover, as businesses and consumers require greater performance from their computer systems due to the growth of digital data and increasingly sophisticated software applications, semiconductor companies are designing and developing multi-core microprocessors, where multiple processor cores are placed on a single die or in a single processor. multi-core microprocessors offer enhanced overall system performance and efficiency because computing tasks can be spread across two or more processing cores each of which can execute a task at full speed. multiple processor cores packaged together can increase performance of a computer system without greatly increasing the total amount of power consumed and the total amount of heat emitted. this type of symmetrical multiprocessing is effective in multi-tasking environments where multiple cores can enable operating systems to prioritize and manage tasks from multiple software applications simultaneously and also for multi-threaded software applications where multiple cores can process different parts of the software program, or threads, simultaneously thereby enhancing performance of the application. businesses and consumers also require computer systems with improved power management technology, which allows them to reduce the power consumption of their computer systems thereby reducing the total cost of ownership. 3 table of contents accelerated processing unit (apu) while general purpose computer architectures based on the x86 architecture are sufficient for many customers, we believe that an architecture that optimizes the use of a cpu and graphics processing unit, or gpu, for a given workload can provide a substantial improvement in user experience, performance and energy efficiency. as the volume of digital media increases, we believe end users can benefit from an accelerated computing architecture. an accelerated computing architecture enables offloading of selected tasks, thereby optimizing the use of multiple computational units such as the cpu and gpu, depending on the application or workload. for example, serial workloads are better suited for cpus, while highly parallel tasks may be better performed by a gpu. our amd accelerated processing unit, or apu, combines our cpu and gpu onto a single piece of silicon. we believe that high performance computing workloads, workloads that are visual in nature and even traditional applications such as photo and video editing or other multi-media applications can benefit from our accelerated computing architecture. microprocessor products we currently design, develop and sell microprocessor products for servers, desktop pcs and mobile devices, including mobile pcs and tablets. our microprocessors and chipsets are incorporated into computing platforms that also include gpus and core software to enable and advance the computing components. a platform is a collection of technologies that are designed to work together to provide a more complete computing solution. we believe that integrated, balanced platforms consisting of microprocessors, chipsets and gpus that work together at the system level bring end users improved system stability, increased performance and enhanced power efficiency. furthermore, by combining all of these elements onto a single piece of silicon as an apu, we believe system performance and power efficiency is further improved. in addition to the enhancements at the end-user level, we believe our customers also benefit from an all-amd platform, as we are able to provide them with a single point of contact for the key platform components and enable them to bring the platforms to market faster in a variety of client and server system form factors. our cpus and apus are manufactured primarily using 45-nanometer (nm), 40nm, 32nm or 28nm process technology. we currently base our microprocessors and chipsets on the x86 instruction set architecture and amd s direct connect architecture, which connects an on-chip memory controller and input/output, or i/o, channels directly to one or more microprocessor cores. we typically integrate two or more processor cores onto a single die, and each core has its own dedicated cache, which is memory that is located on the semiconductor die, permitting quicker access to frequently used data and instructions. some of our microprocessors have additional levels of cache such as l2, or second level cache, and l3, or third level cache, to enable faster data access and higher performance. energy efficiency and power consumption continue to be key design principles for our products. we focus on continually improving power management technology, or performance-per-watt. to that end, we offer cpus, apus and chipsets with features that we have designed to reduce system level energy consumption, with multiple low power states which utilize lower clock speeds and voltages that reduce processor power consumption during both active and idle times. we design our cpus and apus to be compatible with operating system software such as the microsoft® windows® family of operating systems, linux®, netware®, solaris and unix. our amd family of apus represents a new approach to processor design and software development, delivering serial, parallel and visual compute capabilities for high definition (hd) video, 3d and data-intensive workloads in the apu. apus combine high-performance serial and parallel processing cores with other special-purpose hardware accelerators. we design our apus for improved visual computing, security, performance-per-watt and smaller device form factors. having the cpu and gpu on the same chip reduces the system power and bill-of-materials, speeds the flow of data between the cpu and gpu through shared memory and allows the gpu to function as both a graphic engine and an application accelerator in high efficient compute platforms. 4 table of contents building on the integration of our cpu and gpu onto a single piece of silicon, we are focused on evolving our accelerated computing architecture in such a manner so that software programmers see a single multi-purpose processing unit. heterogeneous systems architecture (hsa) describes our overarching design for having combinations of cpu and gpu processor cores operate as a unified engine that we intend to be both higher performance and lower power than our previous architectures. server. a server is a system that performs services for connected clients as part of a client-server architecture. servers are designed to run an application or applications, often for extended periods of time with minimal human direction. examples of servers include web servers, e-mail servers and print servers. these servers run a variety of applications including business intelligence, enterprise resource planning, customer relationship management and advanced scientific or engineering models to solve advanced computational problems in disciplines ranging from financial modeling to weather forecasting to oil and gas exploration. servers are also used in cloud computing which is a computing model where data, applications and services are delivered over the internet or an intranet. our microprocessors for traditional server platforms consist of our amd opteron 6000, 4000 and 3000 series processors. we also offer high-density server platforms consisting of amd s seamicro sm10000 and sm15000 server chassis, as well as amd s seamicro freedom fabric storage series of storage systems. in march 2012, we acquired seamicro, inc., an energy-efficient, high-bandwidth microserver company to accelerate our strategy to deliver server technology and provide end users serving cloud-centric data centers with highly-differentiated amd-based solutions. our fabric technology, amd seamicro freedom supercompute fabric, links together hundreds of card-sized cpus to create a large array of independent but linked cpus. work is distributed over these cpus through hardware and software based load-balancing technology that directs traffic across the fabric such that each cpu is in its most efficient zone of performance. we designed this fabric to reduce power consumption while providing lower latency, lower cost and higher bandwidth. in march 2012, we launched the amd opteron 3200 series server processor. this entry-level server processor is designed for dedicated web hosting providers who are seeking enterprise-class servers at lower price points. in september 2012, we announced amd s seamicro sm15000 server chassis, which extends fabric-based computing across racks and aisles of the data center to connect directly to large data storage systems. in november 2012, we launched the amd opteron 6300 series processor based on piledriver, our next-generation high performance x86 multi-core architecture. we designed the amd opteron 6300 series processor to balance performance, scalability and cost effectiveness to help it organizations lower total cost of ownership. in december 2012, we launched the amd opteron 4300 and 3300 series server processor, which is also based on our next-generation piledriver core architecture. these processors are designed for cloud providers, web hosts and small- and medium-sized businesses to help them address space and power constraints. mobile devices. consumers continue to demand thinner and lighter mobile platforms with better entertainment performance and longer battery life. in response to this demand, we continue to invest in designing and developing higher performing and low power mobile platforms. our apus for mobile pc platforms consist of our performance, mainstream amd a-series apu, the amd e-series apu for everyday performance, the amd c-series apu for hd internet experiences in small form factors, and the amd z-series apu for windows-based tablets. our apus for mobile platforms combine discrete-level graphics, dedicated hd video processing and multi-core cpu processors on a single die for maximum performance and power efficiency in the smallest space. in may 2012, we introduced our second generation amd a-series apu for mainstream and ultrathin mobile pc platforms. in june 2012, we introduced our next generation amd e-series apu for mobile platforms, which meets basic performance needs at accessible price points. in october 2012, we announced the amd z-60 apu, codenamed hondo, our lowest powered apu designed for the performance tablet and small form factor pc market. our cpus for mobile pc platforms also consist of the amd phenom ii mobile processor, amd turion x2 mobile processor, amd turion ii mobile processor, amd turion ii ultra mobile processor, amd athlon ii processor, and the mobile amd sempron processor. 5 table of contents desktop. our apus for desktop pc platforms consist primarily of the amd a series apu and the amd e-series apu. we designed the desktop amd a-series apu for mainstream desktop platforms, and it is available primarily in quad- and dual-core versions with a variety of discrete-level graphics configurations. we designed the desktop amd e-series apus for essential desktop tasks, and it is available in dual-core versions with a variety of graphics configurations. in may 2012, we launched our next generation amd a-series apu for desktop pcs, small form-factors and home theater pcs. in june 2012, we introduced our next generation amd e-series apu for desktop pcs. our second generation amd e-series and amd a-series apus have increased x86, graphics and multi-media capabilities. in october 2012, we introduced the second generation desktop amd fx processors based on the piledriver x86 multi-core architecture, which come in eight-, six- and quad-core versions. we designed the amd fx processors for multitasking, high resolution gaming, and hd media processing. also in october 2012, we introduced our latest quad- and dual-core amd a-series apus for mainstream desktop platforms, codenamed trinity with the piledriver x86 multi-core architecture. our cpus for desktop pc platforms also consist of the following: amd fx processors based on the bulldozer and piledriver x86 multi-core architecture, which are available in quad- and dual-core technology, amd athlon ii processors, which are available in quad-, triple- and dual- core versions, and amd sempron processors, which are available in limited quantities and in select regions. embedded processor products our embedded products address customer needs in pc-adjacent markets. typically, our embedded products are used in applications that require high to moderate levels of performance where key features include low cost, mobility, low power and small form factor. high performance graphics are increasingly important in many embedded systems. customers of our embedded products include vendors in industrial controls, digital signage, point of sale/self-service kiosks, medical imaging, set-top box and casino gaming machines as well as enterprise class telecommunications, networking, security, storage systems and thin-clients, or computers that serve as an access device on a network. the embedded market has moved from developing proprietary, custom designs to leveraging the industry-standard x86 instruction set architecture as a way to reduce costs and speed time to market. customer requirements for these systems include: very low power for small enclosures and 24x7 operation, support for linux, windows and other operating systems, and high-performance for increasingly sophisticated applications. other requirements include advanced specifications for industrial temperatures, shock and vibration, and reliability. our embedded platforms include options from the amd opteron, amd athlon and amd sempron processor families; the amd embedded g-series, which is the embedded version of our apus; the amd radeon graphics processor family; and numerous amd chipsets. these products are part of the amd longevity program, which provides for an availability period of up to five years in some cases in order to support lengthy development and qualification cycles and long-term life of the system in the market. in may 2012, we launched the amd embedded r-series apu designed for mid- to high-end graphics-intensive applications such as digital signage, casino gaming, point-of-sale systems and kiosks, as well as parallel-processing-intensive applications spanning medical imaging and security/surveillance. the amd embedded r-series apu combines the new piledriver architecture, with discrete class amd radeon hd 7000 series graphics that support microsoft® directx® 11 (directx 11). chipset market and products a chipset is the set of components that manages data flow between a processor (or processors), memory and peripherals (such as the keyboard, mouse, monitor, hard drive and cd or dvd drive). chipsets perform essential logic functions and balance the performance of the system and aid in removing bottlenecks. chipsets often 6 table of contents include graphics, audio, video and other capabilities. all desktop and mobile pcs as well as servers have a chipset. in many pcs, the chipset includes a graphics processing unit (gpu). a gpu within the chipset solution is commonly known as an integrated graphics processor (igp), and such a chipset may be called an igp chipset. in a system without an integrated graphics processor, a discrete gpu is usually required. by not necessitating a discrete gpu, igp chipsets offer a lower cost solution and reduced power consumption and enable smaller system form factors. with our apu architecture, the gpu is included in the apu and the amd controller hub chip performs the input and output functions of the chipset. we believe that the combination of an apu and the amd controller hub will replace our market for igp chipsets. our portfolio of chipset products includes chipsets with and without igps for desktop pcs and servers, and amd controller hub-based chipsets for our apus. we offer amd a50-series, a60-series and a70-series chipsets for our mobile pc platforms. as well, we offer amd 9-series, 8-series, 7-series discrete and amd 7-series integrated chipsets for desktop pcs. graphics graphics market a graphics solution can be in the form of either an apu, a gpu, an igp, or a combination of a gpu with one of the other foregoing products working in tandem. the semiconductor graphics market addresses the need for visual or parallel processing in various computing and entertainment platforms such as desktop pcs, mobile pcs and workstations apus and igps deliver discrete gpu level functionality for value and mainstream pcs while discrete gpus are specifically architected for high performance graphics processing. a dedicated gpu and cpu work in tandem to increase overall speed and performance of the system. users of these graphics products value a rich visual experience, particularly in the high-end enthusiast market where consumers often seek out the fastest and highest performing visual processing products to enable the most compelling and immersive experiences. moreover, for many consumers, the pc is evolving from a traditional data processing and communications device to an entertainment platform. visual realism and graphical display capabilities are key elements of product differentiation among various product platforms. this has led to the increasing creation and use of processing intensive multimedia content for pcs and to manufacturers designing pcs for playing games, displaying photos and capturing tv and other multimedia content, viewing online videos, photo editing and managing digital content. in turn, the trend has contributed to the development of higher performance graphics solutions. graphics products our customers generally use our graphics solutions to increase the speed of rendering images and to improve image resolution and color definition. we develop our products for use in desktop and mobile pcs, professional workstations, servers and gaming consoles. with each of our graphics products, we provide drivers and supporting software packages that enable the effective use of these products under a variety of operating systems and applications. in addition, our recent generation graphics products have linux® driver support. heavy computational workloads have traditionally been processed on a cpu, but we believe that the industry is shifting to a new computing paradigm that increasingly relies more on the gpu or a combination of gpu and cpu. amd accelerated parallel processing or gpgpu (general purpose gpu) refers to a set of advanced hardware and software technologies that enable amd gpus, working in concert with the computer system s cpus, to accelerate applications beyond traditional graphics and video processing by allowing the cpus and gpus to process information cooperatively. heterogeneous computing, which refers to computer systems that use more than one kind of processor, enables pcs and servers to run computationally-intensive tasks more efficiently, which we believe provides a superior application experience to the end user. 7 table of contents discrete desktop graphics. we believe that discrete graphic solutions will continue to be popular across desktop pc configurations and platforms designed for gaming, multimedia, photo and video editing as well as other graphic-intensive applications. our discrete gpus for desktop pcs include the amd radeon hd 8000 series, amd radeon 7000 series, amd radeon hd 6000 series, ati radeon hd 5000 series, ati radeon hd 4000 series and ati radeon hd 3000 series. in 2012, we introduced a number of new gpus based on 28nm process technology and our graphics core next, or gcn, architecture. gcn architecture is our first design specifically engineered for general computing, enabling a gpu to handle workloads and programming languages traditionally exclusive to the cpu. in february 2012, we launched the amd radeon hd 7770 ghz edition, amd radeon hd 7750 and amd radeon hd 7700 gpus. in march 2012, we introduced the amd radeon hd 7870 ghz edition and amd radeon hd 7850 gpus. the amd radeon hd 7870 ghz edition features amd powertune technology and amd zerocore power technology. amd zerocore power technology powers down a gpu when the pc is in a long idle state and applications are not using background gpu resources. in june 2012, we launched the amd radeon hd 7970 ghz edition gpu featuring next generation amd eyefinity technology, amd power tune with boost and amd app acceleration. amd powertune technology manages gpu power consumption in response to gpu load conditions and allows for the gpu to run at higher clock speeds than otherwise possible. amd powertune with boost further increases the clock speed of a gpu. amd app acceleration is a set of technologies designed to improve video quality and enhance application performance. amd eyefinity technology allows for up to six independent and simultaneous monitors to be connected to one gpu. discrete mobile graphics. when selecting a graphics solution, key considerations for mobile pc manufacturers are graphics performance, visual experience, power efficiency, dedicated memory support and ease of design integration. our discrete gpus for mobile pcs include the following: amd radeon hd 8000m series, amd radeon 7000m series, amd radeon hd 6000m series, ati mobility radeon hd 5000 series and ati mobility radeon hd 4000 series. in april 2012, we launched amd radeon hd 7900m, hd 7800m and hd 7700m series gpus. these new graphics processors are all based on 28nm process technology and our gcn architecture. in addition, the amd radeon hd 7000m series gpus have amd enduro technology, which is a power solution that automatically switches between integrated graphics and the amd radeon discrete gpu, depending on the system or application requirements, to help maximize battery life. professional graphics. our amd firepro family of professional graphics products consist of 3d and 2d multi-view graphics cards and gpus that we designed for integration in mobile and desktop workstations, as well as business pcs. we designed our amd firepro 3d graphics cards for demanding applications such as those found in the computer aided design (cad) and digital content creation (dcc) markets, with drivers specifically tuned for maximum performance, stability and reliability across a wide range of software packages. we designed our amd firepro 2d graphics cards with dual and quad display outputs for financial and corporate environments. we also provide graphics products for the server market where we leverage our graphics expertise and align our offerings to provide the stability, video quality and bus architectures desired by our customers. through our ati crossfire pro , we enable cad and dcc professionals to connect two identical amd firepro 3d graphics cards with a flex cable connection that can enhance performance of geometry-limited applications. in february 2012, we introduced the amd firepro v3900, an entry-level professional graphics card that features amd eyefinity technology. in august 2012, we announced amd firepro s9000 and s7000 server graphics cards for the high-end workstation market. in addition, we launched the next generation of amd firepro workstation products, w5000, w7000, w8000 and w9000 gpus designed to balance compute and 3-d workloads efficiently for cad and engineering and for media and entertainment professionals. we also launched amd firepro a300 apu for entry-level and mainstream desktop workstations for users who require a high-performance computing platform to power their professional applications. in november 2012, we introduced amd firepro s10000 server graphics card designed for high-performance computing workloads and graphic intensive applications. 8 table of contents firestream processors. we designed our amd firestream series of products to utilize the parallel stream processing power of the gpu for heavy floating-point computations and to meet the requirements of various industries, such as the high-performance computing and the scientific and financial sectors. game consoles. semiconductor graphics suppliers have leveraged their core visual and graphics processing technologies developed for the pc market by providing graphic solutions to game console manufacturers. in this market, semiconductor graphics suppliers work alongside game console manufacturers to enhance the visual experience for users of sophisticated video games. we leverage our core visual processing technology into the game console market by licensing customized gpus for graphics in videogame consoles such as the microsoft® xbox 360 , nintendo wii and wii u from nintendo. marketing and sales we sell our products through our direct sales force and through independent distributors and sales representatives in both domestic and international markets pursuant to non-exclusive agreements. our sales arrangements generally operate on the basis of product forecasts provided by the particular customer, but do not typically include any commitment or requirement for minimum product purchases. we primarily use purchase orders, sales order acknowledgments and contractual agreements as evidence of our sales arrangements. our agreements typically contain standard terms and conditions covering matters such as payment terms, warranties and indemnities for issues specific to our products. we generally warrant that our products sold to our customers will conform to our approved specifications and be free from defects in material and workmanship under normal use and service for one year. subject to certain exceptions, we also offer a three-year limited warranty to end users for only those cpu and amd a-series apu products that are commonly referred to as processors in a box and for pc workstation products. we have also offered extended limited warranties to certain customers of tray microprocessor products and/or workstation graphics products who have written agreements with us and target their computer systems at the commercial and/or embedded markets. we market and sell our products under the amd trademark. our desktop pc product brands for microprocessors are amd a-series, amd e-series, amd fx, amd athlon and amd sempron. our mobile pc brands for microprocessors are amd a-series a, amd e-series, amd c-series, amd z-series, amd phenom, amd athlon, amd turion and amd sempron. our server brand for microprocessors is amd opteron. we sell micro-server systems products under the seamicro brand, including sm10000 and sm15000 series for fabric compute systems, and freedom fabric storage series for storage systems. we also sell low-power versions of our amd opteron, amd athlon, amd sempron and amd embedded a-series processors as embedded processor solutions. our product brand for the consumer graphics market is amd radeon. our product brand for professional graphics products is amd firepro. we also market and sell our chipsets under the amd trademark. we launch or update new platforms for consumers in the desktop and mobile markets under our vision technology from amd brand. we designed vision technology to simplify the buying process for consumers by more clearly connecting our brand to the level of activities that consumers want to perform on the pc. vision technology contains multiple levels of increasingly rich pc system capabilities to address the diverse needs of today s pc users. vision technology initially consisted of four levels of pc system capabilities: vision, vision premium, vision ultimate and vision black. our vision technology brand for our low-power apu products, consists of vision e1 and vision e2 for our entry level pcs. our vision technology brand for performance series apus consisting of four levels of pc system capabilities: vision a4, vision a6, vision a8, and vision fx. these vision tiers are for 2011 and later systems powered by our apus and provide increasingly higher pc capabilities. an additional tier, vision a10, was introduced in september 2012. vision e1, e2, and a4 based desktops and notebooks are targeted at pc users who require basic digital media consumption such as watching dvds, photo viewing, casual gaming, listening to music, and 9 table of contents internet browsing. vision a6, a8 and a10 based desktops and notebooks are designed to allow a greater computing performance for digital consumption and creation. these activities include watching hd movies, photo editing, directx 11 gaming, multi-tasking, and video editing. vision fx desktops are based on the amd fx processor and an amd radeon hd 6000, hd 7000 or hd 8000 series graphics card. we designed these vision fx systems to enable the highest capabilities sought by enthusiasts and are only available on desktop pcs. there is also vision pro technology, which is designed for business users and extends the approach of vision technology to commercial pc platforms. we market our products through our direct marketing and co-marketing programs. in addition, we have cooperative advertising and marketing programs with customers and third parties, including market development programs, pursuant to which we may provide product information, training, marketing materials and funds. under our co-marketing development programs, eligible customers can use market development funds as partial reimbursement for advertisements and marketing programs related to our products and third party systems integrating our products, subject to meeting defined criteria. original equipment manufacturers, or oems, may qualify for market development funds based on purchases of eligible products. customers our microprocessor customers consist primarily of oems, original design manufacturers, or odms, system builders and independent distributors in both domestic and international markets. odms provide design and/or manufacturing services to branded and unbranded private label resellers, oems and system builders. our graphics products customers include the foregoing as well as aibs, or add-in-board manufacturers. customers of our chipset products consist primarily of pc and server oems, often through odms or other contract manufacturers, who build the oem motherboards, as well as desktop and server motherboard manufacturers who incorporate chipsets into their channel motherboards. our sales and marketing teams work closely with our customers to define product features, performance and timing of new products so that the products we are developing meet our customers needs. we also employ application engineers to assist our customers in designing, testing and qualifying system designs that incorporate our products in order to assist in optimizing product compatibility. we believe that our commitment to customer service and design support improves our customers time-to-market and fosters relationships that encourage customers to use the next generation of our products. original equipment manufacturers we focus on three types of oems: multi-nationals, selected regional accounts and target market customers. large multi-nationals and regional accounts are our core oem customers. our oem customers include numerous foreign and domestic manufacturers of servers and workstations, desktop and mobile pcs, and pc motherboards. in 2012, hewlett-packard company accounted for more than 10% of our consolidated net revenues. sales to hewlett-packard consisted primarily of products from our computing solutions segment. five customers, including hewlett-packard, accounted for approximately 59% of the net revenue attributable to our computing solutions segment. in addition, five customers accounted for approximately 48% of the net revenue attributable to our graphics segment. a loss of any of these customers could have a material adverse effect on our business. third-party distributors our authorized distributors resell to sub-distributors and mid-sized and smaller oems and odms. typically, distributors handle a wide variety of products, including those that compete with our products. distributors typically maintain an inventory of our products. in most instances, our agreements with distributors 10 table of contents protect their inventory of our products against price reductions and provide return rights with respect to any product that we have removed from our price book that is not more than twelve months older than the manufacturing code date. in addition, some agreements with our distributors may contain standard stock rotation provisions permitting limited levels of product returns. aib manufacturers and system integrators we strive to establish and broaden our relationships with aib manufacturers. we offer component-level graphics and chipset products to aib manufacturers who in turn build and sell board-level products using our technology to system integrators, or sis, and at retail. our agreements with aibs protect their inventory of our products against price reductions. we also sell directly to our si customers. sis typically sell from positions of regional or product-based strength in the market. they usually operate on short design cycles and can respond quickly with new technologies. sis often use discrete graphics solutions as a means to differentiate their products and add value to their customers. competition generally, the ic industry is intensely competitive. products typically compete on product quality, power consumption (including battery life), reliability, speed, performance, size (or form factor), cost, selling price, adherence to industry standards (and the creation of open industry standards), software and hardware compatibility and stability, brand recognition, timely product introductions and availability. technological advances in the industry result in frequent product introductions, regular price reductions, short product life cycles and increased product capabilities that may result in significant performance improvements. our ability to compete depends on our ability to develop, introduce and sell new products or enhanced versions of existing products on a timely basis and at competitive prices, while reducing our costs. competition in the microprocessor market intel corporation has dominated the market for microprocessors for many years. intel s market share, margins and significant financial resources enable it to market its products aggressively, to target our customers and our channel partners with special incentives, and to discipline customers who do business with us. these aggressive activities have in the past and are likely in the future to result in lower unit sales and a lower average selling price for our products and adversely affect our margins and profitability. intel exerts substantial influence over computer manufacturers and their channels of distribution through various brand and other marketing programs. as a result of intel s dominant position in the microprocessor market, intel has been able to control x86 microprocessor and computer system standards and benchmarks and to dictate the type of products the microprocessor market requires of us. intel also dominates the computer system platform, which includes core logic chipsets, graphics chips, motherboards and other components necessary to assemble a computer system. original equipment manufacturers (oems), that purchase microprocessors for computer systems are highly dependent on intel, less innovative on their own and, to a large extent, are distributors of intel technology. additionally, intel is able to drive de facto standards for x86 microprocessors that could cause us and other companies to have delayed access to such standards. intel has substantially greater financial resources than we do and accordingly spends substantially greater amounts on marketing and research and development than we do. we expect intel to maintain its dominant position and to continue to invest heavily in marketing, research and development, new manufacturing facilities and other technology companies. to the extent intel manufactures a significantly larger portion of its microprocessor products using more advanced process technologies, or introduces competitive new products into the market before we do, we may be more vulnerable to intel s aggressive marketing and pricing strategies for microprocessor products. 11 table of contents intel also leverages its dominance in the microprocessor market to sell its integrated graphics chipsets. intel manufactures and sells integrated graphics chipsets bundled with their microprocessors and is a dominant competitor with respect to this portion of our business. intel could also take actions that place our discrete gpus at a competitive disadvantage, including giving one or more of our competitors in the graphics market, such as nvidia corporation, preferential access to its proprietary graphics interface or other useful information. as long as intel remains in this dominant position, we may be materially adversely affected by intel s: business practices, including rebating and allocation strategies and pricing actions, designed to limit our market share and margins; product mix and introduction schedules; product bundling, marketing and merchandising strategies; exclusivity payments to its current and potential customers and channel partners; control over industry standards, pc manufacturers and other pc industry participants, including motherboard, memory, chipset and basic input/output system, or bios, suppliers and software companies as well as the graphics interface for intel platforms; and marketing and advertising expenditures in support of positioning the intel brand over the brand of its oem customers. intel s dominant position in the microprocessor market and integrated graphics chipset market, its existing relationships with top-tier oems and its aggressive marketing and pricing strategies could result in lower unit sales and a lower average selling price for our products, which could have a material adverse effect on us. other competitors include companies providing or developing arm-based designs as relatively low cost and low power processors for the computing market including netbooks, tablets and thin client form factors, as well as dense servers, set-top boxes and gaming consoles. arm holdings designs and licenses its arm architecture and offers supporting software and services. our ability to compete with companies who use arm-based solutions depends on our ability to design energy-efficient, high-performing products at an attractive price point. in addition, nvidia builds custom cpu cores based on arm architecture to support tablets and small form factor pcs, servers, workstations and super computers. competition in the chipset market in the chipset market, our competitors include suppliers of integrated graphics chipsets. pc manufacturers use integrated chipsets because they cost less than traditional discrete gpus while offering acceptable graphics performance for most mainstream pc users. intel manufactures and sells integrated graphics chipsets bundled with their microprocessors and is a dominant competitor in this market. competition in the graphics market in the graphics market, our competitors include suppliers of discrete graphics, embedded graphics processors and igps. intel manufactures and sells embedded graphics processors and igp chipsets, and is a dominant competitor with respect to this portion of our business. the continued improvement of the quality of intel s integrated graphics, along with higher unit shipments of our apus, may drive computer manufacturers to reduce the number of systems they build paired with discrete graphics components, particularly for mobile pcs, because they may offer satisfactory graphics performance for most mainstream pc users, at a lower cost. intel could take actions that place our discrete gpus and integrated chipsets at a competitive disadvantage such as giving one or more of our competitors in the graphics market, such as nvidia, preferential access to its proprietary graphics interface or other useful information. 12 table of contents other than intel, our principal competitor in the graphics market is nvidia. amd and nvidia are the two principal players offering discrete graphics solutions. other competitors include a number of smaller companies, which may have greater flexibility to address specific market needs, but less financial resources to do so, especially as we believe that the growing complexity of visual processors and the associated research and development costs represent an increasingly higher barrier to entry in this market. in the game console category, we compete primarily against nvidia. other competitors include intel, arm and imagination. research and development we focus our research and development activities on improving and enhancing product design. one main area of focus is on delivering the next generation of products with greater system level integration of the cpu and gpu, improved system performance and performance-per-watt characteristics. for example, we are focusing on improving the battery life of our microprocessors and apu products for mobile pcs and the power efficiency of our microprocessors for servers. we are also focusing on delivering a range of low power integrated platforms to serve key markets, including commercial clients, mobile computing, and gaming and media computing, as well as developing a heterogeneous system architecture, which is designed for software developers to easily program apus by combining scalar processing on the cpu with parallel processing on the gpu, all while providing high bandwidth access to memory at low power. we believe that these integrated platforms will bring customers better time-to-market and increased performance and energy efficiency. we also work with industry leaders on process technology, software and other functional intellectual property and we work with others in the industry, public foundations, universities and industry consortia to conduct early stage research and development. our research and development expenses for 2012, 2011 and 2010 were approximately $1.4 billion, $1.5 billion and $1.4 billion, respectively. for more information, see part ii, item 7- management s discussion and analysis of financial condition and results of operations, or md&a. we conduct product and system research and development activities for our products in the united states with additional design and development engineering teams located in canada, india, china, singapore, taiwan, united kingdom, israel and japan. manufacturing arrangements and assembly and test facilities third-party wafer foundry facilities globalfoundries, inc. on march 2, 2009, together with advanced technology investment company llc (atic) and west coast hitech l.p., (wch), acting through its general partner, west coast hitech g.p., ltd., we formed globalfoundries, inc. (gf), a manufacturing joint venture that manufactures semiconductor products and provides certain foundry services to us. wafer supply agreement. a wafer supply agreement (wsa) governs the terms by which we purchase products manufactured by gf. pursuant to the wsa, we are required to purchase all of our microprocessor and apu product requirements from gf with limited exceptions. on april 2, 2011, we entered into a first amendment to the wsa. the primary effect of the amendment was to change the pricing methodology applicable to wafers delivered in 2011 for our microprocessors, including apu products. the amendment also modified our existing commitments regarding the production of certain gpu and chipset products at gf. pursuant to the amendment, gf committed to provide us with, and we committed to purchase, a fixed number of 45nm and 32nm wafers per quarter in 2011. we paid gf a fixed price for 45nm wafers delivered in 2011. our price for 32nm wafers varied based on the wafer volumes and manufacturing yield of such wafers and was based on good die. in addition, we also agreed to pay an additional quarterly amount to 13 table of contents gf during 2012 totaling up to $430 million if gf met specified conditions related to the continued availability of 32nm capacity as of the beginning of 2012. as part of the second amendment described below, gf agreed to waive these quarterly payments, and therefore we are no longer required to pay them. on march 4, 2012, we entered into a second amendment to the wsa. the primary effect of this second amendment was to modify certain pricing and other terms of the wsa applicable to wafers for our microprocessor and apu products to be delivered by gf to us during 2012. pursuant to the second amendment, gf committed to provide us with, and we committed to purchase, a fixed number of production wafers in 2012. we paid gf fixed prices for production wafers delivered in 2012. the second amendment also granted us certain rights to contract with another wafer foundry supplier with respect to specified 28nm products for a specified period of time. in consideration for these rights, we agreed to pay gf $425 million and transfer to gf all of the capital stock of gf that we owned. pursuant to the second amendment, $150 million of the $425 million was paid on march 5, 2012, $50 million was paid on june 29, 2012, $50 million was paid on october 1, 2012, and the remaining $175 million was paid by december 31, 2012. in addition, as security for the final two payments, we issued a $225 million promissory note to gf. on december 6, 2012, we entered into a third amendment to the wsa. pursuant to the third amendment we modified our wafer purchase commitments for the fourth quarter of 2012 under the second amendment to the wsa. in addition, we agreed to certain pricing and other terms of the wsa applicable to wafers for our microprocessor and apu products to be delivered by gf to us during 2013 and through december 31, 2013. pursuant to the third amendment, we committed to purchase a fixed number of production wafers at negotiated prices in the fourth quarter of 2012 and through december 31, 2013. gf agreed to waive a portion of our wafer purchase commitments for the fourth quarter of 2012. in consideration for this waiver, we agreed to pay gf a fee of $320 million. the cash impact of this $320 million fee will be spread over several quarters, with $80 million paid by december 28, 2012 and $40 million payable by april 1, 2013. for the remainder of the fee, on the same date we entered into the third amendment, we issued a $200 million promissory note to gf that matures on december 31, 2013. as part of the third amendment, we committed to purchase wafers from gf for approximately $250 million during the first quarter of 2014. we expect to negotiate the remainder of our 2014 purchase commitments from gf in 2013. the wsa terminates no later than march 2, 2024. gf has agreed to use commercially reasonable efforts to assist us to transition the supply of products to another provider, and to continue to fulfill purchase orders for up to two years following the termination or expiration of the wsa. during the transition period, pricing for microprocessor products will remain as set forth in the wsa, but our purchase commitments to gf will no longer apply. gf currently manufactures our microprocessors on 300 millimeter wafers using primarily 45nm and 32nm process technology. taiwan semiconductor manufacturing company. we also have foundry arrangements with taiwan semiconductor manufacturing company (tsmc) for the production of certain graphics processors and chipsets, embedded processors, and apu products. we are in production in tsmc s 300 millimeter and 200 millimeter fabrication facilities in technologies ranging from 65nm to 28nm. smaller process geometries can lead to gains in performance, lower power consumption and lower per unit manufacturing costs. we continue to have our products manufactured on more advanced process technology because using more advanced process technology can contribute to lower product manufacturing costs and improve a product s performance and power efficiency. other third-party manufacturers. we outsource board-level graphics product manufacturing to third-party manufacturers. 14 table of contents assembly, test, mark and packaging facilities we own and operate two assembly, test, mark and packaging facilities. some wafers for our microprocessor, graphics processor and embedded processor products are delivered from third-party foundries to our assembly, test, mark and packaging facilities. our assembly, test, mark and packaging facilities are described in the chart set forth below: facility location approximatemanufacturingarea squarefootage activity penang, malaysia 206,000 assembly, test, mark & packaging suzhou, china 100,000 assembly, test, mark & packaging the remaining wafers for our graphics products are delivered from third party foundries to our test, assembly and packaging partners located in the asia-pacific region who package and test the final semiconductor products. intellectual property and licensing we rely on contracts and intellectual property rights to protect our products and technologies from unauthorized third-party copying and use. intellectual property rights include copyrights, patents, patent applications, trademarks, trade secrets and maskwork rights. as of december 29, 2012, we had approximately 4,700 patents in the united states and approximately 1,600 patent applications pending in the united states. in certain cases, we have filed corresponding applications in foreign jurisdictions. we expect to file future patent applications in both the united states and abroad on significant inventions, as we deem appropriate. we do not believe that any individual patent, or the expiration thereof, is or would be material to our business. as is typical in the semiconductor industry, we have numerous cross-licensing and technology exchange agreements with other companies under which we both transfer and receive technology and intellectual property rights. one such agreement is the cross-license agreement that we entered into with intel on november 11, 2009, in connection with the settlement of our litigation. under the cross license agreement, intel has granted to us and our subsidiaries, and we have granted intel and its subsidiaries, non-exclusive, royalty-free licenses to all patents that are either owned or controlled by the parties at any time that have a first effective filing date or priority date prior to the five-year anniversary of the effective date of the cross license agreement, referred to as the capture period, to make, have made, use, sell, offer to sell, import and otherwise dispose of certain semiconductor- and electronic-related products anywhere in the world. under the cross license agreement, intel has rights to make semiconductor products for third parties, but the third party product designs are not licensed as a result of such manufacture. we have rights to perform assembly and testing for third parties but not rights to make semiconductor products for third parties. the term of the cross license agreement continues until the expiration of the last to expire of the licensed patents, unless earlier terminated. a party can terminate the cross license agreement or the rights and licenses of the other party if the other party materially breaches the cross license agreement and does not correct the noticed material breach within 60 days. upon such termination, the terminated party s license rights terminate but the terminating party s license rights continue, subject to that party s continued compliance with the terms of the cross license agreement. the cross license agreement and the capture period will automatically terminate if a party undergoes a change of control (as defined in the cross license agreement) and both parties licenses will terminate. upon the bankruptcy of a party, that party may assume, but may not assign, the cross license agreement, and in the event that the cross license agreement cannot be assumed, the cross license agreement and the licenses granted will terminate. we also have a patent cross license agreement with gf pursuant to which each party granted to the other a non-exclusive license under patents filed by a party (or are otherwise acquired by a party) within a certain number of years following the effective date of the agreement. in 2009, under the agreements with gf, we 15 table of contents assigned approximately 3,000 patents and approximately 1,000 patent applications to gf. gf owns its allocation of patents and applications subject to pre-existing rights, licenses or immunities granted to third parties relating to such patents and applications. the patents and patent applications to be owned by each party after the division were licensed to the other party pursuant to the agreement. in addition, we entered into a non-patent intellectual property and technology transfer agreement with gf pursuant to which we assigned to gf all of our right, title and interest in technology and non-patent intellectual property rights used exclusively in the manufacture, sorting and/or intermediate testing of semiconductor products. we retained technology and non-patent intellectual property rights used exclusively in the design and/or post-fabrication delivery testing of semiconductors. technology and non-patent intellectual property rights used both in the manufacture, sorting and/or intermediate testing of semiconductor products and in the design and/or post-fabrication delivery testing of semiconductor products are owned jointly by us and gf. backlog we sell standard lines of products. sales are made primarily pursuant to purchase orders for current delivery or agreements covering purchases over a period of time. some of these orders or agreements may be revised or cancelled without penalty. generally, in light of current industry practice, we do not believe that such orders or agreements provide meaningful backlog figures or are necessarily indicative of actual sales for any succeeding period. employees as of december 29, 2012, we had approximately 10,340 employees. environmental regulations many aspects of our business operations and products are regulated by domestic and international environmental laws and regulations. these regulations include limitations on discharge of pollutants to air, water, and soil; remediation requirements; product chemical content limitations; manufacturing chemical use and handling restrictions; pollution control requirements; waste minimization considerations; and requirements with respect to treatment, transport, storage and disposal of solid and hazardous wastes. if we fail to comply with any of the applicable environmental regulations we may be subject to fines, suspension of production, alteration of our manufacturing processes, import/export restrictions, sales limitations, and/or criminal and civil liabilities. existing or future regulations could require us to procure expensive pollution abatement or remediation equipment; to modify product designs; or to incur other expenses to comply with environmental regulations. any failure to adequately control the use, disposal or storage, or discharge of hazardous substances could expose us to future liabilities that could have a material adverse effect on our business. we believe we are in material compliance with applicable environmental requirements and do not expect those requirements to result in material expenditures in the foreseeable future. environmental laws are complex, change frequently and have tended to become more stringent over time. for example, the european union (eu) and china are two among a growing number of jurisdictions that have enacted restrictions on the use of lead and other materials in electronic products. other countries have also implemented similar restrictions. these regulations affect semiconductor devices and packaging. as regulations restricting materials in electronic products continue to increase around the world, there is a risk that the cost, quality and manufacturing yields of products that are subject to these restrictions, may be less favorable compared to products that are not subject to such restrictions, or that the transition to compliant products may produce sudden changes in demand, which may result in excess inventory. in august 2012, the sec adopted its final rule to implement section 1502 of the dodd-frank wall street reform and consumer protection act regarding disclosure and reporting requirements for companies who use 16 table of contents conflict minerals mined from the democratic republic of congo and adjoining countries in their products, whether or not these products are manufactured by third parties. as there are many sources of these materials, these new requirements are unlikely to affect the sourcing of minerals used in the manufacture of semiconductor devices but will add additional costs associated with complying with the disclosure requirements, such as costs related to determining the source of any conflict minerals used in our products, auditing the process and reporting to our customers and the us government. also, since our supply chain is complex, we may face reputational challenges if we are unable to sufficiently verify the origins of the subject minerals. moreover, we may encounter challenges to satisfy those customers who require that all of the components of our products are certified as conflict free and if we cannot satisfy these customers, they may choose a competitor s products. a number of jurisdictions including the eu, australia and china are developing or finalizing market entry or public procurement requirements for computers and servers based on energy star specification as well as additional energy consumption limits. some of these regulations are expected to be approved and implemented in 2013. if such regulations do not contain recommended modifications as proposed by amd or industry associations, there is the potential for certain of our microprocessor, chipset and gpu products, as incorporated in desktop and mobile pcs, workstations, servers and other information and communications technology products being excluded from some of these markets which could materially adversely affect us. while we have budgeted for foreseeable associated expenditures, we cannot assure you that future environmental legal requirements will not become more stringent or costly in the future. therefore, we cannot assure you that our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past and future releases of, or exposure to, hazardous substances will not have a material adverse effect on us. see also, item 3- legal proceedings environmental matters, below. 17 table of contents item 1a. risk"
## [3] "item 1. business telephone and data systems, inc. ( tds ) is a diversified telecommunications service company with wireless operations provided by tds 84%-owned subsidiary, united states cellular corporation ( u.s. cellular ) and both wireline operations and hosted and managed services provided by tds wholly-owned subsidiary, tds telecommunications corporation ( tds telecom ). at december 31, 2012, tds served 5.8 million u.s. cellular customers and 1.0 million tds telecom customer connections. u.s. cellular and tds telecom provided approximately 83% and 16%, respectively, of tds consolidated revenues during 2012. tds business strategy is to expand its existing operations through internal growth and acquisitions and to explore and develop other related businesses that management believes will utilize tds expertise in customer-focused services. tds is also the majority owner of airadigm communications, inc. ( airadigm ), a wisconsin-based wireless service provider. airadigm operates independently from u.s. cellular and at this time there are no plans to combine the operations of these subsidiaries. tds also conducts printing and distribution services through its majority-owned subsidiary, suttle-straus, inc. ( suttle-straus ). airadigm and suttle-straus provided approximately 1% of consolidated revenues combined. historically, tds had reported the following business segments: u.s. cellular, tds telecom s incumbent local exchange carrier ( ilec ) which included tds telecom s hosted and managed services ( hms ), tds telecom s competitive local exchange carrier ( clec ) and non-reportable segment which includes suttle-straus and, as of september 23, 2011, airadigm. as a result of recent acquisitions and changes in tds strategy, operations, personnel and internal reporting, tds reevaluated and changed its reportable business segments in the quarter ended march 31, 2012. tds business segments reflected in this annual report on form 10-k are: u.s. cellular s wireless operations, ilec, clec, hms, and the non-reportable segment. information about each of the reportable segments is disclosed below. periods presented for comparative purposes have been re-presented to conform to this revised presentation. all of tds segments operate only in the united states, except for hms, which includes an insignificant foreign operation. additional information about tds segments is incorporated herein by reference from note 17 business segment information, in tds annual report to shareholders, filed as exhibit 13 hereto. tds was incorporated in 1968 and changed its state of incorporation from iowa to delaware in 1998. tds executive offices are located at 30 north lasalle street, chicago, illinois 60602. tds telephone number is 312-630-1900. tds common shares trade under the ticker symbol tds on the new york stock exchange ( nyse ). u.s. cellular common shares trade on the nyse under the ticker symbol usm. on january 13, 2012, tds shareholders approved a share consolidation amendment to the restated certificate of incorporation of tds whereby (a) each special common share was reclassified as a common share on a one-for-one basis, (b) each common share was reclassified as 1.087 common shares, and (c) each series a common share was reclassified as 1.087 series a common shares. the share consolidation became effective on january 24, 2012, as such, tds special common shares, which had formerly traded under the ticker symbol tds.s on the nyse, began trading as tds common shares under the ticker symbol tds on january 25, 2012. tds 6.625% senior notes due 2045 trade on the nyse under the symbol tdi, tds 6.875% senior notes due 2059 trade under the symbol tde, tds 7.0% senior notes due 2060 trade under the symbol tdj and tds 5.875% senior notes due 2061 trade under the symbol tda. u.s. cellular s 6.95% senior notes due 2060 trade under the symbol uza. u.s. cellular s 6.7% senior notes due 2033 are not listed on any stock exchange and trade over the counter. under listing standards of the nyse, tds is a controlled company as such term is defined by the nyse. tds is a controlled company because over 50% of the voting power for the election of directors of tds is held by the trustees of the tds voting trust. u.s. cellular is a majority-owned subsidiary of tds. as of december 31, 2012, tds owned 84% of the combined total of the outstanding common shares and series a common shares of u.s. cellular and controlled 96% of the combined voting power of both classes of common stock. 1 available information tds website is http://www.teldta.com. tds files with, or furnishes to, the securities and exchange commission ( sec ) annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, as well as various other information. anyone may access, free of charge, through the investor relations portion of the website, the tds annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the securities exchange act of 1934, as amended, as soon as reasonably practical after such material is electronically filed with the sec. the public may read and copy any materials tds files with the sec at the sec s public reference room at 100 f street, ne, washington d.c. 20549. the public may obtain information on the operation of the reference room by calling the sec at 1-800-732-0330. the public may also view electronic filings of tds by accessing sec filings at http://www.sec.gov. u.s. cellular s website address is http://www.uscellular.com. u.s. cellular files with, or furnishes to, the sec annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, as well as various other information. investors may access, free of charge, through the investor relations portion of the website, u.s. cellular s annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the exchange act as soon as reasonably practical after such material is filed electronically with the sec. the public may read and copy any materials u.s. cellular files with the sec at the sec s public reference room at 100 f street, ne, washington d.c. 20549. the public may obtain information on the operation of the reference room by calling the sec at 1-800-732-0330. the public may also view electronic filings of u.s. cellular by accessing sec filings at http://www.sec.gov. 2 u.s. cellular operations general united states cellular corporation ( u.s. cellular ) was incorporated under the laws of the state of delaware in 1983. at december 31, 2012, u.s. cellular s consolidated operating markets cover approximately 5.8 million customers in five geographic market areas in 26 states. u.s. cellular operates in one reportable segment, wireless operations, and all of its wireless operating markets are in the united states. u.s. cellular is a wireless telecommunications service provider. u.s. cellular groups its individual markets (geographic service areas as defined by the federal communications commission ( fcc ) in which wireless carriers are licensed, for fixed terms, to provide service) into broader geographic market areas (as discussed below in total consolidated markets and consolidated operating markets ) to offer customers large service areas that primarily utilize u.s. cellular s network. since 1985, when it began providing wireless telecommunications service in knoxville, tennessee and tulsa, oklahoma, u.s. cellular has expanded its consolidated wireless networks and customer service operations to cover five geographic market areas in portions of 26 states, which collectively represent a total population of 47.0 million as of december 31, 2012. u.s. cellular uses roaming agreements with other wireless carriers to provide service to its customers in areas not covered by u.s. cellular s network. u.s. cellular is subject to regulation by the fcc as a provider of wireless telecommunication services. the fcc regulates the licensing, construction, and operation of providers of wireless telecommunications systems, as well as the provision of services over those systems. see regulation below for further discussion regarding licenses as well as the regulations promulgated by the fcc. u.s. cellular s ownership interests in wireless licenses include both consolidated and investment interests in licenses covering portions of 36 states and a total population of 93.2 million at december 31, 2012. for purposes of tracking population counts in order to calculate market penetration, when u.s. cellular acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the population counts for any overlapping licensed area. only incremental population counts are added to the reported amount of total market population in the case of an acquisition of a licensed area that overlaps a previously owned licensed area. total market population measures are provided to allow comparison of the relative size of each of u.s. cellular s geographic market areas to its total consolidated markets and consolidated operating markets, as defined below. the total population of u.s. cellular s consolidated markets may have no direct relationship to the number of wireless customers or the revenues that may be realized from the operation of the related wireless systems. in addition, population equivalents for investment interests have been provided to allow comparison to the relative size of u.s. cellular s consolidated markets. total consolidated markets (including non-operating markets) the following table summarizes information regarding licensed areas which u.s. cellular consolidates as of december 31, 2012. the population shown is the total population within each geographic market area, regardless of u.s. cellular s percentage ownership in the licenses included in such geographic market areas: geographic market areas population (1) customers penetration states central region (2) 65,931,000 3,688,000 5.6 % al, ar, co, fl, ga, ia, il, in, ks, ky, la, mi, mn, mo, ms, ne, oh, ok, sd, tx, wi mid-atlantic region 20,291,000 1,104,000 5.4 % md, nc, pa, sc, tn, va, wv new england region 2,857,000 422,000 14.8 % me, nh, vt northwest region 3,685,000 369,000 10.0 % ca, id, or, wa new york region (3) 480,000 215,000 44.8 % ny total 93,244,000 5,798,000 6.2 % 3 consolidated operating markets the following table summarizes information regarding licensed areas which u.s. cellular consolidates and are in operation as of december 31, 2012. the population shown is the total population within each geographic market area, regardless of u.s. cellular s percentage ownership in the licenses included in such geographic market areas: geographic market areas population (1) customers penetration states central region (2) 33,235,000 3,688,000 11.1 % ia, il, in, ks, mi, mn, mo, ne, oh, ok, tx, wi mid-atlantic region 8,006,000 1,104,000 13.8 % md, nc, pa, sc, tn, va, wv new england region 2,857,000 422,000 14.8 % me, nh, vt northwest region 2,388,000 369,000 15.5 % ca, or, wa new york region (3) 480,000 215,000 44.8 % ny total 46,966,000 5,798,000 12.3 % (1) represents 100% of the population of the licensed areas, based on 2011 claritas population estimates. population in this context includes only the areas covering such markets and is used only for the purposes of calculating market penetration and is not related to population equivalents, as defined below. it also includes 100% of the population of two licensed areas where u.s. cellular owns a controlling interest and has contracted with another wireless operator to manage the operations. (2) at december 31, 2012, the divestiture markets are included in the central geographic market area. (3) markets in the new york region are operated by verizon wireless under the verizon wireless brand. u.s. cellular owns a greater than 50% interest in each of these markets and consolidates the financial results of these markets in accordance with generally accepted accounting principles ( gaap ). investment markets the following table summarizes the markets in which u.s. cellular owns an investment interest at december 31, 2012. for licenses in which u.s. cellular owns an investment interest, the related population equivalents are shown. market area/market population (1) current percentage interest (2) current population equivalents (3) los angeles/oxnard, ca 18,095,000 5.5 % 995,000 oklahoma city, ok 1,209,000 14.6 % 177,000 others (fewer than 100,000 population equivalents each) 4,667,000 varies 290,000 total population equivalents in investment markets 1,462,000 (1) represents 100% of the total population of the licensed area in which u.s. cellular owns an interest based on 2011 claritas population estimates. (2) represents u.s. cellular s percentage ownership interest in the licensed area as of december 31, 2012. (3) current population equivalents are derived by multiplying the amount in the population column by the percentage interest indicated in the current percentage interest column. divestiture transaction as more fully described in the divesture transaction section of management s discussion and analysis of financial condition and results of operations and in note 7 acquisitions, divestitures and exchanges in the notes to consolidated financial statements, on november 6, 2012, u.s. cellular entered into a purchase and sale agreement (the divestiture transaction ) with subsidiaries of sprint nextel corporation ( sprint ). the purchase and sale agreement provides that u.s. cellular will transfer to sprint certain rights and assets (collectively, the subject assets ), and sprint will assume certain liabilities ( subject liabilities ), related to u.s. cellular s chicago, central illinois, st. louis and certain indiana/michigan/ohio markets (the divestiture markets ), in consideration for $480 million in cash at closing, subject to pro-rations of certain assets and liabilities. u.s. cellular will retain all other assets ( retained assets ) and liabilities ( retained liabilities ) related to the divestiture markets. u.s. cellular is not transferring and will continue to operate and provide service in peoria, rockford and certain other areas in illinois, and in columbia, joplin, jefferson city and certain other areas in missouri. 4 the subject assets include customers and most of u.s. cellular s pcs licenses in the divestiture markets. u.s. cellular will retain its direct and indirect ownership interests in other spectrum in the divestiture markets. the transaction does not include spectrum licenses held by u.s. cellular or variable interest entities consolidated by u.s. cellular that are not currently used in the operations of the divestiture markets. the subject liabilities that will be assumed by sprint include only (i) liabilities as of the closing relating to the subject assets and (ii) liabilities arising after the closing relating to the subject assets. the retained assets include all assets other than the subject assets, including cash, accounts receivable, inventory, naming rights, real estate, cell sites including towers, network equipment, stores, retail equipment, furniture and fixtures, and all other assets, including the corporate and other facilities located in the divestiture markets. the retained liabilities include all liabilities other than the subject liabilities, including accounts payable, accrued expenses, liabilities to employees, taxes, obligations under benefit plans, contracts, leases and asset retirement obligations. the transaction is subject to fcc approval, compliance with the hart-scott-rodino act and other conditions. subject to the satisfaction or (if permitted) waiver of all conditions, the transaction is expected to close in mid-2013. the table below provides selected information related to the divestiture markets as of december 31, 2012: market population 15,037,000 market penetration 3.7 % total customers 560,000 postpaid customers 463,000 prepaid customers 81,000 reseller customers 16,000 postpaid churn rate 2.95 % products and services wireless services. u.s. cellular s postpaid customers are able to choose from a variety of national plans with voice, messaging and data pricing that are designed to fit different customer needs, usage patterns and budgets. the ability to help a customer find the right pricing plan is central to u.s. cellular s brand positioning. u.s. cellular offers national consumer plans with both bundled and unbundled options that can be tailored to a customer s needs. many plans enable small work groups or families to share the plan minutes, enabling customers to get more value for their money. u.s. cellular offers data plans in a variety of tiers to fit customers needs and budgets. business rate plans are offered to companies to meet their unique needs. u.s. cellular s popular national plans price all calls, regardless of where they are made or received in the united states, as local calls with no long distance or roaming charges. all incoming calls, texts, and picture messages are free on currently offered plans. additionally, u.s. cellular offers prepaid service plans, which include voice minutes, messaging and data in a variety of ways for a monthly fee. in may 2012, u.s. cellular began offering u prepaid, a no contract wireless service in select walmart stores in an effort to expand points of distribution for u.s. cellular products and services. in october 2012, u.s. cellular began offering a postpaid option through walmart as well, and continues to explore new distribution options. u.s. cellular recognizes customer loyalty with national bundled rate plans and industry-leading benefits without requiring customers to sign continuous contracts. customers who subscribe to national plans can earn loyalty reward points that can be used for accelerated phone upgrades just for being a customer. points can also be used for other rewards such as additional lines, phones, accessories and ringtones. available postpaid plans include overage cap, a free service that prevents voice overage charges from exceeding $50 for a national single line plan or $150 for a family plan. u.s. cellular s portfolio of androidtm-powered, blackberry and windows mobile smartphones and androidtm-powered tablets are key parts of its strategy to deliver wireless devices which allow customers to stay productive, entertained and connected on the go. backed by u.s. cellular s high-speed networks, including a fourth generation long term evolution ( 4g lte ) network, which, as of december 31, 2012, covers 61% of its postpaid customers and a third generation ( 3g ) network that supports nationwide roaming, u.s. cellular s smartphone messaging, data and internet services allow customers to access the web and social network sites, e-mail, text, picture and video message, utilize turn-by-turn gps navigation, and browse and download thousands of applications to customize their wireless devices to fit their lifestyles. u.s. cellular offers enhanced multimedia services, including digital radio, mobile tv and 3d gaming, over its 4g lte and 3g networks. u.s. cellular s easyedgesm brand of enhanced data services uses a binary runtime environment for wireless ( brew ) technology which adds limited computer-like functionality to non-smartphone wireless devices, enabling applications to be downloaded over-the-air directly to the customer s wireless device. these enhanced data services include news, weather, sports, information, games, ring tones and other services. 5 u.s. cellular plans to further enhance its advanced data services in 2013 and beyond. wireless devices. u.s. cellular offers a comprehensive range of wireless devices such as handsets, modems, mobile hotspots and tablets for use by its customers. u.s. cellular offers wireless devices that are compatible with some or all of its 4g lte, 3g and 2g networks and all are compliant with the fcc s enhanced wireless 911 ( e-911 ) requirements. in addition, u.s. cellular offers a wide range of accessories, such as carrying cases, hands-free devices, batteries, battery chargers, memory cards and other items to customers. u.s. cellular also sells wireless devices to agents and other third-party distributors for resale. u.s. cellular frequently discounts wireless devices sold to new and current customers and provides discounts on upgraded wireless devices to current customers, in order to attract new customers or to retain existing customers by reducing the cost of becoming or remaining a wireless customer. with plans offering no contract after the first, customers who are eligible for a wireless device upgrade are able to obtain wireless devices at promotional prices without signing a new contract. u.s. cellular has established service facilities in many of its local markets to ensure quality service and repair of the wireless devices it sells. these facilities allow u.s. cellular to provide convenient and timely repair service to customers who experience device problems. additionally, u.s. cellular offers several programs which allow the customer to receive a replacement device through a retail store or through direct mail. handset selection and availability are significant areas of competitive differentiation in the industry today. during 2012, u.s. cellular continued to bolster its expanding smartphone and tablet portfolio with the launch of high-performance androidtm-powered wireless devices, such as the samsung galaxy s iiitm. u.s. cellular s smartphone offerings play a significant role in driving data service usage and revenues. the devices offered include a full array of smartphones from the top-tier androidtm-powered samsung galaxy s iiitm to lower-tier smartphones. u.s. cellular purchases wireless devices and accessory products from a number of manufacturers, including samsung, motorola, personal communications devices, lg, blackberry , superior communications and xentris wireless. u.s. cellular negotiates volume discounts with its suppliers and works with them in promoting specific equipment in its local advertising. u.s. cellular does not own significant product warehousing and distribution infrastructure. instead, it contracts with third party providers for substantially all of its product warehousing, distribution and direct customer fulfillment activities. u.s. cellular also contracts with third party providers for services related to its reward points and phone replacement programs. u.s. cellular monitors the financial condition of all of its wireless device and accessory suppliers. because u.s. cellular purchases wireless devices and accessories from numerous suppliers, u.s. cellular does not expect the financial condition of any single supplier to affect u.s. cellular s ability to offer a competitive variety of wireless devices and accessories for sale to customers. marketing customer acquisition and retention. u.s. cellular s marketing plan is focused on acquiring, retaining and growing customer relationships by offering high-quality products and services built around customer needs at fair prices, supported by outstanding customer service. u.s. cellular believes that creating positive connections with its customers enhances their wireless experience and builds customer loyalty. u.s. cellular currently offers several innovative, customer-centric programs and services, at no cost to the customer. the overage protection service provides customers peace-of-mind by sending them text message alerts when they come close to reaching their allowable monthly plan minutes or text messages in order to avoid overage charges. although the fcc approved a proposal in 2011 that would require carriers to notify customers before they incur excessive charges, u.s. cellular believes that it was the first to offer this service to all of its customers. my contacts backup offers extra security for customers by allowing them to retrieve their contact numbers if they lose or damage their wireless devices. u.s. cellular increases customer awareness using media such as television, radio, newspaper, direct mail advertising, the internet, social media and sponsorships. u.s. cellular has achieved its current level of penetration of its markets through a combination of a strong brand position, promotional advertising, broad distribution, maintaining a high-quality wireless network and providing outstanding customer service. u.s. cellular s advertising is directed at attracting and retaining customers, improving potential customers awareness of the u.s. cellular brand, increasing existing customers usage of u.s. cellular s services and increasing the public awareness and understanding of the wireless services it offers. u.s. cellular attempts to select the advertising and promotional media that are most appealing to the targeted groups of potential customers in each local market. u.s. cellular supplements its advertising with a focused public relations program that drives store traffic, supports sales of products and services, and builds brand awareness and preference. the approach combines national and local media relations in mainstream and social media channels with market-wide activities, events, and sponsorships. since 2008, u.s. cellular has focused its giving strategy on the pressing needs of schools and has invested millions of dollars in its education initiatives, such as calling all communities and calling all teachers, which support schools and teachers in the communities u.s. cellular serves. 6 u.s. cellular manages customer retention by focusing on outstanding customer service through the development of processes that are customer-friendly, extensive training of frontline sales and support associates and the implementation of retention programs. the marketing plan highlights the value of u.s. cellular s service offerings and incorporates combinations of rate plans, additional value-added features and services and wireless devices which are designed to meet the needs of customers. through 2012, u.s. cellular operated five regional customer care centers. effective january 1, 2013, u.s. cellular transferred its bolingbrook customer care center operations to an existing third-party vendor. in connection with the bolingbrook customer care center transaction, the majority of u.s. cellular s associates at the bolingbrook, illinois location became employees of the third party vendor, which will continue to provide services to u.s. cellular through a transition period. through the bolingbrook and other customer care center operations, u.s. cellular will continue to deliver award-winning customer service. u.s. cellular will continue to operate four other regional customer care centers with personnel who are responsible for customer service activities, and a national financial services center with personnel who perform credit and other customer payment activities. u.s. cellular also contracts with third parties that provide additional customer care support. distribution channels. u.s. cellular supports a multi-faceted distribution program, including retail sales and service centers, direct sales, third-party national retailers, and independent agents, plus the website and telesales for customers who wish to contact u.s. cellular through the internet or by phone. company retail store locations are designed to market wireless products and services to the consumer and small business segments in a setting familiar to these types of customers. as of december 31, 2012, retail sales associates work in over 400 u.s. cellular-operated retail stores and kiosks. direct sales consultants market wireless services to mid-size business customers. additionally, the u.s. cellular website enables customers to activate service and purchase wireless devices online. u.s. cellular maintains an ongoing training program to improve the effectiveness of retail sales associates and direct sales consultants by focusing their efforts on obtaining customers by facilitating the sale of appropriate packages for the customer s expected usage and value-added services that meet customer needs. in may 2012, u.s. cellular began offering u prepaid, a no contract wireless service, in select walmart stores within its service areas. in october 2012, u.s. cellular began offering a postpaid option through walmart, and continues to explore new distribution options. u.s. cellular has relationships with exclusive and non-exclusive agents, which are independent businesses that obtain customers for u.s. cellular on a commission basis. at december 31, 2012, u.s. cellular had contracts with these businesses aggregating over 1,000 locations. u.s. cellular provides additional support and training to its exclusive agents to increase customer satisfaction for customers they serve. u.s. cellular s agents are generally in the business of selling wireless devices, wireless service packages and other related products. no single agent accounted for 10% or more of u.s. cellular s operating revenues during the past three years. u.s. cellular also markets wireless service through resellers. the resale business involves the sale of wholesale access and minutes to independent companies that package and resell wireless services to end-users. these resellers generally provide prepaid and postpaid services to subscribers under their own brand names and also provide their own billing and customer service. u.s. cellular incurs no direct subscriber acquisition costs related to reseller customers. at december 31, 2012, u.s. cellular had approximately 241,000 customers of resellers. for the year ended december 31, 2012, revenues from resale business were less than 1% of total service revenues. seasonality. there is seasonality in operating expenses, which tend to be higher in the fourth quarter than in the other quarters due to increased marketing activities, which may cause operating income to vary from quarter to quarter. customers and system usage u.s. cellular provides service to customers from a variety of demographic segments. u.s. cellular uses a segmentation model to classify businesses and consumers into logical groupings for developing new products and services, direct marketing campaigns, and retention efforts. u.s. cellular focuses on both retail consumers and small-to-mid-size business customers in vertical industries such as construction, retail, professional services and real estate. these industries are primarily served through u.s. cellular s retail and direct sales channels. 7 u.s. cellular s main sources of revenues are from its own customers and from customers of competitors who roam on its network. the interoperability of wireless service enables a customer who is in a wireless service area other than the customer s home service area to place or receive a call or use data in that service area. u.s. cellular has entered into reciprocal roaming agreements with operators of other wireless systems covering virtually all systems with code division multiple access ( cdma ) technology in the united states, canada and mexico. roaming agreements offer customers the opportunity to roam on these systems. these reciprocal agreements automatically pre-register the customers of u.s. cellular s systems in the other carriers systems. in addition, a customer of a participating system roaming in a u.s. cellular market where this arrangement is in effect is able to make and receive calls or data on u.s. cellular s system. the charge for this service is negotiated as part of the roaming agreement between u.s. cellular and the roaming customer s carrier. u.s. cellular bills this charge to the customer s home carrier, which then may bill the customer. in many instances, based on competitive factors, carriers, including u.s. cellular, may not charge their customers, or charge lower amounts to their customers than the amounts actually charged by other wireless carriers for roaming. since 2010, u.s. cellular has offered nationwide 3g data roaming services, allowing its customers to access high-speed data across the country. u.s. cellular is currently exploring 4g roaming agreements with operators of other wireless systems. the fcc s adoption of mandatory 4g roaming rules, which were upheld by the united states court of appeals for the district of columbia, may be of assistance in the negotiation of 4g roaming agreements with other wireless operators in the future. however, technological challenges currently exist which limit the interoperability of 4g wireless devices on other carriers networks. specifically, wireless devices support certain configurations of 4g spectrum frequencies and as a result 4g wireless devices offered by carriers are not necessarily compatible with the networks of other carriers. u.s. cellular is working with other carriers and original equipment manufacturers in order to resolve and mitigate interoperability issues; however, there is no assurance that these issues will be fully resolved or mitigated. accordingly, both the timing of when u.s. cellular will be able to offer 4g roaming, and in which geographies, are uncertain. technology and system design and construction technology. wireless telecommunication systems transmit voice, data, graphics and video through the transmission of signals over networks of radio towers using radio spectrum licensed by the fcc. access to local, regional, national and worldwide telecommunications networks is provided through system interconnections. u.s. cellular currently deploys cdma digital technology throughout its networks. through roaming agreements with other cdma-based wireless carriers, u.s. cellular s customers may access cdma service in virtually all areas of the united states, as well as parts of canada and mexico. u.s. cellular believes that cdma technology offers advantages compared to the other second generation digital technologies, including greater spectral efficiency as well as better call quality. another digital technology, global system for mobile communication ( gsm ), has a larger installed base of customers worldwide. since cdma technology currently is not compatible with gsm technology, u.s. cellular customers with cdma-only based wireless devices are currently not able to use their wireless devices when traveling through areas serviced only by gsm-based networks. however, both cdma and gsm technologies are expected to be succeeded by 4g lte technology over the next several years. as described above, there are challenges to implementing 4g lte roaming and interoperability. carriers may deploy 4g lte technology on different radio bands, or spectrum, and devices from one carrier may not have the required antennas to operate on another carrier s network and, as such, would not be able to roam on that network. a high-quality network, supported by continued investments in that network, will remain an important factor for wireless companies to remain competitive. u.s. cellular continually reviews its long-term technology plans. since 2006, u.s. cellular has offered services based on 3g technology and, in 2012, u.s. cellular launched services based on 4g lte technology in conjunction with king street wireless l.p. as of december 31, 2012, u.s. cellular deployed 4g lte technology that covered approximately 61% of its postpaid customers and anticipates further expansion of 4g lte in 2013. system design and construction. u.s. cellular designs and constructs its systems in a manner it believes will permit it to provide high-quality service to substantially all types of compatible wireless devices. designs are based on engineering studies which relate to specific markets, in support of the larger network. such engineering studies are performed by u.s. cellular personnel or third-party engineering firms. network reliability is given careful consideration and extensive backup redundancy is employed in many aspects of u.s. cellular s network design. route diversity, ring topology and extensive use of emergency standby power are also utilized to enhance network reliability and minimize service disruption from any particular network element failure. 8 in accordance with its strategy of building and strengthening its operating market areas, u.s. cellular has selected high-capacity digital wireless switching systems that are capable of serving multiple markets through a single mobile telephone switching office. u.s. cellular s wireless systems are designed to facilitate the installation of equipment that will permit microwave interconnection between the mobile telephone switching office and the cell sites. u.s. cellular has implemented such microwave interconnection in many of the wireless systems it operates. in other areas, u.s. cellular s systems rely upon wireline telephone connections to link cell sites with the mobile telephone switching office. although the installation of microwave network interconnection equipment requires a greater initial capital investment, a microwave network enables a system operator to reduce the current and future charges associated with leasing backhaul capacity from a wireline telephone company. u.s. cellular is currently transitioning its existing wireline backhaul capacity to a packet-based ethernet technology from circuit-switched technology. in addition to allowing for increased data capacity, the packet-based backhaul reduces the costs of data transmission. u.s. cellular believes that currently available technologies and appropriate capital additions will allow sufficient capacity on its networks to meet anticipated demand for voice and data services over the next few years. u.s. cellular s continued investment in new licenses will support future demand for fourth generation broadband services using 4g lte. increasing demand for high-speed data and video services may require the acquisition of additional licenses or spectrum to provide sufficient capacity in markets where u.s. cellular currently offers or may offer these services. construction of wireless systems is capital-intensive, requiring substantial investment for land and improvements, buildings, towers, mobile telephone switching offices, cell site equipment, microwave equipment, engineering and installation. u.s. cellular primarily uses its own personnel to engineer each wireless system it owns and operates, and engages contractors to construct the facilities. the costs (inclusive of the costs to acquire licenses) to develop the systems which u.s. cellular operates have historically been financed primarily through proceeds from debt and equity offerings, with cash generated by operations, and proceeds from the sales of wireless interests. u.s. cellular believes that existing cash and investments balances, expected cash flows from operating and investing activities and funds available under its revolving credit facility provide substantial liquidity and financial flexibility for u.s. cellular to meet its normal financing needs (including working capital, construction and development expenditures) for the foreseeable future. in addition, u.s. cellular may access public and private capital markets to help meet its financing needs. competition the wireless telecommunication industry is highly competitive. u.s. cellular competes directly with several wireless service providers in each of its markets. in general, there are between three and five competitors in each wireless market in which u.s. cellular provides service, excluding resellers and mobile virtual network operators. u.s. cellular generally competes against each of the national wireless companies: verizon wireless, at&t mobility, sprint nextel, and t-mobile usa. these competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than u.s. cellular. in addition, in certain markets, u.s. cellular competes against other regional wireless companies, including leap wireless international, and resellers of wireless services. since u.s. cellular s competitors do not disclose their subscriber counts in specific regional service areas, market share for the competitors in each regional market cannot be precisely determined. since each of these competitors operates on systems using spectrum licensed by the fcc and has comparable technology and facilities, competition among wireless service providers for customers is principally on the basis of types of products and services, price, size of area covered, call quality, network speed and responsiveness of customer service. u.s. cellular employs a customer satisfaction strategy throughout its markets that it believes has contributed to its overall success. wireless service providers continue to use wireless device availability and pricing to gain a competitive advantage since the markets for wireless service are nearly fully saturated. the wireless device has become more than just a means for communication. consumers attitudes have shifted, and continue to shift, and a wireless device becomes more important year after year as it expands to become the primary communication link to the world as well as a personal entertainment center and source of information. u.s. cellular believes that customer growth will be achieved primarily by capturing customers switching from other wireless carriers, selling additional products and services to its existing customers, and increasing the number of multi-device users among its existing customers. the use of national advertising and promotional programs by the national wireless service providers may be a source of additional competitive and pricing pressures in all u.s. cellular markets, even if those operators may not provide direct service in a particular market. in addition, in the current wireless environment, u.s. cellular s ability to compete depends on its ability to offer family and national calling plans. u.s. cellular provides wireless services comparable to the national competitors, but the national wireless companies operate in a wider geographic area and are able to offer no- or low-cost roaming and long-distance calling packages over a wider area on their own networks than u.s. cellular can offer on its network. when u.s. cellular offers the same calling area as one of these competitors, u.s. cellular incurs roaming charges for calls made in portions of the calling area which are not part of its network, thereby increasing its cost of operations. u.s. cellular depends on roaming agreements with other wireless carriers to provide voice and data roaming capabilities in areas not covered by u.s. cellular s network. 9 bundled offerings, in the form of triple plays and quadruple plays (combination of cable or satellite video service, high-speed internet, wireline service, and wireless service), are common among some of u.s. cellular s competitors. in addition, wireless carriers and others are beginning to roll out new or enhanced technologies to better meet the needs of the anytime, anywhere consumer. convergence is taking place on many levels, including dual-mode wireless devices that act as wireline or wireless devices depending on location and the incorporation of wireless hot spot technology in wireless devices for improved in-building coverage and for making internet access seamless regardless of location. although less directly a substitute for other wireless services, wireless data services such as wi-fi may be adequate for those who do not need full mobility wide area roaming or full two-way voice services. technological advances or regulatory changes in the future may make available other alternatives to wireless service, thereby creating additional sources of competition. u.s. cellular s approach in 2013 and in future years will be to focus on the unique needs and attitudes towards wireless service of its selected target segments. u.s. cellular will deliver selected, targeted high quality products and services at fair prices and will continue to differentiate itself through the customer experience and service quality. u.s. cellular s customer-centric approach, highly reliable network, as evidenced by numerous consumer satisfaction awards based on survey results, and cutting-edge wireless devices all represent examples of how u.s. cellular believes it is differentiating itself from competitors as it relates to the customer experience. u.s. cellular s ability to compete successfully in the future, and to meet necessary growth and return on capital, will depend upon its ability to anticipate and respond to changes related to new service offerings, customer preferences, competitors pricing strategies, technology, demographic trends, economic conditions and access to adequate spectrum resources. business development strategy u.s. cellular s business development strategy is to obtain interests in and access to wireless licenses in areas adjacent to or in proximity to its other wireless licenses, thereby building contiguous operating market areas. u.s. cellular anticipates that grouping its operations into market areas will continue to provide it with certain economies in its capital and operating costs. u.s. cellular may continue to make opportunistic acquisitions or exchanges of markets that further strengthen its operating market areas and in other attractive markets. u.s. cellular also believes that the acquisition of additional licenses within its operating territories will enhance its network capacity to meet its customers increased demand for data services. u.s. cellular seeks to acquire noncontrolling interests in licenses in which it already owns the majority interest and/or operates the license. from time to time, u.s. cellular has divested outright or included in exchanges for other wireless interests certain consolidated and investment interests that were considered less essential to its operating strategy. as part of this strategy, u.s. cellular from time to time may be engaged in negotiations relating to the acquisition, exchange or disposition of companies, strategic properties or wireless spectrum. in general, u.s. cellular may not disclose such transactions until there is a definitive agreement. in addition, u.s. cellular may participate as a bidder, or member of a bidding group, in auctions for wireless spectrum administered by the fcc. in general, u.s. cellular may not disclose any such participation unless it or such bidding group is announced as a winning bidder by the fcc. in addition to the divestiture transaction discussed above, u.s. cellular engaged in the following significant transactions in the last five years. spectrum transactions. the following significant license transactions provided u.s. cellular with additional spectrum to meet anticipated future capacity and coverage requirements in several of its markets. no cash, customers, network assets, other assets or liabilities were included in these transactions. in addition to the licenses listed below, u.s. cellular has acquired a number of other licenses as part of less significant transactions in recent years. 2012 700 mhz a-block. on august 15, 2012, u.s. cellular completed a license purchase whereby u.s. cellular received four 700 mhz a-block spectrum licenses covering portions of iowa, kansas, missouri, nebraska, and oklahoma. on november 20, 2012, u.s. cellular completed a license purchase whereby u.s. cellular received seven 700 mhz a-block spectrum licenses covering portions of illinois, michigan, minnesota, missouri, nebraska, oregon, washington and wisconsin. 2011 spectrum swap. on september 30, 2011, u.s. cellular completed an exchange whereby u.s. cellular received eighteen 700 mhz spectrum licenses covering portions of idaho, illinois, indiana, kansas, nebraska, oregon and washington in exchange for two pcs spectrum licenses covering portions of illinois and indiana. fcc auctions. as more fully described in the regulation section below, in 2012, the fcc conducted a single round, sealed bid, reverse auction to award mobility fund phase i support to bidders that commit to provide wireless service in areas designated as unserved by the fcc. u.s. cellular and several of its subsidiaries were winning bidders in eligible areas within 10 states. 10 from time to time, the fcc conducts auctions through which additional spectrum is made available for the provision of wireless services. u.s. cellular has participated in certain prior fcc auctions indirectly through its limited partnership interests. each entity qualified as a designated entity and thereby was eligible for bidding credits with respect to most licenses purchased in accordance with the rules defined by the fcc for each auction. in most cases, the bidding credits resulted in a 25% discount from the gross winning bid. the fcc s auction 73 for spectrum in the 700 mhz band closed on march 20, 2008. u.s. cellular participated in auction 73 indirectly through its limited partnership interest in king street wireless l.p. ( king street wireless ). king street wireless was the successful winning bidder of 152 licenses in auction 73. these licenses were granted by the fcc in december 2009. regulation regulatory environment. u.s. cellular s operations are subject to fcc and state regulation. the wireless licenses that are held by u.s. cellular and by the designated entities in which u.s. cellular owns a non-controlling interest are granted by the fcc for the use of radio frequencies and are an important component of the overall value of u.s. cellular s consolidated assets. the construction, operation and transfer of wireless systems in the united states are regulated to varying degrees by the fcc pursuant to the communications act of 1934 ( communications act ). in 1996, congress enacted the telecommunications act of 1996 ( telecommunications act ), which amended the communications act. the telecommunications act mandated significant changes in telecommunications rules and policies to promote competition, ensure the availability of telecommunications services to all parts of the united states and streamline regulation of the telecommunications industry to remove regulatory burdens, as competition developed. the fcc has promulgated regulations governing construction and operation of wireless systems, licensing (including renewal of licenses) and technical standards for the provision of wireless services under the communications act, and has implemented the legislative objectives of the telecommunications act, as discussed below. licensing wireless service. wireless licenses are granted by the fcc based on various geographic areas. the completion of acquisitions, involving the transfer of control of all or a portion of a wireless system, requires prior fcc approval. the fcc determines on a case-by-case basis whether an acquisition of wireless licenses is in the public interest. the communications act also requires the fcc to award new licenses for most commercial wireless services through a competitive bidding process in which spectrum is awarded to bidders in an auction. from time to time, the fcc conducts auctions through which additional spectrum is made available for the provision of wireless services. u.s. cellular has participated in such auctions in the past and is likely to participate in any other auctions conducted by the fcc in the future as an applicant or as a non-controlling partner in another auction applicant. fcc anti-collusion rules place certain restrictions on business communications and disclosures by participants in an fcc auction. licensing facilities. the fcc must be notified each time an additional cell site for a cellular system is constructed which enlarges the service area of a given cellular system. u.s. cellular believes that its facilities are in compliance with these requirements. licensing commercial mobile radio service. pursuant to the 1993 amendments to the communications act, cellular, personal communications, advanced wireless, and 700 mhz services are classified as commercial mobile radio service in that they are services offered to the public for a fee and are interconnected to the public switched telephone network. the fcc has determined that it will not require carriers providing such services to comply with a number of statutory provisions otherwise applicable to common carriers, such as the filing of tariffs. all commercial mobile radio service wireless licensees must satisfy specified coverage requirements. licensees which fail to meet the coverage requirements may be subject to forfeiture of their licenses. wireless licenses are generally granted for a ten year term or, in some cases, for fifteen years. the fcc has established standards for conducting comparative renewal proceedings between a wireless licensee seeking renewal of its license and challengers filing competing applications. all of u.s. cellular s licenses for which it applied for renewal between 1995 and 2012 have been renewed. in 2010, the fcc released a notice of proposed rulemaking ( nprm ) regarding wireless services renewal proceedings. pursuant to the nprm, the fcc would abolish comparative renewal proceedings, but establish criteria by which it would determine whether a wireless licensee was entitled to license renewal. the proposed changes have been opposed by most wireless carriers, including u.s. cellular. it is, however, likely that the fcc will take some action to modify the license renewal process. u.s. cellular expects to meet the current criteria of any license renewal process. u.s. cellular conducts and plans to conduct its operations in accordance with all relevant fcc rules and regulations and anticipates being able to qualify for renewal expectancy in its upcoming renewal filings whatever renewal criteria are applied. accordingly, u.s. cellular expects to be able to renew its licenses under current regulations. however, changes in the regulation of wireless operators or their activities and of other mobile service providers or changes in the fcc s renewal requirements could have a material adverse effect on u.s. cellular s operations. 11 e-911. the fcc has imposed e-911 regulations on wireless carriers. the rules require wireless carriers to provide different levels of detailed location information about e-911 callers depending on the capabilities of the local emergency call center. u.s. cellular is in compliance with the fcc s requirements regarding e-911. hearing aid compatibility. the fcc has imposed hearing aid compatibility requirements on wireless carriers. these rules mandate that carriers offer to customers a certain number or percentage of handsets which are compatible with different types of hearing aids. the rules also require certain types of marketing and labeling practices in relation to such handsets, as well as certain disclosures on wireless carrier websites. there are also annual carrier reporting requirements regarding hearing aid compatibility. u.s. cellular is in compliance with the fcc s hearing aid compatibility requirements. telecommunications act general. the primary purpose of the telecommunications act is to open all telecommunications markets to competition. the telecommunications act makes most direct or indirect state and local barriers to competition unlawful. it directs the fcc to preempt all inconsistent state and local laws and regulations, after notice and comment proceedings. it also enables electric and other utilities to engage in telecommunications service through qualifying subsidiaries. only narrow powers over wireless carriers are left to state and local authorities. each state retains the power to impose competitively neutral requirements that are consistent with the telecommunications act s universal service provisions and necessary for universal services, public safety and welfare, continued service quality and consumer rights. while a state may not impose requirements that effectively function as barriers to entry, it retains limited authority to regulate certain competitive practices in rural telephone company service areas. the telecommunications act authorizes and directs the fcc to establish an explicit universal service fund, to preserve and advance universal access to telecommunications services in rural and high-cost areas of the country, to ensure that low-income consumers have access, and to promote access for schools, libraries and health care providers. the telecommunications act requires all interstate telecommunications providers, including wireless service providers, to make an equitable and non-discriminatory contribution to support the cost of providing universal service, unless their contribution would be de minimis. at present, the provision of wireline and wireless telephone service in high cost areas is subsidized by support from the universal service fund ( usf ) to which all carriers with interstate and international revenues must contribute. carriers are free to pass on the cost of such contributions to their customers. in 2012, u.s. cellular contributed $112 million into the federal usf and passed on the cost of such contributions to its customers. wireless carriers may be designated by states, or in some cases by the fcc, as eligible to receive universal service support payments if they provide specified services in high cost areas. in 2012, u.s. cellular received approximately $140.8 million in high cost support for service to high cost areas in the states of illinois, iowa, kansas, maine, missouri, nebraska, new hampshire, new york, north carolina, oklahoma, oregon, tennessee, virginia, washington, wisconsin and west virginia. this high cost support is undergoing change, as set forth below. national broadband plan. in 2009, congress directed the fcc to develop a national broadband plan (the plan ) to ensure every american has access to broadband capability. in march 2010, the fcc released the plan which describes the fcc s goals in enhancing broadband availability and the methods for achieving those goals over the next decade. among the recommendations in the plan which are significant to wireless providers are a series of proposals to make up to 500 mhz of spectrum newly available for broadband wireless uses by 2020, with a benchmark of making 300 mhz available by 2015, to reserve additional spectrum for unlicensed wireless use and to make more spectrum available for opportunistic and secondary uses. the plan also made recommendations for transitioning the usf from supporting voice networks to broadband networks over time. fcc s usf and icc reform order. pursuant to the plan and subsequent notices of proposed rulemaking, on november 18, 2011, the fcc released a report and order and further notice of proposed rulemaking ( reform order ) adopting reforms of its universal service and intercarrier compensation mechanisms, and proposing further rules to advance reform. the reform order substantially revises the current usf high cost program and intercarrier compensation regime. the current usf program, which supports voice services, began to be phased out in 2012. as a replacement, the fcc is adopting the connect america fund ( caf ), a new mobility fund, and a remote area fund, which will collectively support broadband-capable networks. mobile wireless carriers such as u.s. cellular may be eligible to receive funding under each of these funds under certain circumstances. the fcc has determined that both wireline and wireless facilities should be supported with one wireline carrier and one mobile carrier receiving support in each area. the mobility fund will be implemented in two phases. the phase i mobility fund which was implemented in 2012 is designed to provide one-time funding through a reverse auction to fill in coverage in dead zones that currently lack 3g wireless service. in phase i, $300 million was allocated throughout the country and an additional $50 million was set aside for tribal lands through the reverse auction described below. the phase ii mobility fund will have a budget of up to $500 million per year (up to $100 million of which is reserved for tribal lands), with the method of disbursement to be determined in a further nprm. phase ii funding will be provided to areas that lack 4g wireless service. the caf will support service to homes, businesses, and anchor institutions, using any technology that can meet the technical requirements. 12 on september 27, 2012, the fcc conducted a single round, sealed bid, reverse auction to award up to $300 million in one-time mobility fund phase i support to successful bidders that commit to provide 3g, or better, wireless service in areas designated as unserved by the fcc. this auction was designated by the fcc as auction 901. u.s. cellular and several of its wholly-owned subsidiaries participated in auction 901 and were winning bidders in eligible areas within 10 states and will receive up to $40.1 million in one-time support from the mobility fund. as part of the auction rules, winning bidders must complete network build-out projects to provide 3g or 4g service to these areas within two or three years, respectively, and must also make their networks available to other providers for roaming. winning bidders will receive support funding primarily upon achievement of coverage milestones defined in the auction rules. as a result of the funding awards in the phase i mobility fund, u.s. cellular will be required to meet certain regulatory conditions in the areas where it will receive funding to provide service. examples of these regulatory conditions include: allowing other carriers to collocate on u.s. cellular s towers, allowing voice and data roaming on u.s. cellular s network, and submitting various reports and certifications to retain eligibility each year. it is possible that additional regulatory requirements will be imposed pursuant to the fcc s reform order. the terms and rules for participating in the caf as a wireless eligible telecommunications carrier ( etc ) have not been developed yet by the fcc. it is uncertain whether u.s. cellular will obtain support through the caf or phase ii of the mobility fund. if u.s. cellular is successful in obtaining support, it will be required to meet certain regulatory conditions to obtain and retain the right to receive support including, for example, allowing other carriers to collocate on u.s. cellular s towers, allowing voice and data roaming on u.s. cellular s network, and submitting various reports and certifications to retain eligibility each year. it is possible that additional regulatory requirements will be imposed pursuant to the fcc s reform order. u.s. cellular s current etc support is scheduled to be phased down. support for 2012 (excluding certain adjustments) was frozen on january 1, 2012 using support for 2011 as a baseline and was reduced by 20% starting in july 2012. the reduction in usf support that u.s. cellular otherwise would have received in 2012 was approximately $16 million. support will be further reduced by 20% in july of each subsequent year; however, if the phase ii mobility fund is not operational by july 2014, the phase down will halt at that time and u.s. cellular will receive 60% of its baseline support until the phase ii mobility fund is operational. with respect to intercarrier compensation, the reform order provides for a reduction in the charges that u.s. cellular pays to wireline phone companies to transport and terminate calls that originate on u.s. cellular s network, which will reduce u.s. cellular s operating expenses. the reductions in intercarrier charges are to increase over the next five to ten years, further reducing u.s. cellular s operating expenses. the fcc s reform order, and any subsequent orders it adopts to reform universal service and intercarrier compensation, are subject to judicial review. multiple appeals and petitions for reconsideration have been filed with respect to the fcc reform order, but it has not been stayed. at this time, u.s. cellular cannot predict the timing or outcome of any such appeals or petitions, or whether such appeals or petitions would result in a material adverse effect on u.s. cellular s business, financial condition or results of operations. u.s. cellular also cannot predict the net effect of the fcc s changes to the usf high cost support program in the reform order or whether reductions in support will be fully offset with additional support from the caf or the mobility fund. accordingly, u.s. cellular cannot predict whether such changes will have a material adverse effect on u.s. cellular s business, financial condition or results of operations. incremental charges. in october 2010, the fcc released an nprm proposing that wireless carriers be required, among other things, to alert customers when they approach and reach usage limits for voice and data services which, if exceeded, would result in extra charges beyond the customer s rate plan. in october 2011, a number of carriers, including u.s. cellular, entered into voluntary commitments to minimize unexpected incremental charges on customers bills, precluding the need for the fcc to adopt rules proposed in its nprm. although u.s. cellular already offers certain consumer protections, such as its overage cap and overage protection services, u.s. cellular will incur additional regulatory obligations as a result of the voluntary commitments; however, such burdens are not expected to have a material effect on u.s. cellular s operations. 13 net neutrality. in 2009, the fcc initiated a rulemaking proceeding designed to codify its existing net neutrality principles and impose new requirements that could have the effect of restricting the ability of wireless internet service providers to manage applications and content that traverse their networks. in december 2010, after a lengthy proceeding which considered different approaches including the reclassification of internet access as common carrier service under title ii of the communications act, the fcc adopted a net neutrality rule based on its title i ancillary authority to enforce different parts of the communications act. the rule requires all providers of broadband internet access, including both fixed (that is, telephone and cable) and wireless providers, to publicly disclose accurate information regarding their network management practices, performance and commercial terms sufficient for consumers to make informed choices regarding the use of such services. the rule also prohibits all internet providers from blocking consumers access to lawful websites, subject to reasonable network management, and from blocking applications that compete with the provider s voice or video telephony services, also subject to reasonable network management. the rule subjects the providers of fixed but not wireless broadband internet access to a prohibition on unreasonable discrimination in transmitting internet traffic over their networks, also subject to reasonable network management. the exemption of wireless providers from this part of the rule reflects recognition of the capacity constraints and other special conditions under which mobile broadband service is offered and the competitive nature of evolving wireless networks. thus, the fcc at this time considered it appropriate to take only the measured steps with respect to mobile broadband service reflected in the rule. the reform order is generally controversial and has been challenged in the courts. u.s. cellular cannot predict the outcome of such cases. data roaming. in 2007, the fcc adopted a rule requiring that wireless carriers offer voice roaming agreements to each other on a just, reasonable and non-discriminatory basis. the fcc stated that this was a common carrier obligation under title ii of the communications act. in 2011, the fcc broadened this obligation to require carriers to offer wireless data roaming agreements to each other. however, because this obligation involved the use of the internet, it could not be a common carrier obligation. thus, the fcc grounded the obligation in title iii of the communications act, under which the fcc regulates use of the radio spectrum. this order was challenged in the u.s. court of appeals for the district of columbia circuit on the grounds that it constituted an unlawful common carrier regulation. however, in december 2012, the court upheld the fcc s ruling. u.s. cellular was an intervenor in the case in support of the fcc and believes that the fcc and court rulings will be beneficial to it and similarly situated wireless carriers. cvaa. in 2010, congress enacted the twenty-first century communications and video accessibility act ( cvaa ), to ensure that people with disabilities have access to advanced communications services ( acs ). the cvaa is currently the subject of two fcc rulemakings. the first deals with access to acs generally and specifically with access to mobile browsers by persons who are blind or who have visual impairments. the second deals with the closed captioning obligations of wireless manufacturers and wireless providers. there are also recordkeeping and reporting requirements, which come into effect in march and april of 2013, respectively. as of october 1, 2013, a mobile phone manufacturer that includes a browser in its device or a mobile phone provider such as u.s. cellular that sells a mobile phone which includes such a browser must ensure that the browser functions are accessible to and usable by individuals who are blind or who have a visual impairment, unless doing so is not achievable. as of january 1, 2014, wireless carriers will be required to deliver all programming received from a video programming owner or other origination source containing closed captioning with the original closed captioning data intact, unless such programming is recaptioned or the captions are reformatted by the programming distributor. u.s. cellular is working with its trade association, with standards setting organizations and with its vendors to comply with these requirements. spectrum holdings. in september 2012, the fcc adopted an nprm which proposed a review of its policies regarding mobile spectrum holdings in the context of both auctions and secondary market transactions. comments and reply comments were filed in november 2012 and january 2013. in the proceeding, the fcc sought and received comment on whether it should retain or modify the current case by case analysis used to evaluate mobile spectrum holdings, or adopt bright line limits on the amount of wireless spectrum which may be held by any carrier. the fcc also is considering updating the spectrum bands included in the evaluation of mobile spectrum holdings and whether to make distinctions between different bands in evaluating spectrum holdings. the fcc also is re-examining its determinations of geographic and product markets in the context of evaluating wireless transactions. it also is reviewing its spectrum attribution rules and remedies if a proposed transaction does not comply with its rules or policies. u.s. cellular cannot predict what, if any, changes the fcc will make to the foregoing rules, but intends to comply with all applicable requirements. 14 state and local regulation. u.s. cellular is subject to state and local regulation in some instances. in 1981, the fcc preempted the states from exercising jurisdiction in the areas of licensing, technical standards and market structure. in 1993, congress preempted states from regulating the entry of wireless systems into service and the rates charged by wireless systems to customers. the siting and construction of wireless facilities, including transmitter towers, antennas and equipment shelters are still subject to state or local zoning and land use regulations. however, in 1996, congress amended the communications act to provide that states could not discriminate against wireless carriers in tower zoning proceedings and had to decide on zoning requests with reasonable speed. in addition, states may still regulate other terms and conditions of wireless service. in 2000, the fcc ruled that the preemption provisions of the communications act do not preclude the states from acting under state tort, contract, and consumer protection laws to regulate the practices of commercial mobile radio service carriers, even if such activities might have an incidental effect on wireless rates. this ruling has led to more state regulation of commercial mobile radio service carriers, particularly from the standpoint of consumer protection. u.s. cellular intends to comply with state regulation and to seek reasonable regulation of its activities in this regard. the fcc is required to forbear from applying any statutory or regulatory provision that is not necessary to keep telecommunications rates and terms reasonable or to protect consumers. a state may not apply a statutory or regulatory provision that the fcc decides to forbear from applying. in addition, the fcc must review its telecommunications regulations every two years and change any that are no longer necessary. further, the fcc is empowered under certain circumstances to preempt state regulatory authorities if a state is obstructing the communications act s basic purposes. u.s. cellular and its subsidiaries have been and intend to remain active participants in proceedings before the fcc and state regulatory authorities. proceedings with respect to the foregoing policy issues before the fcc and state regulatory authorities could have a significant impact on the competitive market structure among wireless providers and the relationships between wireless providers and other carriers. u.s. cellular is unable to predict the scope, pace or financial impact of policy changes which could be adopted in these proceedings. radio frequency emissions. the fcc has adopted rules specifying standards and the methods to be used in evaluating radio frequency emissions from radio equipment, including network equipment and wireless devices used in connection with commercial mobile radio service. these rules were upheld on appeal by the u.s. court of appeals for the second circuit in 2000. the u.s. supreme court declined to review the second circuit s ruling. u.s. cellular s network facilities and the wireless devices it sells to customers comply with these standards. in august 2012, the government accountability office issued a report which recommended that the fcc reassess its current radio frequency emission limits. in october 2012, in guidance released by the fcc office of engineering and technology, it was stated that that the fcc intends to initiate a rulemaking proceeding dealing, in part, with radio frequency emissions from mobile devices. the fcc could adopt amended radio frequency emission limits and/or testing procedures for mobile devices in such a rulemaking proceeding, following review of comments filed by affected parties and members of the public. 15 tds telecom operations general tds telecom is a holding company that provides diversified telecommunications services (voice, broadband, network access and video services) and hosted and managed services. tds telecom s wireline subsidiaries provide high-quality telecommunications services to commercial and residential customers primarily in rural and suburban communities. as of december 31, 2012, tds telecom operates 115 incumbent local exchange carriers ( ilec ) in 28 states and provides telecommunications services as a competitive local exchange carrier ( clec ) in illinois, michigan, minnesota, and wisconsin. tds telecom also operates tds hosted & managed services, llc ( tds hms ) which specializes in planning, engineering, procurement, installation, sales and management of information technology ( it ) infrastructure, including: hosted application management, managed hosting, and reliacloud enterprise cloud services. tds hms operates data centers in arizona, iowa, minnesota and wisconsin. wireline operations tds telecom operates in a mix of rural, small town and suburban ilec markets and urban clec markets, with the largest concentrations of its customers in the upper midwest and the southeast. tds telecom provides retail telecommunications services to both residential and commercial customers that reside within its respective service territories. tds telecom also provides services to wholesale customers, who are primarily interexchange carriers (companies that provide long-distance telephone and data services between local exchange areas) that compensate tds telecom for the use of its facilities to originate and terminate their voice and data transmissions. the table below provides information about the wireline customer connections served by tds telecom as of december 31, 2012. tds telecom customer connections as of december 31, 2012 (1) state residential commercial total percent of total wisconsin 148,200 138,400 286,600 29 % tennessee 84,600 21,100 105,700 11 % michigan 30,800 67,400 98,200 10 % minnesota 29,200 53,100 82,300 8 % georgia 47,900 9,800 57,700 6 % new hampshire 33,100 7,800 40,900 4 % indiana 30,800 5,900 36,700 4 % alabama 22,300 4,800 27,100 3 % maine 22,100 4,400 26,500 3 % oklahoma 19,500 3,800 23,300 2 % total for 10 largest states 468,500 316,500 785,000 80 % other states 144,000 50,900 194,900 20 % total 612,500 367,400 979,900 100 % (1) customer connections are the sum of physical access lines and high-capacity data circuits via various technologies including dsl and dedicated internet, plus the number of telephone handsets, data lines and internet protocol ( ip ) trunks providing communications using ip networking technology. a physical access line is the individual circuit connecting a customer to a telephone company s central office facilities. wireline products, services and revenue sources tds telecom s ilecs and clecs generate revenues by providing the following products and services to commercial and residential customers and carriers: voice services, including basic local and long-distance telephone service, voice over internet protocol ( voip ) and enhanced local services like voice mail, caller id and call forwarding; broadband services, including digital subscriber line ( dsl ), other forms of high-speed internet and other enhanced data services; 16 network access services to interexchange carriers for the origination and termination of interstate and intrastate long distance phone calls on tds telecom s network and special access services to carriers and others; and internet protocol television ( iptv ) and satellite video. the following table summarizes tds telecom s ilec and clec operating revenue by category: for year ended december 31, 2012 (dollars in thousands) ilec % clec % total % residential $ 279,400 37 % $ 17,192 2 % $ 296,592 39 % commercial 97,382 13 % 138,637 19 % 236,019 32 % wholesale 201,630 27 % 17,568 2 % 219,198 29 % total operating revenue $ 578,412 77 % $ 173,397 23 % $ 751,809 100 % residential. tds telecom s residential customer operations provide diversified telecommunications services, including wireline local and long-distance telephone service, high-speed data products and video services. video services are offered through either tds telecom s own iptv offering or through a resale agreement with a satellite provider. tds telecom provides long-distance service by reselling long-distance service in its markets and through connections with long-distance carriers which purchase network access from the tds telecom ilecs. residential customer operations account for 63% of tds telecom s combined ilec and clec connections and 39% of total combined ilec and clec revenue. as of december 31, 2012, approximately 85% of tds telecom s ilec residential customers are located in rural and small town areas, while the other 15% are located in more suburban markets. tds telecom s clec residential customer strategy is to provide continuing service to its current residential customer base with high quality customer service and competitive pricing, but not to seek any new residential customers due to their high acquisition costs and due to regulatory changes which have increased network cost and limited network availability. therefore, it is expected that the number of residential customers within tds telecom s clec markets will continue to decline. there are 32,800 residential connections remaining at december 31, 2012. commercial. tds telecom s commercial customer operations provide high-quality voice and data solutions including local and long-distance telephone service, broadband, ip based services, and other services to businesses ranging in size from primarily small businesses up to large corporations. tds telecom provides these commercial customers with secure and reliable internet access, data connections and advanced voice service with innovative voip features. tds telecom addresses customer needs for increased communications capabilities at reduced costs by matching these needs to new and existing technologies to create greater efficiencies and by providing support for these technologies after the sale. the tds telecom flagship product is managedip, a fully-hosted, software and hardware solution that provides customers with a secure internet connection and the latest voip features and capabilities. tds managedip is available in all clec markets and to selected ilec markets covering 83% of ilec commercial customers at december 31, 2012. tds telecom s telecommunications services for commercial customers are focused on small to medium-sized customers. medium-sized commercial prospects are characterized by above average access line to employee ratios, heavier utilization of broadband services and a focus on using telecommunications for business improvement. an emphasis on product development has led to the introduction of several integrated voice and data solutions, as well as the creation of small business bundled products. these bundled products make buying voice and broadband services easier and increase the value of these products to targeted business customers. offering bundled voice and broadband solutions provisioned on a single access line provides for direct cost savings to the customer, removes distance limitations commonly associated with high speed data technology, and gives the customer greater flexibility to grow business telecommunications use. additional products, services and applications are also available to new and existing commercial accounts. expanded offerings for the commercial sector include ip-enabled telephone systems and traditional telephone systems. combining service offerings with customer premise equipment ( cpe ) is intended to drive greater revenue per customer while promoting a one vendor telecommunications provider experience for cpe, voice and broadband services. ip and managed services product sets offered include firewall services, internet intrusion protection services, and universal resource locater ( url ) filtering. all of these provide commercial customers with additional services, controls and network protection. 17 wholesale. tds telecom continues to provide a high level of service to traditional interexchange carriers. tds telecom s wholesale market focus is on access revenues, which is the compensation received for carrying long distance and data traffic on its networks. universal service fund ( usf ) revenues, which support the cost of providing telecommunication services in high cost areas, are also included in wholesale service revenues. recent and proposed regulatory changes may affect the amounts of tds telecom s future wholesale revenues. on november 18, 2011, the fcc released the reform order adopting reforms of its universal service and intercarrier compensation mechanisms, establishing a new, broadband-focused support mechanism, and proposing further rules to advance reform. see regulation below. wireline strategy tds telecom seeks to be the preferred telecommunications solutions provider for both residential and commercial customers by developing and delivering high-quality products that meet or exceed customers needs and to outperform the competition by maintaining superior customer service. tds telecom s residential customer strategy is to provide voice, high-speed data, and video services through value-added bundling of products. the commercial focus is to provide advanced ip-based voice and data services, as well as information technology solutions. tds telecom is actively investing in the continuing transformation of its networks as it works to deploy advanced technologies and new services. tds telecom seeks to capitalize on its strong local presence and strives to champion economic development in its communities by actively advocating for state and federal regulatory frameworks that would enable its operations to grow profitably and continue to meet customer expectations for new and improved services. tds telecom s professional field service representatives both live and work in many of the communities they serve. to better meet the changing needs of its customers, tds telecom utilizes specialized customer service teams to more effectively and efficiently serve the individual needs of its retail customer segment. tds telecom believes that its residential and business customers have a strong preference to purchase complementary telecommunications services from a single provider. tds telecom has found that by offering and bundling services in customer-friendly packages, it can build customer loyalty and reduce customer churn. tds telecom offers bundles which include local telephone services, high-speed data services, long-distance services and video services. tds telecom s objective is to be the preferred broadband provider in its ilec residential markets by offering a wide range of premium internet services. it continues to invest in high-speed data service and as of december 31, 2012, was able to provide this service to 95% of its ilec physical access lines. at that date, 58% of the households passed in its ilec markets had 10 megabits per second or faster service available. in selected markets, tds telecom s marketing and promotional strategies will lead with superior quality iptv video. this interactive video offering is intended to counter intensifying competition for video service and retain the video component of the double and triple play customer bundles. tds telecom has continued to expand its presence in the business broadband market with hosted-managedip telephony, high-speed symmetrical dedicated broadband and point-to-point ethernet services. tds managedip delivers business customers a converged voice and data communications solution to the desktop. point-to-point ethernet provides customers secure and reliable high-speed data links for two or more locations over tds telecom s internal network, not the public internet. the long-term strategy includes leveraging products such as managedip and hosted and managed services to all of tds telecom s commercial customers, differentiating both on service excellence and a superior product portfolio. tds telecom focuses its marketing on information-intensive industries such as financial services, health services, real estate, hotels and motels, retail, education and government. tds telecom uses its direct sales force, targeted mailings, and telemarketing to sell products and services to commercial markets, which are segmented into tiers based on size (in terms of connections and revenues) and strategic importance. different sales and distribution channels are used to target each segment. tds telecom has continued to grow its long-distance product line and is the number one long-distance provider for its local service customers in its ilec territories. seventy-seven percent of tds ilec physical access lines have a tds long-distance product at december 31, 2012. 18 the following table summarizes additional information regarding tds telecom s ilec and clec customers for december 31, 2012. year ended december 31, 2012 ilec clec total residential connections physical access lines (1) 350,100 24,600 374,700 broadband connections (2) 221,700 8,200 229,900 iptv customers 7,900 7,900 residential connections 579,700 32,800 612,500 commercial connections physical access lines (1) 107,600 135,500 243,100 broadband connections (2) 18,500 11,200 29,700 managedip connections (3) 17,200 77,400 94,600 commercial connections 143,300 224,100 367,400 total customer connections 723,000 256,900 979,900 (1) individual circuits connecting customers to tds telecom s central office facilities. (2) the number of customers provided high-capacity data circuits via various technologies, including dsl and dedicated internet circuit technologies. (3) the number of telephone handsets, data lines and ip trunks providing communications using ip networking technology. wireline network architecture and technology tds telecom operates an integrated, highly-reliable network that consists of central office hosts and remote sites, primarily equipped with digital and ip switches. fiber optic and copper cable connect the host central offices with remote switches and ultimately with end customers. tds telecom continues to upgrade and expand its telecommunications network to respond to the needs of its customers for greater bandwidth and advanced technologies. the network is transitioning from its legacy circuit-switched network to a highly reliable ip-based broadband network to facilitate the integration of voice services, the internet, and media. tds telecom has developed and deployed an inter-regional data routing infrastructure using leased fiber capacity which allows tds telecom to reach over 85% of its physical access lines with its 10 ghz core network. this configuration along with the continued development of a ubiquitous ip network that interconnects substantially all the existing service territories will allow for next generation ip service offerings; namely, iptv, managedip, residential voip and least-cost routing as well as comprehensive ip policy management. tds telecom has pursued a plan to deploy passive optical network technology, which enables significantly greater broadband speeds to selected residential subdivisions and to commercial customers, when the investment is economically justified. tds telecom is also standardizing equipment and processes to increase efficiency in maintaining its network. for example, tds telecom utilizes centralized monitoring and management of its network to reduce costs and improve service reliability. network standardization has supported tds telecom in operating its 24-hours-a-day / 7-days-per-week network management center, which continuously monitors the network in an effort to proactively identify and correct network faults prior to any customer impact. rapid and significant changes in technology are expected to continue to occur in the communications industry. tds telecom s success will depend, in part, on its ability to anticipate and adapt to technological changes. tds telecom believes that its existing network architecture will enable it to respond to these technological changes efficiently. in addition, tds telecom anticipates reducing costs through the sharing of best practices across operations, centralization or standardization of functions and processes, and deployment of technologies and systems that provide for greater efficiencies and profitability. 19 wireline competition the competitive environment in the telecommunications industry has changed significantly as a result of technological advances, changing customer requirements and changes to regulation. tds telecom continues to seek to develop and maintain an efficient cost structure to ensure that it can match price-based initiatives from competitors. tds telecom is faced with significant challenges, including competition from cable voip, wireless and other wireline providers, decreases in intercarrier compensation received for the use of tds telecom s networks and increases in the cost for tds telecom s use of other providers networks. these challenges could have a material adverse effect on the financial condition, results of operations and cash flows of tds telecom. tds telecom has experienced physical access line losses and access minute declines due to competition from cable providers offering voice ( voip ) and data services via cable modems, from wireless carriers offering local and nationwide voice and data plans, and from other voip providers. cable companies have developed technological improvements that have allowed them to extend their competitive operations beyond major markets and have enabled them to provide a broader range of voice and data services over their cable networks. several national cable companies have aggressively pursued the bundling of voice communications, data and video at discounted prices to attract customers from traditional telephone companies. in addition, cable companies have added value to their internet offerings by increasing speeds at no cost to the customer. tds telecom estimates that 69% of its ilec access lines face active competition from cable providers at december 31, 2012. due to the rural nature of tds telecom s ilec access lines, 31% of access lines are not subject to cable competition. cable companies are increasingly targeting not only residential customers, but commercial customers as well. wireless telephone service providers offering feature-rich wireless devices and improved network quality constitute a significant source of competition. some customers have chosen to completely forego use of traditional wireline telephone service and instead rely solely on wireless service for voice communications services. this trend is more pronounced among residential customers, which comprise approximately 63% of tds telecom s customer connections as of december 31, 2012. some small businesses may follow the residential path by choosing wireless service and disconnecting wireline service. increasing penetration of wireless broadband services has led to substitution for long-distance calling, which impacts both tds telecom s retail and access revenue. voip technology also has improved and has led cable, internet and other communications companies to substantially increase their offerings of voip service to commercial and residential customers. voip providers route calls partially or wholly over the internet, without the use of ilec circuit switches and, in the case of cable operators and clecs, without the use of ilec networks to carry their communications traffic. voip providers frequently use existing internet networks to deliver flat-rate, all-distance calling plans that may also offer features that cannot readily be provided by traditional ilecs. these plans may also be priced below the prices currently charged for traditional ilec local and long-distance telephone services. while tds telecom positions itself as a high-quality telecommunications provider, it is experiencing competition from regional bell operating companies ( rbocs ) (in areas where tds telecom competes as a clec), other clecs, cable providers, wireless carriers, and voip providers as it seeks to gain and retain customers. in addition, the rbocs are continuing to implement technological changes that could impede tds telecom s access to facilities used to provide clec telecommunications services. tds telecom s clec operations compete with rbocs on the basis of price, reliability, state-of-the-art technology, product and service offerings, route diversity, ease of ordering, and customer service, including responsiveness to customer needs. rbocs have long-standing relationships with their customers and are well-established in their respective markets. rbocs are offering increased pricing flexibility for their services and have implemented long-term customer contracts with high cancellation penalties for retention purposes. rbocs continue to pursue aggressive win back programs that have been effective in regaining lines lost to clecs. tds telecom believes that, in general, its clec operations provide more attention and responsiveness to customers than rbocs provide to similar-sized customers in tds telecom s clec markets. wireline business development strategy in the last five years, tds telecom has acquired four ilecs for an aggregate consideration of $71 million. as of the dates they were purchased these companies served a total of 26,600 customer connections. on february 25, 2013, tds entered into an asset purchase agreement with baja broadband, llc ( baja ) to acquire substantially all of the assets of baja for $267.5 million in cash, subject to a working capital adjustment. baja is a cable company that passes approximately 212,000 households in markets in colorado, new mexico, texas, and utah and offers video, broadband and voice services. the transaction is subject to governmental regulatory approvals, compliance with the hart-scott-rodino act and other conditions. subject to approvals, the transaction is expected to close in the third quarter of 2013. 20 tds telecom may make additional opportunistic acquisitions of telecommunications companies or related service businesses, including cable companies, in the future. tds telecom s acquisition strategy is to identify and target companies that support cost economies and complement tds telecom s product and services growth strategy. while management believes that it will be successful in making additional acquisitions, there can be no assurance that tds or tds telecom will be able to negotiate additional acquisitions on terms acceptable to them or that regulatory approvals, where required, will be received. tds telecom continually evaluates existing wireline operations and may pursue alternative strategies in selected markets in future periods in order to maximize the return on capital of its overall wireline business. wireline regulation regulatory environment. as communications common carriers, tds telecom s ilecs are subject to federal, state and local regulation and tds telecom strives to maintain positive relationships with these regulators. the communications act of 1934, as amended by the telecommunications act, provides the statutory framework for united states communications policy. the federal communications commission ( fcc ) generally exercises jurisdiction over all facilities of, and services offered by, communications common carriers to the extent those facilities are used to provide, originate or terminate interstate or international telecommunications. state public utility commissions ( pucs ) generally exercise jurisdiction over intrastate communications facilities and services. regulators establish and oversee the implementation of the provisions of federal and state telecommunications laws, including interconnection requirements, universal service obligations, promotion of competition, and the deployment of advanced services. maximum rates for regulated interstate services are prescribed by the fcc, and local rates paid by end user customers and intrastate access charges paid by carriers that furnish traffic to the tds telecom ilecs continue to be subject to state commission approval in many states. tds telecom routinely pursues desired changes in regulation and rate structures in an attempt to maintain affordable rates and reasonable earnings. revenues generated from access charges to other carriers, support mechanisms and surcharges to end user customers are included in the financial results as components of residential, commercial and wholesale revenues. most of the tds telecom ilec subsidiaries participate in both the national exchange carrier association ( neca ) interstate common line and traffic sensitive access charge tariffs and participate in the access revenue pools administered by the fcc-supervised neca, which collects and distributes the revenues from interstate access charges. the fcc retains regulatory oversight over interstate toll (long-distance) rates and other issues relating to interstate telephone service and continues to regulate the interstate access system. where applicable, and subject to state regulatory approval, tds telecom s ilec subsidiaries also utilize intrastate access tariffs and participate in intrastate revenue pools. tds telecom s ilec subsidiaries also draw from the federal and state universal service funds. universal service support helps keep services in rural and underserved markets comparable in quality and price to services in more urban markets, as congress mandated in the telecommunications act. specifically, the high cost program of the federal usf ensures that consumers have access to and pay rates for telecommunications services in rural and underserved areas that are reasonably comparable to those provided in urban areas. tds telecom s subsidiaries draw from the usf because the cost of providing service in many of its rural markets is high, and all of those costs cannot be recovered solely from customers while still providing service that is reasonably comparable to services in urban markets. tds telecom s clec operations, like its ilec operations, are regulated by federal, state and local agencies. however, clecs are subject to significantly less regulation than ilecs. the fcc has established different levels of regulation for dominant carriers and non-dominant carriers. for domestic interstate telecommunications services, only incumbent local exchange carriers are classified as dominant carriers. all other carriers typically are classified as non-dominant. the fcc regulates many of the rates, charges and services of dominant carriers to a greater degree than those of non-dominant carriers. as non-dominant carriers, clecs also are subject to fewer regulatory requirements in connection with their installation and operation of facilities for domestic interstate telecommunications. clecs are not required to maintain tariffs for domestic interstate long-distance services. however, they are required to submit certain periodic reports to the fcc, pay regulatory fees, and meet certain other obligations. the telecommunications act requires ilecs to provide requesting carriers such as tds telecom s clec with nondiscriminatory access to unbundled network elements ( unes ) at cost-based rates. unes are components of ilec networks that clecs lease, and in some cases, combine with their own network facilities to provide services to end user customers. subsequent rulings have modified the circumstances under which ilecs must make unes available to clecs at cost-based rates, e.g., the extent to which ilecs must unbundle and make available fiber optic lines and broadband hybrid loops. this has had the practical effect of increasing clec costs to deliver certain high-capacity services to customers because clecs no longer can rely on ilecs to lease them fiber lines and broadband hybrid loops at cost-based rates. clec options can be further limited by the fact that in many jurisdictions ilecs are retiring their copper lines, thus removing those lines as an option for clec use as unes in connection with the provision of dsl services. as a result of these factors, tds telecom s clec today either must construct its own fiber optic lines and hybrid loops, pay a higher rate to lease these facilities from ilecs, or seek other alternative providers where available. 21 federal regulation tds telecom is required to comply with the telecommunications act, which requires, among other things, that communications common carriers offer interstate services when requested at just and reasonable rates at terms and conditions that are non-discriminatory. the telecommunications act s stated objective is to promote competition for the provision of local service by removing regulatory barriers to competing providers. national broadband plan. in 2009, congress directed the fcc to develop a national broadband plan (the plan ) to ensure every american has access to broadband capability. in march 2010, the fcc released the plan which describes the fcc s goals in enhancing broadband availability and the methods for achieving those goals over the next decade. since that time, the fcc has taken steps to implement several aspects of the plan, including comprehensively reforming its usf and intercarrier compensation regime. usf and icc reform order. pursuant to the plan and subsequent notices of proposed rulemaking, on november 18, 2011, the fcc released a reform order adopting reforms of its universal service and intercarrier compensation mechanisms, establishing a new broadband-focused support mechanism, and proposing further rules to advance reform. prior to the reform order, the intercarrier compensation system had carriers recovering their costs, in part, from one another. the reform order established certain rules for transitioning, over time, from the existing system to one where carriers will recover their costs directly from their end user subscribers. the reform order also was accompanied by a further notice of proposed rulemaking seeking comment on a range of follow up proposals. the future proposed rulemaking is especially important to tds telecom, as numerous issues relevant to rate of return carriers, such as tds telecom, will be addressed in it. the reform order also has been the subject of numerous petitions for reconsideration, which have asked the fcc to reconsider portions of its decision, and it is also the subject of a judicial appeal pending before the u.s. court of appeals for the tenth circuit. in 2012, tds telecom received $219 million in wholesale revenues which included approximately $87 million received under all the usf programs. tds telecom cannot predict the outcome of future rulemaking, reconsideration and legal challenges and as a consequence, the impacts they may have on tds telecom s wholesale revenues. the fcc has determined that the deployment of both wireline and wireless broadband facilities should be supported, with one wireline carrier and one mobile carrier receiving support in each area. this aspect of the fcc s decision could subject tds telecom to additional competitive forces and improve the financial position of those competitors. for wireline rate of return carriers such as tds telecom, the reform order establishes a $2 billion annual fund that is intended to maintain existing levels of support in the aggregate while at the same time transitioning support mechanisms so that, over time, rate of return carriers receive support for the deployment of wireline broadband facilities principally through the connect america fund ( caf ) rather than through the intercarrier compensation regime. to effectuate the first phase of this effort, the reform order: establishes benchmarks that limit certain reimbursable capital and operating expenses for determining high cost loop support; reduces high cost loop support on a dollar-for-dollar basis where a carrier s local rates are set below a specified urban local rate floor; phases out safety net additive support; eliminates local switching support; eliminates support for service areas that overlap with the service areas of others; and imposes a $250 absolute cap on per line support. although the reform order is intended to permit rate of return carriers to recover any lost support through the explicit support mechanism in the caf, it remains unclear whether the caf will provide tds telecom with the same level of support over time that tds telecom currently receives. with respect to intercarrier compensation, the reform order provides for a reduction in the charges that tds telecom pays to wireline phone companies to transport and terminate calls that originate on tds telecom s network, which will reduce tds telecom s operating expenses. however, tds telecom also receives revenue from other carriers to transport and terminate calls that originate on those carriers networks. as a general matter, the amount and timeframe for these reductions will depend on the nature of the traffic at issue. in some cases, such as with the exchange of traffic between wireline and wireless carriers, the reduction is scheduled to occur quickly, whereas in other cases, such as with the exchange of traffic between wireline rate of return carriers, the reduction is scheduled to occur over a period of time. the fundamental goal of the reform order is to, over time, transition all intercarrier compensation to a default bill and keep arrangement so that, in the absence of some commercial arrangement, support for the deployment of broadband services is based solely on funds received from the caf and end-user customers. as reductions in intercarrier charges increase over the next five to ten years, tds telecom s related revenues and operating expenses are expected to decline. 22 net neutrality. in 2009, the fcc initiated a rulemaking proceeding designed to codify its existing net neutrality principles and impose new requirements that could have the effect of restricting the ability of wireless internet service providers to manage applications and content that traverse their networks. in december 2010, after a lengthy proceeding that considered different approaches, including the reclassification of internet access as common carrier service under title ii of the communications act, the fcc adopted net neutrality rules based on its title i ancillary authority to enforce different parts of the communications act. the rules require all providers of broadband internet access, including both fixed (that is, telephone and cable) and wireless providers, to publicly disclose accurate information regarding their network management practices, performance and commercial terms, sufficient for consumers to make informed choices regarding the use of such services. the rules also prohibits all internet service providers from blocking consumers access to lawful websites, subject to reasonable network management, and from blocking applications that compete with the provider s voice or video telephony services, also subject to reasonable network management. the rules subject providers of fixed but not wireless broadband internet access to a prohibition on unreasonable discrimination in transmitting internet traffic over their networks, also subject to reasonable network management. the exemption of wireless providers from this part of the rule reflects a recognition of the capacity constraints and other special conditions under which mobile broadband service is offered and the competitive nature of evolving wireless networks. the reform order is generally controversial and has been challenged in the courts. tds telecom cannot predict the outcome of such cases. tds telecom also cannot predict the extent to which parties may ask the fcc to apply the rules in circumstances not previously envisioned, which could have the practical effect of expanding their scope and application. american recovery and reinvestment act. congress enacted the american recovery and reinvestment act of 2009, ( the recovery act ), which provides, among other things, for an aggregate appropriation of $7.2 billion to fund grants and loans to provide broadband infrastructure, access and equipment to consumers residing in rural, unserved or underserved areas of the united states. under the recovery act, tds telecom will receive $105.1 million in federal grants and will provide $30.9 million of its own funds to complete 44 projects. tds telecom began these projects in 2011 and expects to complete them before june 2015 as required under the terms of the grants. as of december 31, 2012, tds telecom has made $65.0 million of total capital expenditures under this program, has received reimbursement for $21.6 million in grants, and has requested or will request reimbursement for an additional $27.6 million. other federal regulations. the fcc and various provisions of federal law require carriers to comply with numerous regulatory requirements. compliance with these requirements may be costly and noncompliance can lead to lawsuits and financial penalties. these requirements include letting subscribers change to competitors services without changing their telephone numbers, taking actions to preserve the available pool of telephone numbers, making telecommunications accessible for those with disabilities, monitoring and reporting network outages, and properly handling and protecting customer proprietary network information. under the communications assistance to law enforcement act, all telecommunications carriers, including tds telecom, must implement certain equipment changes necessary to assist law enforcement authorities in achieving an enhanced ability to conduct electronic surveillance of those suspected of criminal activity. tds telecom believes it is in material compliance with these requirements. state regulation state regulators generally must approve rate adjustments, service areas and service standards and these regulators are authorized to limit the return earned on capital, subject to applicable state law. in some states, construction plans, borrowing, affiliated charge transactions and certain other financial transactions of ilecs are also subject to regulatory oversight and approval. historically, states have designated a single ilec as the provider of last resort in a local market and then regulated the entry of additional competing providers into the same local market. however, the telecommunications act largely preempted state authority over market entry. while states retain authority to regulate competitive entry in rural telephone company service areas, states may not impose requirements that effectively function as barriers to entry, and the fcc is required to preempt state requirements if they impose such barriers to entry. as a general matter, tds telecom has elected alternative forms of regulation for its ilec subsidiaries in most states and will continue to pursue alternative regulation, as appropriate, for its remaining ilec subsidiaries. alternative regulation typically limits the ability to increase rates for local service, but relieves tds telecom from the requirement to meet certain earnings tests and allows more flexibility in the pricing of enhanced and bundled service offerings. clecs are also subject to state regulation. certain states require clecs to obtain operating authority prior to initiating intrastate services. certain states also require the filing of tariffs or price lists and/or customer-specific contracts. tds telecom s clec operations are not currently subject to rate-of-return or price regulation. however, clecs are subject to state-specific quality of service, universal service, periodic reporting and other regulatory requirements, although the extent of these requirements generally is less than those applicable to ilecs. in addition, local governments may require clecs to obtain licenses or franchises which regulate the use of public rights-of-way necessary to install and operate their networks. 23 hosted and managed services tds hms provides colocation, dedicated hosting, hosted application management, cloud computing services and planning, engineering, procurement, installation, sales and management of it infrastructure hardware solutions. tds hms was formed in 2010 to participate in the growing it outsourcing marketplace and to leverage tds telecom s core competencies in network management, it, customer service and reliability. during the last three years, tds has made multiple strategic acquisitions to position tds hms in the fast-growing hosted and managed services industry. tds hms operations include: vital support systems, llc ( vital ) based in des moines, iowa which was acquired in june 2012. vital provides technology solutions to businesses which includes the planning, design, procurement, installation, sales and management of business-critical it components such as servers, security, local and wide area networks, wireless, storage, voice and ip telephony. oneneck it services corporation ( oneneck ) located in scottsdale, arizona which was acquired in july 2011. oneneck provides hosted application management and managed services. these offerings include a comprehensive, flexible suite of enterprise resource planning ( erp ) outsourcing solutions designed specifically to help mid-market companies manage their it infrastructure and applications and improve system performance. team technologies, llc ( team ) based in cedar falls, iowa which was acquired in december 2010. team, now doing business as vital, provides a wide-range of data center solutions including colocation, managed services, hosted services, and cloud computing to companies that range in size from mid-sized businesses to large business enterprises ( enterprise ). visi incorporated ( visi ) based in eden prairie, minnesota which was acquired in march 2010. visi provides a wide-range of data center solutions including colocation, managed services, hosted services, and cloud computing to companies that range in size from mid-sized businesses to enterprise. hms business development strategy tds hms business development strategy is to increase its presence in the it infrastructure, application outsourcing and solution provider markets through organic growth, expansion or acquisition. tds hms service platform with coverage across all of its product categories provides the potential for expansion of current products and services to additional markets in or near tds hms current footprint. tds hms may continue to make opportunistic acquisitions of companies that further strengthen its operating market areas and enter additional attractive markets. in these circumstances customer relationships, management talent, product sets, and operational capabilities are foremost considerations. as part of this strategy, tds hms from time to time may be engaged in negotiations relating to the acquisition, exchange or disposition of companies, products or lines of service. in general, tds hms may not disclose such transactions until there are definitive agreements. hms products and services tds hms provides it equipment and solutions to meet its business customers needs across several broad product categories: data center, managed services, hosted services, cloud services and solutions provider services. tds hms operates fault tolerant, continuously maintainable data center facilities. value is provided to its customers through experienced teams that manage mission critical data centers, cloud, and customer infrastructure 24 hours per day 365 days per year. statement on standards for attestation engagements 16 ( ssae 16 ) reports, which describe the controls in place at tds hms facilities, provide assurances to customers that their data is secure, available, and meets processing integrity, confidentiality and privacy requirements. data centers are the foundation for outsourced it services, which include managed services, hosted services and cloud services. tds hms acquired a line of hosted products including servers, firewalls, and microsoft exchange through its visi acquisition. the oneneck acquisition brought significant expertise in hosted application management, particularly erp systems, as well as other hosted infrastructure products similar to those of visi. internal development efforts have added capabilities in both the hosted and managed services areas. tds hms is able to support a portfolio of hosted and managed services covering servers, networks, microsoft exchange environments, erp applications, storage and service desk capabilities on equipment located both within tds hms data centers and at customer locations. 24 tds hms cloud services offering, branded reliacloud , is an infrastructure as a service solution designed to run traditional business applications in a secure and compliant operational framework within a cloud environment. reliacloud is a complete, enterprise-class cloud solution that handles scalability and high performance data management for use in public, private, and hybrid cloud configurations. the compliant-capable cloud solution is designed for resource intense applications and databases that require a secure operational framework, while enabling customers to meet regulatory compliance requirements. the vital acquisition added solutions provider services, which include planning, engineering, procurement, installation, sales and management of it infrastructure solutions from world-class original equipment manufacturers ( oems ). the breadth and depth of technical certifications held by team members have allowed vital to achieve the highest levels of partner status with cisco systems , hewlett-packard company, emc , vmware and microsoft . hms strategy the goal of tds hms is to create, deliver and support a platform of it products and services tailored for mid-sized businesses customers. by combining a solution provider s status as trusted it advisor with data center assets and an expansive product set, tds hms intends to create synergy between the provider and customer. furthermore, cloud computing presents an opportunity for growth as it is a transformational tool that is changing the way businesses buy computing power and it services. tds hms is positioning itself to grow by building sophisticated sales teams, strong customer service delivery, extensive engineering talent, and deep ties to vendors to partner with customers to reduce their risk profiles and create cost savings. a highly sophisticated sales force is critical to success in the hosted and managed services marketplace. with the complexity of the sales process and the high level interactions necessary to win customer orders, highly sophisticated account executives, sales engineers and support staff are needed to gain the trust of customers looking to outsource it functions. tds hms continues to enhance its sales capabilities to be able to deliver products and services in all tds hms product categories in all of its markets. tds hms also has been transforming its support organization into one capable of meeting mid-market customer demands for enhanced product offerings. tds hms is putting in place an integrated, scalable, service delivery platform intended to exceed the quality commitments made to customers. hms customers tds hms customers span multiple industries including healthcare, financial, manufacturing, retail, and government and are located across the united states. hms competition the it services market is large and complex, with a diverse array of segments in which performance and market dynamics vary considerably. as a result of these dynamics the it services market is a highly competitive environment. market competitors include large diversified telecommunications and technology companies as well as smaller independent companies that focus on mid-sized business customers. in addition, new entrants may emerge and grow rapidly creating additional sources of competition. hms regulation tds hms is subject to varying degrees of regulation in each of the jurisdictions in which it operates. federal, state and local laws and regulations, and their interpretation and enforcement may be applicable and may differ significantly among those jurisdictions. these regulations and laws may cover taxation, privacy, data protection, copyrights and other intellectual property, electronic communications and regulations applicable to electronic products and services. tds telecom believes it is in material compliance with these requirements. tds other items employees tds had approximately 12,100 full-time and part-time employees as of december 31, 2012, less than 1% of whom were represented by labor organizations. tds considers its relationship with its employees to be good. 25 i"
## [4] "item 1. business founded in 1982, adobe systems incorporated is one of the largest and most diversified software companies in the world. we offer a line of software and services used by creative professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences across multiple operating systems, devices and media. we market and license our software directly to enterprise customers through our sales force and to end users through app stores and our own website at www.adobe.com. we also distribute our products through a network of distributors, value-added resellers (<U+0093>vars<U+0094>), systems integrators, independent software vendors (<U+0093>isvs<U+0094>), retailers and original equipment manufacturers (<U+0093>oems<U+0094>). in addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and solutions. we offer some of our products via a software-as-a-service (<U+0093>saas<U+0094>) model (also known as a hosted or <U+0093>cloud-based<U+0094> model) as well as through term subscription and pay-per-use models. our software runs on personal computers (<U+0093>pcs<U+0094>) and server-based computers, as well as on smartphones, tablets and other devices, depending on the product. we have operations in the americas, europe, middle east and africa (<U+0093>emea<U+0094>) and asia-pacific (<U+0093>apac<U+0094>). see note 18 of our notes to consolidated financial statements for further geographical information. adobe was originally incorporated in california in october 1983 and was reincorporated in delaware in may 1997. we maintain executive offices and principal facilities at 345 park avenue, san jose, california 95110-2704. our telephone number is 408-536-6000. we maintain a website at www.adobe.com. investors can obtain copies of our sec filings from this site free of charge, as well as from the sec website at www.sec.gov. the information posted to our website is not incorporated into this annual report on form 10-k. business overview for 30 years, innovation in adobe software and technologies has transformed how individuals, businesses and governments communicate and interact with their constituents. across the markets we serve, adobe helps its customers create and deliver the most compelling content and interactive experiences in a streamlined workflow, and optimize those experiences and marketing activities for greater return on investment. our solutions turn ordinary interactions into compelling and valuable digital experiences, across media and devices, anywhere, anytime. while we continue to market and license a broad portfolio of products and solutions, we focus our greatest business investment in two strategic growth areas: digital media<U+0097>providing tools, services and solutions that enable individuals, small businesses and enterprises to create, publish, promote and monetize their content anywhere. our customers include traditional content creators, web designers, app developers and digital media professionals, as well as their management in marketing departments and agencies, companies and publishers. this is the core of what we have delivered for over 20 years, but we are evolving rapidly to provide these customers with a more complete and integrated workflow across the variety of new devices, formats and business models that continue to emerge. digital marketing<U+0097>providing solutions and services for how digital advertising and marketing campaigns are created, managed, executed, measured and optimized. our customers include digital marketers, advertisers, publishers, merchandisers, web analysts, chief marketing officers and chief revenue officers. we process over a trillion web transactions a quarter via saas, providing our customers with analytics, social, targeting, media optimization and experience management solutions this 3 table of contents complements our digital media franchise, bringing together the art of creating content with monetization and the science of measuring and optimizing it, enabling our customers to achieve optimal business outcomes. to capitalize on the potential in these two market areas, we made several significant changes in key areas of our business during the past two years. we have made investments to increase the deployment of some of our products through new saas models, and to offer a new subscription model for our creative products. we believe these business model changes allow us to target new users, as well as increase the amount of recurring revenue we generate as a percent of our total revenue, thus creating the potential for our business to be more predictable. we have also invested in the development of new products that address emerging customer needs in these two market areas and represent new revenue sources. in addition, we made several acquisitions during the past two years to broaden the scope of our solutions. we believe the new products we are bringing to market, combined with products and technologies we have acquired, will make our digital media and digital marketing solutions more compelling to our customers. while we have increased our investments in certain products areas, we have also reduced our focus on certain products. the cost savings resulting from the reduced focus on certain product areas has been redeployed as we continue to invest into research and development and sales and marketing to drive higher growth potential in our two focus areas. because of this transformation we have undertaken, as we enter fiscal year 2013 we believe we are uniquely positioned to be a leader in both the digital media and digital marketing categories where our mission to change the world through digital experiences resonates well with customers. products and services overview this overview is organized by our three reportable segments: digital media, digital marketing, and print and publishing. for each segment, we provide an explanation of our market opportunities, a review of our segment results, and a discussion of our strategies to address our market opportunities in fiscal 2013 and beyond. see note 18 of our notes to consolidated financial statements for further segment information. digital media segment digital media opportunity we believe we are at a key inflection point in the history of digital communications. a convergence of major trends is occurring, which in turn is driving changes in consumer behavior and expectations. these trends include the rise in use of smartphones and tablets, increased internet access speeds, new business models driven by online commerce and app stores, the increase in media and entertainment made available online, the impact of online social communities, and software delivery transitioning from prior pc delivery models to cloud-based services. these trends and changes are having a profound impact on our customers, who are interacting with content on a daily basis and want to regularly share and collaborate with colleagues and clients. adobe customers, large and small, are rethinking their online presence, addressing concerns such as how to make a site more dynamic, how to manage visitors from both pcs and mobile devices, whether to invest in web browser-based applications or create individual mobile apps, and how to transition from legacy content delivery methods to new models which offer new revenue streams. for our customers, these challenges create a great deal of complexity in their workflows and cost structures. for adobe, these challenges and complexities our customers face are expanding the size of the markets we can target. we realigned our company entering fiscal 2012 and created our digital media business unit to address these opportunities as we believed these market conditions presented significant opportunities for adobe to rapidly deliver product innovation, access new market segments, increase engagement with our customers, transition our business to promote a recurring revenue model, and accelerate our revenue growth. our goal is to be the leading provider of tools and services that allow individuals, small businesses and enterprises to create, publish, promote and monetize their content anywhere. the flagship of our digital media business is adobe creative cloud, which is an ongoing membership service that lets our customers download and install the latest version of any of our adobe creative suite desktop products, and other creative software like adobe photoshop lightroom and new html version 5 (<U+0093>html5<U+0094>) based products and services. creative cloud members also get online services to sync, store, and share files, participate in creative communities, receive product training, as well as publish digital magazines to the ipad, develop mobile applications, and create and manage websites. we believe creative cloud is redefining the creative process and becoming a destination place where our creative customers can obtain everything they need to create, collaborate on and deliver engaging digital content. 4 table of contents the cornerstone of creative cloud is our creative suite family of products. consisting of sixteen individual products and four suites that contain different combinations of these products, we focus on the needs of creative professional customers, which include graphic designers, production artists, web designers and developers, user interface designers, writers, videographers, motion graphic artists, prepress professionals, video game developers, mobile application developers, students and administrators. they use and rely on our solutions for publishing, web design and development, video and animation production, mobile app and gaming development and document creation and collaboration. they work in businesses ranging from large publishers, media companies and global enterprises, to smaller design agencies, small and medium-sized businesses and individual freelancers. our creative products are used by creative professionals to create much of the printed and on-line information people see, read and interact with every day, including newspapers, magazines, websites, mobile apps, catalogs, advertisements, brochures, product documentation, books, memos, reports and banners. our tools are also used to create and enhance visually rich content, including video, animation and mobile content, that is created by multimedia, film, television, audio and video producers who work in advertising, web design, music, entertainment, corporate and marketing communications, product design, user interface design, sales training, printing, architecture and fine arts. knowledge workers, educators, hobbyists and high end consumers also use our creative products to create and deliver content that is of professional level quality. we believe the innovation we deliver in the tools and solutions our customers use enables the future of digital media. our creative solutions are mission-critical to customers such as publishers, advertisers and media companies; they rely on adobe tools and technologies to create highly compelling content, deliver it across diverse media and devices, and then optimize it through systematic targeting and measurement. for example: <U+0095> publishers around the world are striving to embrace the digital age to build distinctive brands, develop sustainable business strategies, achieve greater profitability, and deliver optimized content to fragmented audiences on an expanding array of smartphones, tablets, e-readers, and other devices. their audiences seek compelling, media-rich experiences, wherever they go, using their preferred devices. the advent of app stores is enabling publishers to reach these audiences in easy, more effective and affordable ways, through the delivery of apps and content via online subscription services to their readers and customers. <U+0095> advertisers face an ever-shifting media landscape. traditional media are giving way to the emergence of new digital channels such as mobile devices and social networks. customers have greater choice in where they go for their preferred brands, making it harder for marketers to keep audiences engaged. successful advertising increasingly requires compelling content and greater focus on data and analytics than ever before in order to optimize advertising for improved targeting and higher returns. the challenges facing customers such as these not only exist in how they create and deliver their content, but also in how they manage, measure and optimize their content. adobe's value proposition extends beyond our historical focus on content creation to other critical aspects of our customers' workflow, with how we can integrate the capabilities of our analytics and web optimization solutions, as well as our other digital marketing solutions. these are discussed later in the <U+0093>digital marketing opportunity<U+0094> section. in the second quarter of fiscal 2011, we released cs5.5. at that time we also introduced a monthly subscription offering. this lower upfront fee, as opposed to the higher upfront perpetual license fee, provides cost-sensitive new users access to our products, as well as enabled users of older versions of our products to migrate to the latest versions at a lower upfront cost. the subscription offering also enabled users to have immediate access to software updates and new innovations that we implemented in our creative products in between release dates of the products. given our success in attracting new and existing customers to our initial subscription offering, combined with our offering of cloud-based services as a means to deliver more value to our users, we announced creative cloud in october 2011 and in the second quarter of fiscal 2012, we delivered the initial release of our new creative cloud subscription offering. as part of creative cloud, we also delivered creative suite 6 (<U+0093>cs6<U+0094>), which is the newest release of our creative toolset. cs6 provides numerous feature enhancements, particularly in the areas of mobile device content creation, website development with new html5 capabilities, digital imaging, digital publishing for tablets and product performance. customers obtained cs6 capabilities through both our historical perpetual licensing model as well as through our new subscription-based model. a key benefit of our creative cloud offering is the rapid delivery of additional products and product updates to subscribers as soon as these products and updates become available. examples of additional value provided to customers through creative cloud since its initial release included the delivery of new features for adobe illustrator users, new enhancements for web designers and an updated version of adobe acrobat. in addition, new products and capabilities were made available to creative cloud subscribers that were not made available to licensees of the perpetual products. adobe lightroom, our popular image editing and photo management tool, was delivered as an additional enhancement to creative cloud subscribers in the summer of 2012, and new html5 content creation capabilities were delivered through the release of our new adobe edge animate product and related 5 table of contents edge tools & services to subscribers in september. these additional capabilities demonstrate our commitment to deliver ongoing value and capabilities as they become available and are needed by our customers. we believe our creative cloud offering, marketed as a subscription model with attractive monthly pricing, will be a catalyst for revenue growth in the coming years. by increasing the value we provide to our core creative customers with creative cloud services, we anticipate we can grow our revenue per customer over time as they begin to use additional features available to them in the offering. we also believe the monthly pricing model will be attractive to users of older versions of our products who desire to use our latest releases and services, but who have not been willing to upgrade to newer versions due to their price sensitivity, and, therefore, will increase our revenue potential with them. similarly, we anticipate we can drive significant new user adoption of our creative tools business over the next several years outside of our core creative professional targeted market because of the attractive monthly subscription pricing combined with the strong brand of our creative tools and the broad value proposition provided by our creative cloud offering. in addition to a monthly subscription price that provides access to use of all of our latest creative tools and services, we also offer subscription pricing for creative cloud for some of our key point products, as well as for users in the education market. similarly, we offer creative cloud for team and enterprise users. we believe the mix of these offerings will drive new user acquisition and increase our revenue over time. the impact of this business model shift based on the product offering and the subscription pricing will affect the revenue and cash flow to adobe. as customers make a shift from paying upfront for the use of our software in the perpetual model to the new subscription model where they pay over time, reported revenue and cash flow will be lower in the short term when compared to the historical perpetual model. however, over time we expect this business model transition will significantly increase our long-term revenue growth rate by (1) attracting new users, (2) keeping our user base current and (3) thereby driving higher average revenue per user. additionally, our shift to a subscription model will increase the amount of our recurring revenue that is ratably reported, driven by broader creative cloud adoption over the next several years. in addition to the shifts in how we develop, market and license our creative tools to our customers, we have also implemented several initiatives to create and drive new revenue streams in our digital media business. these initiatives include delivering advanced publishing services, enhancing the capabilities of our solutions to utilize new innovations in html5, delivering new touch-based apps to expand our content creation user base to mobile device owners, enhancing our video solutions and addressing the needs of the knowledge worker. adobe digital publishing suite (<U+0093>dps<U+0094>) is an online, hosted publishing solution that enables magazine and newspaper publishers to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices. our digital publishing solution utilizes flexible e-commerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces and app stores. our customers can create and enhance content through integration with our cs6 tools to enable a complete workflow for the creation and delivery of content via our content viewer technology, which is utilized by users on tablets and smartphones. analytics capabilities are built into these apps and are based on our digital marketing products. the analytics features enable publishers to measure and understand the use of the digital editions they deliver with our solutions, and more effectively monetize their digital edition apps with more relevant advertising. in addition to the enterprise version that publishers and large media companies use, we also offer digital publishing single edition, which can be used by other customers who want to publish their content as apps in app stores on an individual and ad hoc basis. single edition can be used by individuals to publish any type of publication to app stores, including research reports, catalogs, marketing materials and even more specific consumer-related content such as wedding photo albums. the combination of our different dps offerings significantly increases our market opportunity to target anyone wanting to deliver a digital publication via app stores. adobe has long been an innovator in helping drive the html standards process and then delivering the best tools in the market to create content based on web standards. the ongoing evolution of new standards, including html5, and their adoption in popular browsers, become significant catalysts for revenue growth in our solutions. to address this opportunity, we are innovating across the spectrum of content creation, content delivery, and content display in browsers and mobile apps. our innovation includes adding new capabilities to web standards such as html and css, contributing technology to open source projects such as jquery (an html and javascript library to assist with creating websites) and webkit (the open source foundation for many popular web browsers such as apple safari and google chrome), and adding new features to products such as adobe indesign, adobe dreamweaver and the new edge tools & services to enable our customers to utilize these innovations occurring in web browsers. our innovation with web standards also includes the creation and delivery of brand new products built on top of web standards to help our customers create engaging content leveraging the latest innovations in web browsers on pc and non-pc devices. in the fall of 2012 we announced the availability of adobe edge tools & services, including adobe edge animate, adobe 6 table of contents edge inspect (formerly codenamed <U+0093>shadow<U+0094>), adobe phonegap build and adobe edge web fonts. we also previewed adobe edge code and adobe edge reflow. these powerful tools enable web designers and developers to build cutting-edge websites, digital content and mobile apps. for website development, we also provide adobe muse, which allows designers to design and publish websites without having to learn and write html5 code. muse integrates with other adobe tools and enables designers to easily publish their websites using our business catalyst web hosting service or any other hosting provider. while we increase our investments in our solutions utilizing web standards, we also continue to innovate in our adobe flash technologies, including the adobe flash player for pc-based browsers and adobe air for packaging standalone applications for pcs and mobile devices. the broad reach and adoption of the newest versions of our flash technologies on personal computers and for use with mobile devices allow our customers to deliver new and more engaging experiences using our tools and services. going forward, we are primarily focused on enhancing the gaming and premium video delivery aspects of our flash technology-based solutions. just as air and our flash tools enable flash technology-based applications to be packaged for mobile devices, phonegap and phonegap build provide similar capabilities for applications built using web standards. based on the open source phonegap framework, phonegap build enables users to build cross-platform mobile applications using html5, css and javascript that run on popular mobile operating systems such as android, ios and blackberry os. as millions of web developers and website designers look to build mobile apps to increase engagement with their constituents, we believe our air and phonegap solutions enable them to build cross-platform apps as well as reuse their existing browser-based content to deliver standalone apps on popular smartphones and tablets. in 2011 we began delivering a series of content creation tools which run on tablets such as the apple ipad. these apps and their features are discussed later in the <U+0093>digital media<U+0097>touch app products<U+0094> section. the adobe touch apps integrate with creative cloud enabling subscribers to move between the apps and creative suite software, and to view, access, share, and present creative work from anywhere. over the past several years, as consumers and advertisers demand more professional video online and on devices, media companies have an unprecedented opportunity to monetize their content and expand the reach of broadcast advertising. because of this trend and the general explosion of video being created and delivered over the web, new opportunities have emerged for adobe to significantly expand its market opportunity in areas such as video content creation, delivery, authentication and monetization. our products addressing these opportunities span across our digital media and digital marketing business segments. in digital media, our video content creation solutions are centered around our adobe premiere pro and adobe after effects products, and the creative suite production premium that contains these products plus other capabilities. with our increased focus on these solutions over the past several years, we believe we are the leader in the market for providing video and special effects editing for creative professionals and professional videographers. we have invested resources to improve the performance and capabilities of our video authoring solutions, and as a result, have significantly grown our market share over the past several years in the professional video editing market. with our growing leadership position in video authoring, we have worked closely with our customers to build a more complete workflow to meet their additional needs for delivering, measuring and monetizing their video assets. to enable collaborative video authoring environments, we also offer adobe anywhere for video. adobe anywhere allows customers to bring teams together, enabling them to better collaborate and create productions from virtually any location where there is network connectivity. with adobe anywhere, editors, visual effects artists, and other video professionals can use local or remote networks to simultaneously access, stream, and work with remotely stored media. its collaborative capabilities are embedded directly in adobe premiere pro, after effects, and adobe prelude software, eliminating the need for team members to learn additional video software tools. our video content delivery, authentication and monetization opportunities, and our solutions which address them, are centered around an initiative we announced in 2012 called project primetime, and are discussed later in in the section titled <U+0093>digital marketing opportunity.<U+0094> as part of our digital media focus, we also address the needs of knowledge worker customers: people working in document intensive industries, focused on creating and disseminating high-value information as part of their job on a regular basis. knowledge workers include a wide variety of job functions such as accountants, attorneys, architects, educators, engineers, graphic designers, insurance underwriters and stock analysts. these jobs typically require the sharing of information either as a static, published document or as a collaborative, interactive document. 7 table of contents knowledge workers must create information and content from a variety of sources and software applications, and be able to exchange this information within a reliable format that ensures coworkers and constituents can reliably and securely access the information. when appropriate, this information often needs to be protected, authenticated, or securely managed and controlled. document-based collaboration among knowledge workers can occur through face-to-face meetings, via phone calls, through e-mail or through web conferencing technologies. knowledge workers who participate in collaborations with their colleagues may be located in offices next door to each other, or in different parts of the world. these team members may change with every project and either be part of an organization's employee base, or be an external consultant or third-party partner. we believe there is a significant opportunity to provide solutions which enable knowledge workers to communicate and collaborate across technical, geographical and social boundaries, both inside and outside of their companies. we believe that with such solutions, users can collaborate and efficiently manage feedback from their colleagues in both real time and on-demand, and control how, when and by whom information is accessed. since the early 1990s, our acrobat family of products has provided for the reliable creation and exchange of electronic documents, regardless of platform or application source type. users can collaborate on documents with electronic comments and tailor the security of a file in order to distribute reliable adobe pdf documents that can be viewed, printed or interacted with utilizing the free adobe reader. available in different versions which target a variety of user needs, acrobat provides essential electronic document capabilities and services to help knowledge workers accomplish a wide range of ad hoc tasks involving digital documents ranging from simple publications to forms to mission critical engineering and architectural plans. although acrobat has achieved strong market adoption in document-intensive industries such as government, financial services, pharmaceutical, legal, aerospace, insurance and technical publishing, we believe there are tens of millions of users who need capabilities such as those provided by acrobat who have not yet licensed an acrobat solution. for several years, we have offered additional cloud-based acrobat services to supplement the features of acrobat and provide knowledge workers with centralized online file sharing and storage capabilities, as well as simple pdf creation and converting pdf to other file formats. with our new acrobat xi software and its innovative cloud services that were released in the fourth quarter of fiscal 2012, we've significantly extended the capabilities of our solution. with acrobat cloud services, users can take advantage of electronic document signing with adobe echosign, complete form management with adobe formscentral, and utilize other features such as adobe sendnow and acrobat.com. with adobe echosign, companies can expedite document and web contract approvals. users of echosign can send an electronic document to others for signing, keep track of who's signed it, and store their signed contracts online. this enables faster, more efficient and cost-effective customer interaction. our formscentral cloud service enables companies to create, distribute, and analyze forms without writing code. templates can be used to build new forms, or users can design forms from scratch. our formscentral solution collects all responses and helps customers share real-time results with their colleagues. sendnow enables customers to share large files more easily rather than using email attachments. acrobat.com provides services to customers so they can store their documents online and have access to them from virtually anywhere using a computer or mobile device. combined, acrobat and acrobat cloud services increasingly provide more value to knowledge workers. the cloud services serve as additional value to acrobat customers, thereby further entrenching the use of acrobat and pdf as part of our customers' day-to-day businesses. digital media business summary in the second quarter of fiscal 2012, we delivered cs6, the newest release of our creative toolset. cs6 provided numerous feature enhancements, particularly in the areas of mobile device content creation, website development with new html5 capabilities, digital imaging, digital publishing for tablets and product performance. the launch of cs6 was also the cornerstone of our new creative cloud subscription offering, which was also delivered in the second quarter of fiscal 2012. adoption of creative cloud subscriptions in the launch quarter exceeded our expectation as we believe the value of the new offering was attractive to both existing and new users of our creative tools. we also believe the low monthly payment options with creative cloud, as opposed to paying for perpetual licenses up front, has attracted more price-sensitive customers to license our creative products, as well as migrate existing users to the newest release. in the subsequent third and fourth quarters of fiscal 2012, we achieved accelerated adoption of creative cloud. in each of these three quarters, the success of creative cloud subscription adoption adversely affected reported revenue as we recognize revenue associated with our subscription offerings ratably whereas revenue associated with our perpetual licenses is generally recognized at the time of initially licensing the products. our dps solution achieved strong growth in fiscal 2012 based on broad adoption by magazine and newspaper publishers to deliver engaging, branded reading experiences of their publications to mobile and tablet devices. during the year, we continued 8 table of contents to innovate with dps, leveraging new innovations in cs6 products such as adobe indesign, to help customers accelerate app delivery to their readers through app stores. in the fall of 2012, we delivered an update to our digital publishing single edition solution and made it generally available to all creative cloud subscribers. this significantly broadened the use of our solution beyond mainstream publishers. we drive our dps revenue through the licensing of software that customers use to create and publish their apps. in addition, with our enterprise version, we obtain revenue for each digital edition that is downloaded and delivered through our content delivery infrastructure. as of the end of fiscal 2012, we have over 1,450 dps customers, reflecting the success and strong adoption of our solution. in addition, on average we deliver approximately 163,000 digital issues every day to users of ipads, kindles and android tablets, with more than 53 million digital editions delivered since march of 2011. in the professional digital imaging market, we released new versions of adobe photoshop cs6, adobe photoshop cs6 extended and adobe lightroom 4 during fiscal 2012. ground-breaking features in photoshop included new content-aware technologies, enhancements in image effects such as blur gallery and performance improvements based on updates to the adobe mercury graphics engine. lightroom enhancements included refined technology for superior shadow and highlight processing, expanded management capabilities including enhanced dslr video support and the ability to create photo books. to drive increased adoption of lightroom, we also lowered the price of the product, which resulted in substantial unit and revenue growth during the year when compared to fiscal 2011. with our professional digital video authoring and content creation solutions, including adobe premiere pro and after effects, we continued to achieve strong market share and revenue growth during the year due to new cs6 product versions and strong execution by our sales and marketing teams to position adobe as a leader in the overall digital video solutions category. during the fourth quarter of fiscal 2012, we released version 11 of our adobe photoshop elements software which is our digital imaging application targeted for amateur photographers and digital imaging hobbyists. in the same quarter, we released version 11 of adobe premiere elements software, which is our video editing software that can be used by hobbyists to enhance and share their digital video memories on dvds. we also released a software bundle that includes the new versions of photoshop elements and premiere elements to target hobbyists who desire both applications in one affordable package. adoption of these new releases helped to drive year-over-year revenue growth in this category. to help our customers create new content leveraging advancements in web standards, we deliver the edge tools & services, which included edge animate, in the fall of 2012. edge animate is our new web motion and interaction design tool that allows designers to bring animated content to websites, using web standards like html5, javascript, and css3. we also delivered adobe muse, which enables designers to design and publish html websites without writing html code. combined, we believe the customer adoption of these new tools as well as positive customer reactions to innovations we added to our existing web content creation tools such as adobe dreamweaver cs6, has caused the web community to embrace adobe as a leading provider of html solutions for web content creation. during fiscal 2012, we advanced the capabilities of our adobe flash player with several new releases. flash player is a cross-platform, browser-based application runtime that provides viewing of expressive applications, content, and videos across most browsers and pc operating systems. key features that are driving adoption of flash in markets such as gaming and premium video delivery include 3d accelerated graphics support, native 64-bit operating system support, improved software encoding for cameras and protected http dynamic streaming. adoption of flash player remained strong on pc platforms during fiscal 2012. due to the frequent downloads of our client technologies such as flash player, we generate revenue through oem relationships with companies where we include their technologies as part of the download offerings of our client technologies on pcs. in fiscal 2012, this download revenue grew when compared to fiscal 2011. in fiscal 2012, we also broadened the reach of adobe air, our cross-platform client technology. the air runtime enables developers to deploy standalone applications built with html, javascript, actionscript, flex, flash professional, and adobe flash builder across platforms and devices<U+0097>including android, ios devices, personal computers and televisions. to capitalize on the increased use of smartphones and tablets, we released updates of our tablet applications which run on mobile devices, including photoshop touch, which is a popular application and available on devices running google android os and apple ios. in addition, adobe revel provides users access to their entire photo library from their apple devices, along with photo-processing features based on lightroom. both photoshop touch and revel received positive reviews and achieved strong revenue growth during the year. in the document services market, we achieved solid year-over-year growth during fiscal 2012. this performance was driven by continued, solid adoption of our acrobat x release that initially launched in the fourth quarter of fiscal 2010. in the fourth quarter of fiscal 2012, we released acrobat xi, the eleventh major version of our acrobat family of products. acrobat xi, the industry standard for pdf software, contains new and improved capabilities that feature complete pdf editing and export to 9 table of contents microsoft powerpoint; touch-friendly capabilities on tablets; and newly integrated cloud services, including sophisticated web contracting with adobe echosign and forms creation, data collection and analysis with adobe formscentral. acrobat xi additionally supports it departments with seamless microsoft office and sharepoint integration, easy deployment, applications virtualization and robust application security. our free adobe reader, used by hundreds of millions of people to view and interact with pdf documents, was also updated to deliver more features to users, and includes full support for non-pc devices such as iphones, ipads and android devices. our echosign service, with its simplistic model that doesn't require scanning software, signature pads or digital certificates, is used to sign nearly one million contracts per month. in addition to making this service available to acrobat xi users, we also integrated it with our adobe reader in fiscal 2012. during the year, continued adoption of our creative suite and creative cloud products also contributed to broader adoption of acrobat in the creative professional market. utilization of acrobat prepress, printing and collaboration functionality is a critical component of creative customer workflows. acrobat pro is included in several creative suite editions and in creative cloud membership, and these offerings were updated to include acrobat xi when it was released in the fourth quarter of fiscal 2012. digital media strategy in fiscal 2013, we intend to implement strategies which will accelerate the adoption of our creative cloud subscription offering. this includes migrating existing users from their current perpetual licenses, as well as driving new customer adoption. aspects of this strategy include increasing the value of creative cloud by delivering frequent product updates and enhancements to subscribers; using promotions to attract customers to the offering; expanding our go-to-market reach through referral affiliate models to reach new customers particularly in the small and medium business (<U+0093>smb<U+0094>) space; and utilizing creative cloud for teams and creative cloud for enterprise offerings to drive broad adoption with customers who license our software in volume. as part of our creative cloud strategy, we also intend to streamline how customers learn about our offering, sign up to use it, and pay for it. we expect to accomplish these goals by utilizing our digital marketing solutions to drive awareness and customer conversion on our website. we believe adobe.com will increasingly be the destination site where we engage individual and small business customers to sign up for and renew creative cloud subscriptions. we also will utilize channel partners such as corporate resellers to target mid-size creative customers with our creative cloud for teams offering, and our direct sales force to build relationships and drive adoption of our creative cloud for enterprise offering with our largest customers. in digital imaging, we plan to broaden the adoption of our photoshop lightroom and photoshop elements products, and use our revel product for tablets to increase awareness of our image editing and sharing solutions. in interactive development we will continue to advance the capabilities of our tools to deliver cutting-edge html5 capabilities with products such as edge, while also investing in improving the capabilities of adobe flash in the pc-based gaming market. in the coming year we also plan to continue to market the benefits of our document services solutions to small-and medium-sized businesses, large enterprises and government institutions around the world. with our acrobat family of products, we intend to continue to increase our seat penetration in these markets through the utilization of our corporate and volume licensing programs. we also intend to increase our focus on marketing and licensing acrobat in targeted vertical markets such as education, financial services, telecommunications and government, as well as expanding into emerging markets. we also intend to enhance and build out the delivery of cloud-based document services to our acrobat and adobe reader users. the release of acrobat xi included newly integrated cloud services, including sophisticated web contracting with echosign and forms creation, data creation and analysis with formscentral. it also includes our sendnow feature which enables users to deliver large electronic files over the web with security and fidelity. with the integration of our cloud-based echosign solution with our acrobat family of products, we intend to continue to promote its capabilities to millions of acrobat users and hundreds of millions of adobe reader users. we believe that by substantially growing the awareness of adobe echosign in the broader contract delivery and signing market, we can help our customers migrate away from paper-based overnight express mailing and adopt our solution, substantially growing our revenue with this business in the process. digital marketing segment digital marketing opportunity consumers today can interact with businesses across multiple channels and devices, and it is up to businesses to figure out how to best attract, engage, acquire and retain customers in a world where the reach and quality of experiences directly impact success. marketing executives need to know that their investment is optimizing consumers' experiences and delivering the greatest return on our customers' marketing spend. online marketing goals must map clearly to overarching business objectives, and 10 table of contents marketing executives are expected to demonstrate the success of their programs using solid metrics. in this environment, gleaning insight in real time across channels is essential. we believe there is a significant opportunity to address these challenges and help customers transform their businesses. this market opportunity is accelerating as chief marketing officers (<U+0093>cmos<U+0094>), digital marketers, heads of digital, advertisers and publishers are managing spending budgets to migrate their marketing and advertising spend to digital media. these users are faced with several major market trends, and their choices for how they address these challenges are creating broad opportunities for our digital marketing business: <U+0095> broad commercial utilization of the internet the internet has fundamentally altered the way businesses and consumers purchase and consume goods and services. it has also redefined many business processes and has created opportunities for new online businesses, as well as for existing offline businesses seeking to capitalize on online initiatives. because of this, businesses are investing in innovative online initiatives to increase sales, improve customer service, enhance brand awareness, decrease time-to-market for their offerings, reduce fulfillment costs and increase operational efficiency. we expect that the scope and scale of commercial internet usage will continue to increase. the roll-out of broadband and mobile networks, particularly in emerging geographic markets, will contribute to the growth of internet usage. internet commerce should also continue to grow. proliferation of online marketing and customer response channels, such as mobile, digital video and social networks, will continue to generate interactions that need to be measured, analyzed and optimized across channels. <U+0095> need to measure online business in order to make informed decisions about priorities and investments in online marketing and other commercial initiatives, we believe businesses require timely and accurate measurement of customer behavior. the proliferation of internet usage and the fact that nearly every user interaction on a website (or other digital medium such as mobile apps, set-top boxes, kiosks, point of sale systems or any ip connected device) can be captured by the owner of the website, or other digital medium, has resulted in the creation of an unprecedented amount of data about how a business' customers interact and transact business with it. businesses are increasingly realizing the benefit of using information gained from online and other digital customer interactions to improve functional areas, such as sales, customer service, product development, marketing, pricing, manufacturing and inventory management. the interactive and measurable nature of internet activity also enables businesses to determine how customers arrived at their online destinations, such as through paid search, a display ad or a social media website. it also enables businesses to determine which advertising mediums are yielding the greatest roi, including whether visitors convert to customers once they have reached their destination site. <U+0095> opportunity to optimize and automate online business measuring online activity and automating the capture and analysis of data are important for making informed business decisions. businesses also need to leverage data to optimize the results of their online business activities. for example, businesses have historically measured the success of their online marketing programs by simple click-through rates or conversion rates, the latter being the percentage of click-through users who make a purchase or otherwise engage in the desired customer action during the online session. however, the effectiveness of online marketing can be optimized by analyzing and acting on deeper information, such as repeat visits, transactions generated, registrations, traffic pathways (various paths of online visitor traffic flow), time spent and quality of interaction (engagement), eventual conversion (desired customer action taken in subsequent visits) or success over time (lifetime value of customer) as well as comparing the relative effectiveness of different marketing channels (attribution). business success metrics can also vary based on the industry or vertical market<U+0097>for example, media companies drive engagement to optimize subscriptions and online advertising revenue, whereas retailers and e-commerce companies focus on promotions and maximizing online purchases. online businesses utilize a large and growing number of complex and diverse advertising and communication channels to market to customers, including display advertising, paid and natural search advertising, e-mail, social media marketing, affiliate marketing, blogs, podcasts, video, games, rich internet applications (<U+0093>rias<U+0094>) and comparison shopping engines, as well as traditional offline initiatives. the emergence of multi-channel marketing initiatives, which combine traditional offline marketing initiatives such as television, print, magazine, newspapers, radio and catalog with online marketing initiatives, makes the measurement and analysis of online activity more challenging, but presents additional opportunities to optimize results. 11 table of contents for example, businesses want to measure and understand the impact of their advertising initiatives across all these channels, not only to determine how much credit should be given to a particular channel and to understand cross-promotional effectiveness, but more importantly to optimize their advertising spending and make adjustments in the way channels are utilized and align the amount of resources that are allocated to each of them. <U+0095> delivery of premium video through online channels media companies face a shifting landscape as traditional media delivery evolves into multiple channels for media companies to deliver and monetize their content. as more premium video content and entertainment is delivered over the internet to pc, smartphone and tablet screens, as well as internet-connected tvs, media companies are looking to create new revenue streams through subscription services and ad-based revenue models to supplement their historical forms of revenue. this trend and the general explosion of video being created and delivered over the web is expanding the online video market opportunity to include fast growing areas such as video delivery, authentication and monetization. to address the challenges and capitalize on the opportunities presented in the market trends above, cmos, digital marketers, advertisers and publishers require new content architectures, new analytic systems, new media buying systems and optimization systems to increase the effectiveness of their engagement with customers. driving visitor traffic to websites, broadly defined as a customer's digital presence, including its traditional site, mobile site, pages and apps on social networks, and all other content that is distributed throughout the internet, was an early goal of digital marketing spend. this goal has broadened to include the need to measure and understand customer web traffic patterns and the effectiveness of their visitor acquisition efforts. web analytics solutions have provided insight for digital marketers and web analysts that helps them optimize their online ad spending. moving forward, the goals of digital marketers have evolved to include how websites and marketing campaigns can convert visitors to customers, and how these websites and marketing campaigns can be more personalized to drive better engagement and higher revenue. our digital marketing business unit targets this large and growing opportunity by providing comprehensive solutions that include analytics, social, targeting, media optimization and experience management solutions, and premium video delivery and monetization products, solutions and services. we deliver these capabilities through our adobe marketing cloud, which is our umbrella digital marketing offering and was formerly branded as the adobe digital marketing suite. adobe marketing cloud is a collection of analytics, social, targeting, media optimization and experience management solutions and a real-time dashboard providing insight into the performance of online marketing initiatives. these capabilities empower organizations to make informed decisions and ensure the success of online marketing programs for both advertisers and publishers. our digital marketing customers accomplish these goals with adobe marketing cloud solutions which help them manage and optimize online, offline, digital and multi-channel business initiatives. other key features of our adobe marketing cloud include: <U+0095> enabling digital marketers to align online marketing initiatives with overarching business objectives and demonstrate the success of online marketing programs using metrics; <U+0095> managing, collecting, and bringing data together from multiple systems into a flexible, integrated platform; <U+0095> providing real-time business intelligence through segmentation, dashboards and reports that managers can use to gain a complete picture of how consumers are interacting with the business; <U+0095> creating the ability to monetize and share data through audience optimization capabilities, publishers can quickly identify audiences that match the profiles that advertisers are demanding-and maximize the value of their digital assets; <U+0095> optimizing ad spend by maximizing the impact of a company's advertising spend across and within channels, including search, display, video, mobile, social media and other digitally connected forms of media, to yield the greatest returns; <U+0095> delivering relevant and engaging digital content across channels that boosts key performance metrics, whether it is a customer purchase, engagement, a download, form completion, or other desired outcome; and <U+0095> empowering organizations to re-platform their websites by enabling them to create, manage, distribute, and monetize content while optimizing the web, mobile, and social collaboration experience for their customers. more specifically, organizations can enable the delivery of customer-facing web and mobile solutions by extending enterprise services beyond interactive applications, documents, and workflows to include personalization of content, rich media delivery 12 table of contents capabilities, mobile application delivery, social collaboration and deep integration into back-office systems such as e-commerce platforms. in addition to cmos and digital marketers, users of our adobe marketing cloud solutions include marketing professionals such as search engine marketers, media managers, media buyers and marketing research analysts. customers also include web content editors, web analysts and web marketing managers. these customers often are involved in workflows that utilize other adobe products, such as our digital media tools and our video workflow and delivery technologies. given the market trends described above, we believe the combination of our adobe creative cloud and adobe marketing cloud solutions helps customers to more efficiently and effectively create, measure, analyze and optimize those experiences, creating an end-to-end workflow and feedback loop. with our growing leadership position in video authoring, which is discussed in the <U+0093>digital media opportunity<U+0094> section above, we have worked closely with our customers to build out a more complete workflow to meet their additional needs for delivering, measuring and monetizing their video assets. during fiscal 2012 we moved the management of our video content delivery, authentication and monetization solutions to our digital marketing business unit based on our goal of aligning these teams with our overall digital marketing focus. for content delivery, we provide adobe media server software, which helps premium content publishers deliver their hd quality video to the largest audience possible across any internet-connected device, with a streamlined workflow. the adobe media server family has revolutionized media delivery with support for consistent, protected streaming on the widest array of devices<U+0097>tablets, mobile devices, connected tvs, and desktops. our adobe pass solution enables the industry goal known as <U+0093>tv everywhere<U+0094> and allows pay tv customers to enjoy content on their connected devices. adobe pass is licensed by media companies and verifies a user's entitlement to content simply and securely, allowing quick time to market, a more secure environment, and more readily accessible content. similarly, our adobe access (formerly adobe flash access) software provides a scalable, efficient workflow to help customers deliver and protect premium video across desktops, mobile devices, and platforms, including ios and android. adobe access is also an ultraviolet approved digital rights management (<U+0093>drm<U+0094>) technology. it extends audience reach and enables a variety of business models for media companies, including rental, subscription, and electronic sell-through. our adobe auditude solution is a video advertising platform that powers the video advertising experience for adobe customers such as major media companies. with auditude, advertisers can leverage professional tv-like video ad inventory for advertising in on-demand video delivery, live digital events and full episode video content. the solution is further enhanced with rich analytics, enabling our customers with robust ad serving and optimization capabilities that maximize the value of video content on any device. in january of 2012 we introduced project primetime, which is a unified, end-to-end video platform that helps media companies achieve broadcast audience reach, lower their operating costs, and boost revenue from ad sales. project primetime links adobe streaming, drm, ad serving, audience management, analytics, and optimization technologies that are available in our media server, adobe access, auditude and other digital marketing offerings. our success in these areas has enabled our entry into the video advertising market. our adobe video advertising solution has become a central source for broadcast and professional video inventory. with a focus on premium television-quality video, we help customers deliver high quality ad placements in their online video delivery. adobe video advertising offers a tv-like experience with true commercial breaks during live sports, music, and news programs as well as during full episode viewing from our premium content partners. our solution leverages our digital marketing products such as adobe audiencemanager, and enables the use of premium ads with innovative ad executions and tv-like ad insertion within live, simulcast, and on-demand video. digital marketing business summary our digital marketing segment contains revenue from multiple product families, including our digital marketing products and solutions, as well as legacy enterprise software offerings. as we exited fiscal 2012 we rebranded our digital marketing suite to be called adobe marketing cloud, and organized our product portfolio into five key solutions<U+0097>analytics, target, social, media optimizer, experience manager<U+0097>containing multiple products to address specific marketing opportunities. in addition, we consider video to be an emerging solution in our adobe marketing cloud. in fiscal 2012, we achieved strong year-over-year revenue growth with our adobe marketing cloud products and solutions. our acquisition of efficient frontier in the first quarter of fiscal 2012 helped to drive revenue growth during the year. in the fall of 2012 we rebranded efficient frontier as adobe adlens. 13 table of contents driving the growth with our adobe marketing cloud product family was continued adoption of adobe sitecatalyst and our adobe cq5 web experience management (<U+0093>wem<U+0094>) solution now known as experience manager. with sitecatalyst we help our customers track more than six trillion transactions per year in a hosted environment around the world. an increasing percentage of these transactions are from non-pc devices including tablets and smartphones. our market-leading experience manager solution combines web content management, digital asset management (<U+0093>dam<U+0094>) and social collaboration offerings, and enabled our sales force to target organizations that need to transform their websites by enabling them to create, manage, distribute, and monetize content while optimizing the web, mobile, and social collaboration experience for their customers. in the online video and rich media delivery market, we continued our momentum in the industry by achieving strong customer adoption and revenue growth with our video solutions. in the first quarter of fiscal 2012, we unveiled project primetime, the industry's first fully integrated video technology platform. project primetime enables smooth, tv-like experiences for ad-supported videos across web-connected devices. this new platform delivers premium video and ad content consistently across all major platforms, including apple ios, google android, desktop operating systems and connected tvs. our solution creates a single, end-to-end workflow that interconnects our streaming technologies and content protection based on adobe media server, authentication capabilities using adobe pass, analytics based on our digital marketing web analytics capabilities, and ad delivery and optimization with our auditude video advertising platform. this solution enables premium video providers to give customers a superior viewing experience through seamless dynamic ad insertion into any content type, whether linear, live or on-demand across web-connected devices, and was integral in many global media companies making the 2012 olympic games available to mobile and tablet users. in late fiscal 2011 we announced we would narrow the focus of our adobe livecycle and adobe connect product families towards the government and financial services markets. at that time we also announced we expected revenue in these product areas to decline, and in fiscal 2012 combined revenue for livecycle and adobe connect did decline. however, the extent of the revenue decline was less than we targeted for the year, due to continued solid demand for these products. digital marketing strategy in fiscal 2013, we plan to build upon the momentum we achieved in fiscal 2012 by aligning our digital marketing focus with adobe marketing cloud around five key solutions: <U+0095> adobe analytics<U+0097>combines the power of actionable analytics and audience segmentation with the distributed value of reporting and sharing of key business analysis and connects it for data driven marketing. this solution includes our datawarehouse, adobe discover, adobe genesis, adobe insight, adobe reportbuilder, sitecatalyst and adobe tagmanager products. <U+0095> adobe experience manager<U+0097>a web content management platform that enables organizations to deliver carefully tailored customer experiences across web and mobile channels. this solution is based on our wem offering. <U+0095> adobe media optimizer<U+0097>combines best of breed portfolio and rules based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. this solution includes our adlens and adobe audiencemanager products, and analytics capabilities from sitecatalyst. <U+0095> adobe social<U+0097>helps organizations measure and manage marketing activities across owned, earned, and paid media, ensuring the impact of social is properly attributed. this solution includes our context optional and adobe socialanalytics products. <U+0095> adobe target<U+0097>helps organizations dynamically test and present highly customized experiences to a digital property in order to drive significantly higher conversion rates. this solution includes our adobe recommendations, adobe search&promote, adobe test&target and adobe test&target 1:1 products. with adobe analytics, we will focus on helping our customers understand the performance of their business across all digital channels and support their needs for integrating offline channels. customers want to know how their campaigns are performing across video, social, mobile and email, and look at that performance holistically. to do this, they require an analytics platform that can assemble data across all those channels to gain better insight and drive informed decision making. personalized engagement is a priority for digital marketers; once they attract visitors to their websites, they desire to create the best possible experience. with our adobe experience manager solution we provide an integrated suite of tools that include analytics data, content management and web optimization solutions. our solution enables digital marketing customers to personalize the experiences of visitors to their websites in ways that are dynamic and relevant to each visitor. experience manager helps marketers author, manage and deliver personalized experiences based on many criteria, including analytics data related to a visitor's prior visits to a site, or based on their purchasing history, or what keyword they clicked on in a web search that brought them to 14 table of contents a site or in many cases, to a distributed part of its site such as a social network page or app for that customer. with personalized engagement made possible through experience manager, marketers can also build a better brand presence, drive demand by quickly creating, launching, and optimizing compelling online marketing campaigns, and extending their reach with their customers through multiple online channels. the more digital marketers can know about their customers, the more effectively they can reach them with targeted advertising and offers to increase visitor acquisition and conversion through their websites. we provide adobe media optimizer, which combines portfolio and rules-based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. our media optimizer solution includes our adobe adlens (formerly efficient frontier), adobe audiencemanager and adobe sitecatalyst products to give marketers a complete view of their online marketing campaign performance across search, display and social channels. this enables deeper and more relevant insights into how their customers are interacting with their brand. it also gives them the data they need to segment those who are still browsing on their sites, and the data on those who are ready to buy<U+0097>allowing marketers to deliver the appropriate messages or marketing offers at the appropriate time. our adobe social solution enables marketers to simplify and measure their social marketing efforts. our offering is an integrated suite of products including context optional and socialanalytics, and the ability to perform ad buying via adlens. combined, our solution enables marketers to create content once and push it out to social media channels such as facebook, twitter, google+, and others quickly and easily. we extend these capabilities to include the ability to find out what content is resonating with marketers' customers or constituents, and help them migrate visitors into destinations such as high-profile facebook sponsored stories. adobe social helps marketers determine if their paid media is pushing traffic to their social networks. it also provides them insights into their customers' audience, using real-time data to find out what gets their social communities talking. with this information, marketers can keep their social audiences engaged by creating more targeted content and experiences to drive positive impact on their business. from messaging and offers to media buys and influencers, adobe social gives marketers key information about what's driving results. adobe target helps organizations drive higher conversion rates on their websites. our solution enables digital marketers to create, dynamically serve, and continually optimize personalized messages through the use of integrated products such as adobe test&target, adobe recommendations and adobe search&promote. with adobe target, marketers can learn more about their customers so they can evolve from marketing messages for broader segments to those relevant to individual visitors. our offering also uses a robust data-driven approach that unifies internal and third-party data to create highly detailed customer profiles that help marketers deliver the appropriate marketing messages in front of the right people. with these capabilities, customers can optimize their website and digital marketing efforts to maximize their revenue by controlling, monitoring and altering their personalization strategies through built-in testing. through these features, marketers can also drive higher levels of customer engagement, conversion, and loyalty. as part of our digital marketing initiatives, we intend to streamline how customers learn about, acquire and deploy adobe marketing cloud solutions. we also believe we can accelerate the growth of our business by expanding our go-to-market strategy to include new geographies and vertical markets where adobe has a strong presence. in fiscal 2012 we began to build out more sales capacity and resources to support them in our field organization. we believe these investments will drive higher international revenue in our digital marketing segment in fiscal 2013 and beyond. with our project primetime initiative and set of products to help media and entertainment companies monetize their premium video assets, we will continue to invest in the build out and licensing of our solution. as part of this effort, we intend to expand our focus into new geographic markets in the coming year. in the fall of 2011, we announced we would narrow our focus with our adobe livecycle and adobe connect offerings on two key vertical industries: financial services and government. for these customers, we offer comprehensive, scalable, secure and reliable server products, saas offerings and tools to develop applications tailored to their specific information and business process requirements. in fiscal 2013 we will continue to target these vertical markets. with our livecycle offerings, we enable our customers to eliminate paper and move to automated forms-based workflows, which continue to be key challenges in enterprises and governments around the world. paper remains prevalent throughout industries and governments, and many organizations are seeking to drive down operational costs related to paper use and workflows involving paper-based documents. during the past decade, there has been considerable progress made towards moving away from paper-based workflows. however, we believe there still remains a significant opportunity to deliver solutions that focus on this opportunity, particularly in the government and financial services categories. adobe connect provides capabilities for live web conferencing, as well as delivering on-demand rich presentations through an on-premise server or as a hosted service and for recording and delivering such content later. web conferencing services are 15 table of contents provided via the ubiquitous adobe flash player client on pcs, as well as through smartphone and tablet device applications running natively on operating systems such as apple ios and android. print and publishing segment print and publishing opportunity our print and publishing business segment contains several of our products and services that address diverse market opportunities including elearning solutions, technical document publishing, web application development and high-end printing. these opportunities and the key products we offer to address them in fiscal 2013 are reviewed below. graphics professionals and professional publishers continue to require quality, reliability and efficiency in production printing, and we believe our adobe postscript and adobe pdf printing technologies provide advanced functionality to meet the sophisticated requirements of this marketplace. as high-end printing systems evolve and transition to fully digital, composite workflows, we believe we are uniquely positioned to be a supplier of software and technology based on the postscript and adobe pdf standards for use by this industry. we generate revenue by licensing our technology to oems that manufacture workflow software, printers and other output devices, and in fiscal 2012, we maintained our oem postscript revenue through continued innovation with postscript technologies. elearning solutions are becoming more prevalent as a means to create and deliver online and electronic learning experiences. these experiences range from online assessments, surveys and quizzes<U+0096>to online reference and instruction manuals<U+0096>to real time learning and web-based collaboration experiences. we believe we have a rich legacy in the development and delivery of elearning tools, and can innovate by providing new features and platform reach for elearning content delivery with our set of offerings. our coldfusion offering provides fast and easy ways to build and deploy powerful internet applications. developers can extend or integrate coldfusion with java or .net applications, connect to enterprise data and applications, create and interact via web services, or interface with sms on mobile devices or instant messaging clients. coldfusion can also be used for business reporting, rich-forms generation, printable document generation, full-text search and graphing and charting, enabling customers to more fully engage their constituents with better web experiences. we generate revenue by licensing our technology to oems that manufacture workflow software, printers and other output devices. in fiscal 2013, we plan to continue to enhance postscript as well as utilize pdf enhancements to maintain these formats as standards in publishing and printing work flows. print and publishing business summary in fiscal 2012, we maintained a consistent quarterly revenue run-rate with the mature products we market and license in our print and publishing business. during the year we delivered version 4 of our adobe technical communication suite, which is a set of tools for technical publishing. we also released version 6 of our adobe elearning suite, which is a set of tools for creating professional elearning courseware and includes adobe captivate version 6 and adobe presenter version 8. in fiscal 2012, we maintained our oem postscript revenue through continued innovation with postscript technologies. print and publishing strategy in fiscal 2013 we will continue our focus on addressing the needs of our print and publishing customers. more specifically, in the elearning market we will innovate around our broad set of tools to help authors of elearning materials deliver their content in new and more engaging ways, leveraging the adoption of tablet devices in schools and educational institutions. we will also update several of our legacy products to keep customers current with solutions and features they need based on the print and publishing products they use. fiscal 2013 business segment products and services digital media<U+0097>creative products adobe after effects<U+0097>software used to create sophisticated animation, motion graphics and visual effects found in television broadcast, film, dvd authoring and the web; provides 2d and 3d compositing, animation and visual effects tools, as well as advanced features such as motion tracking and stabilization, advanced keying and warping tools, and more than 250 additional visual and additional audio effects. adobe anywhere<U+0097>hosted software which enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity. 16 table of contents adobe audition<U+0097>a professional audio editing environment designed for demanding audio and video professionals; provides high-performance, intuitive tools for audio editing, mixing, restoration, and effects. adobe business catalyst<U+0097>an online business solution that provides an all-in-one capability to develop and maintain dynamic websites and powerful online stores with an integrated customer database, email marketing, e-commerce and analytics; integrates with dreamweaver and adobe muse for seamless website creation and publishing; a business catalyst webbasics offering is included as part of creative cloud membership. adobe creative cloud<U+0097>a new, comprehensive offering of creative services, creative suite desktop applications, and collaboration and sharing features that is offered on a subscription basis; membership to creative cloud enables users to download and install any of the creative suite desktop applications, plus other applications such as acrobat and photoshop lightroom; subscribers also receive the latest apps and newest features as soon as they're released; creative cloud membership includes 20gb of cloud-based storage and device syncing capabilities, enabling members to easily access and share their work; it also includes the ability to publish websites using our business catalyst hosting service, and the ability to publish mobile apps using our dps, single edition and phonegap build services. adobe creative suite design & web premium<U+0097>an integrated software solution that creative professionals can use as a platform for print, web and mobile content publishing; combines acrobat pro, dreamweaver, flash professional, adobe fireworks, illustrator, indesign and photoshop extended technologies with a file management and control center called adobe bridge; integrates with adobe digital publishing suite. adobe creative suite design standard<U+0097>an integrated software solution that creative professionals can utilize for professional design and print production, page layout, image editing, illustration and adobe pdf workflows; combines acrobat pro, illustrator, indesign and photoshop technologies with a file management and control center called adobe bridge; integrates with adobe digital publishing suite. adobe creative suite master collection<U+0097>an integrated software solution which provides all the tools creative professionals require to create content for every design discipline in one offering; provides capabilities for professional page layout, image editing, vector illustration, print production, website design/development, rich interactive content creation, visual effects and motion graphics, video capture/editing/production, dvd titling and digital audio production; includes acrobat pro, after effects, audition, dreamweaver, adobe encore, fireworks, flash builder, flash professional, illustrator, indesign, photoshop extended, prelude, adobe premiere pro and adobe speedgrade technologies, with a file management and control center called adobe bridge; integrates with adobe digital publishing suite. adobe creative suite production premium<U+0097>an integrated software solution that provides creative professionals a complete post-production solution consisting of video, audio and design tools that can be utilized to create and deliver content to film, video, dvd, blu-ray disc, television broadcast, and web and mobile devices; combines adobe premiere pro, after effects, adobe audition, encore, photoshop extended, flash professional, illustrator and adobe media encoder technologies with a file management and control center called adobe bridge; integrates with adobe story. adobe digital publishing suite<U+0097>an integrated, online, hosted publishing solution for individual designers, traditional media publishers, ad agencies, and companies of all sizes that want to create, distribute, monetize, and optimize engaging content and publications for tablet devices; enables magazine and newspaper publishers, as well as individuals, to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices; combines hosted services, flexible e-commerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces, and analytics capabilities based on adobe marketing cloud; content is created and enhanced through integration with creative suite to enable a complete workflow for the creation and delivery of content to mobile device users via our new content viewer technology. adobe dreamweaver<U+0097>a professional software development application used by designers and developers to create and edit html websites and mobile apps; provides a broad range of capabilities for web publishing, enabling online commerce, and providing online customer service and educational content; includes capabilities for visually designing html5 pages, coding html5 and application logic. adobe edge tools & services<U+0097>new web tools and services which include: edge animate, a web motion and interaction design tool that allows designers to create animated content for websites, using web standards like html5, javascript and css3; edge inspect, an inspection and preview tool that allows front-end web developers and designers to efficiently preview and debug html content on mobile devices; edge code, a code editor, built on the brackets open source project, optimized for web designers and developers working with html, css and javascript; edge reflow, a web design tool to help users create responsive layouts and visual designs with css; edge web fonts, a free web font service for using a growing library of open source fonts on websites and in apps; typekit, a service that gives designers and developers access to a library of hosted, high-quality fonts to use on their 17 table of contents websites; and phonegap build, a service for packaging mobile apps built with html, css and javascript for popular mobile platforms. adobe encore<U+0097>professional dvd authoring and creation software that is included as part of adobe premiere pro; provides a comprehensive set of design tools and integration with other adobe software to create a streamlined dvd creation workflow; provides ability to output projects to recordable dvd formats including blu-ray, ensuring a wide degree of playback compatibility. adobe fireworks<U+0097>a professional graphics design tool that allows users to create designs for websites and mobile apps quickly, without coding; enables the development and delivery of vector and bitmap images, mockups, 3d graphics, and interactive content for popular tablets and smartphones; integrates with dreamweaver, flash and photoshop, and supports air application development. adobe flash professional<U+0097>provides an advanced development environment for creating internet applications which integrate animations, motion graphics, sound, text and additional video functionality; solutions built with flash professional are deployed via the web to browsers that run adobe flash player, and to devices as installable applications using adobe air. the toolkit for createjs, which was included in flash professional cs6, introduces the ability to use flash professional to create and publish interactive content for the standards-based web using html and javascript without any need for the flash player or air. adobe illustrator<U+0097>a vector-based illustration design tool used to create compelling graphic artwork for print publications, websites and video production. adobe incopy<U+0097>a professional writing and editing solution that tightly integrates with adobe indesign software to enable an efficient collaborative workflow between design and editorial staff. adobe indesign<U+0097>a page layout application for publishing professionals; based on an open, object-oriented architecture that enables adobe and its industry partners to deliver powerful publishing solutions for printed and digital magazine, newspaper and other publishing applications. adobe indesign server<U+0097>delivers a robust and scalable engine that leverages the design, layout, and typographical capabilities of adobe indesign software to enable third-party systems integrators and developers to programmatically create engaging automated documents; enables adobe partners to provide new levels of automation and efficiency in high-end editorial workflows, collateral creation, variable data publishing and web-based design solutions. adobe muse<U+0097>new offering available through subscription and creative cloud which enables designers to create html websites like they would design print layouts, without having to write code; websites can be published with adobe business catalyst service or any hosting provider. adobe photoshop<U+0097>provides photo design, enhancement and editing capabilities for print, the web and multimedia; used by graphic designers, professional photographers, web designers, professional publishers and video professionals, as well as amateur photographers and digital imaging hobbyists. adobe photoshop elements<U+0097>offers powerful yet easy-to-use photo editing functionality plus intuitive organizing, printing and sharing capabilities for amateur photographers and hobbyists who want to create professional-quality images for print and the web. adobe photoshop extended<U+0097>provides the capabilities of photoshop, plus additional tools for editing 3d and motion-based content and performing image analysis; targeted for: film, video and multimedia professionals; graphic and web designers using 3d and motion; manufacturing professionals; medical professionals; architects and engineers; and scientific researchers. adobe photoshop lightroom<U+0097>software designed for professional photographers and photo hobbyists, it addresses their unique photography workflow needs by providing more efficient and powerful ways to import, select, develop and showcase large volumes of digital images. adobe prelude<U+0097>software used by video professionals to streamline post-production tasks; integrates with other adobe video software including adobe premiere pro, and is included in several configurations of creative suite. adobe premiere elements<U+0097>a powerful yet easy-to-use video-editing software for home video editing; provides tools for hobbyists to quickly edit and enhance video footage with fun effects and transitions and create custom dvds for sharing video with friends and family. 18 table of contents adobe premiere express<U+0097>hosted software service based on adobe premiere technology that provides video editing and video remix capabilities; licensed by customers such as those running media portals to provide consumers with embedded access to industry leading adobe video editing and enhancement technologies. adobe premiere pro<U+0097>professional digital video editing software used to create broadcast quality content for video, film, dvd, multimedia and streaming over the web; includes adobe encore for professional dvd authoring and creation. adobe speedgrade<U+0097>new software used by video professionals to color grade their video within video production workflows; integrates with other adobe video software including adobe premiere pro, and is included in several configurations of creative suite. adobe story<U+0097>an online collaborative script development tool made available as a hosted service; enables writers to author scripts quickly with automatic formatting, and collaborate online. used to begin the planning and preproduction phase of video workflows to be integrated with other adobe products; developed to create more efficient video production workflows while reducing production costs; automatically turns content in scripts into relevant metadata that can be used throughout the adobe digital video workflow; offered in two versions: adobe story free and adobe story plus. adobe typekit<U+0097>subscription-based cloud service that provides the delivery of hosted, high-quality fonts for use on websites; enables designers and developers to deliver beautiful type that enhances the web experience; typekit fonts are offered as a standalone service, as part of edge tools and services, and as part of adobe's creative cloud service. adobe visual communicator<U+0097>software used to create newscast-style video presentations that can be delivered digitally; provides a teleprompter, video creation capabilities, and an entire library of customizable graphics, effects, titles, music, and templates; can be used to convert a microsoft powerpoint presentation into a narrated video that can be posted online; can also be used to self-produce video broadcasts, conferences, distance learning courses, campus-wide newscasts, and more. digital media<U+0097>touch app products adobe revel<U+0097>touch-based photo app and service for mac, ipad, and iphone users; gives users access to their photo libraries from multiple devices no matter which one they are using; allows users to utilize powerful photo-processing technology based on adobe photoshop lightroom software to enhance their images. adobe ideas<U+0097>a vector-based sketching app designed to enable creative professionals to capture their ideas and be a companion tool for other professional design applications from adobe, including illustrator and photoshop; available for the iphone and ipad. adobe photoshop touch<U+0097>touch-based ipad and android tablet app; enables users to edit images and apply professional effects using core photoshop features, and then digitally share the results through social networking sites like facebook. digital media<U+0097>developer and platform products adobe air<U+0097>client software and packaging technology that allows developers to use existing web development skills (e.g. html, ajax, flash and flex) to build and deploy standalone applications (rias) on pcs and mobile devices. adobe flash builder<U+0097>a cross-platform development environment based on eclipse for building games and applications in actionscript and using the open-source flex framework; enables developers to develop apps and games for browsers, pcs and mobile devices. adobe flash player<U+0097>the most widely distributed rich client software on pcs and consumer electronic devices; provides a runtime environment for text, graphics, animations, sound, video, application forms and two-way communications. adobe flash platform services<U+0097>services that enable developers and publishers to distribute and monetize applications across multiple distribution channels. adobe flex<U+0097>a free, open source framework for building applications that deploy consistently on major browsers, desktops, and computer operating systems by leveraging the adobe flash player and adobe air runtimes. adobe flex 4.6 was the final release by adobe. all subsequent versions are released by the apache software foundation following adobe's contribution of flex to apache. adobe phonegap<U+0097>phonegap is a free, open source framework for building cross-platform mobile applications using html, css and javascript that run on popular mobile operating systems such as android, ios and blackberry; phonegap build is our solution to assist developers with creating mobile applications which leverage the open source framework; it is offered as a standalone solution and as part of our adobe edge tools & services. 19 table of contents digital media<U+0097>acrobat and document services products adobe acrobat standard<U+0097>software that creates secure, reliable and compact adobe pdf documents from desktop authoring applications such as microsoft office software, graphics applications and more; supports automated collaborative workflows with a rich set of commenting tools and review tracking features; includes everything needed to create and distribute rich electronic documents that can be viewed easily within leading web browsers or on computer desktops via the free adobe reader. adobe acrobat pro<U+0097>in addition to all the capabilities of acrobat standard, acrobat pro delivers specialized capabilities for creative professional and engineering users, such as pre-flighting, color separation and measuring tools; also allows users to insert flash video or h.264 video for direct playback in the most recent versions of adobe acrobat and adobe reader software, create dynamic html and pdf forms with adobe formscentral that is included with acrobat pro, ad hoc form distribution and data collection, and create adobe pdf documents that enable adobe reader users to digitally sign adobe pdf documents, participate in a shared review and fill and save in forms. adobe acrobat.com<U+0097>an online collaboration service which provides simple web conferencing, centralized online file sharing and storage capabilities, and online collaborative applications like a word processor and a spreadsheet authoring tool. adobe createpdf<U+0097>an online pdf file creation service that provides easy conversion of almost all document files to adobe pdf for the secure and reliable sharing of rich electronic documents that can be viewed easily within leading web browsers or on computers via the free adobe reader. adobe echosign<U+0097>offered as part of adobe's online document exchange services platform, echosign enables customers to electronically sign documents via a simple cloud-based service. adobe sendnow<U+0097>an online file sharing service that lets users send, share, and track files online, even large ones, without the complications of email size restrictions, multiple email attachments, ftp sites, and overnight shipping services. adobe reader<U+0097>software for reliable viewing, searching, reviewing and printing of adobe pdf documents on a variety of hardware and operating system platforms; when used with certain adobe pdf documents created with adobe livecycle reader extensions server software, acrobat pro or acrobat pro extended, adobe reader also can be used to enable collaborative workflows through the addition of collaboration features built into the adobe pdf document; these features include review and markup tools that normally are not present in the standard adobe reader product. adobe marketing cloud solutions we offer the adobe marketing cloud, our set of digital marketing solutions and services used to manage and enhance online, offline and multi-channel business initiatives, which we host and deliver to our customers on-demand and also provide as an on-premise solution for some products. our adobe marketing cloud solutions include a complete set of analytics, social, advertising, targeting and web experience management solutions and a real-time dashboard that brings together everything marketers and advertisers need to know about their marketing campaigns. it helps users of the solutions obtain data to gain insights and act upon their data more quickly. our solutions utilize data from online channels such as mobile, social and digital video; data from enterprise systems such as customer relationship management (<U+0093>crm<U+0094>) applications; content that can be assembled to create personalized experiences; and common services that allow the ability to access the data and content. these solutions and services are accessed primarily by a web browser, and are built on a scalable and flexible computing architecture. as such, these components and services reduce the need for our customers to make upfront investments in technology, implementation services or additional it personnel, thereby increasing customers' flexibility in allocating their it capital investments. adobe marketing cloud is comprised of several components listed below, organized around key solutions which address the broad needs of digital marketers. adobe analytics adobe analytics combines the power of actionable analytics and audience segmentation with the distributed value of reporting and sharing of key business analysis and connects it for data driven marketing. it includes the following key product components: adobe sitecatalyst<U+0097>hosted software that provides users the ability to capture, store and analyze information generated by their websites and other sources and to gain real-time business insights via charts, graphs and dashboards into the performance and efficiency of marketing and sales initiatives and other business processes; built on a scalable and flexible computing architecture. 20 table of contents adobe discover<U+0097>hosted software that provides web analysts and digital marketers with insight and concise web analytics marketing segmentation as revealed by real-time visitor information; enables businesses to understand a comprehensive, multi-dimensional view of their customers through accurate and timely information such that they can make informed decisions to improve the performance of their business. adobe datawarehouse<U+0097>contains information captured by sitecatalyst, our core analytics product offering, and other digital marketing applications. adobe reportbuilder<U+0097>a plugin that enables marketers to perform specialized analysis and easily create customized reports inside of microsoft excel; provides users with an intuitive, easy-to-use wizard that guides them through the process of importing real-time online analytics data from our sitecatalyst analytics product. adobe genesis<U+0097>contains application programming interfaces to integrate and augment analytics data with relevant data from internet and enterprise applications and data from a growing number of online and offline channels to enable business optimization. adobe insight<U+0097>on-premise software that enables organizations to quickly analyze large volumes of rapidly evolving data in real-time; provides users with charting and visualization capabilities to assist them with making quick business decisions that can improve overall business performance; accepts data from any source, including data warehouses and business intelligence tools. adobe social adobe social helps organizations measure and manage marketing activities across owned, earned and paid media<U+0097>ensuring the impact of social is properly attributed. it includes the following key product components: adobe social<U+0097>enables marketers to use social data as an input to optimizing interactions with their customers and prospects across all channels; helps users see social media data with other analytics data by integrating the two to give real-time measurement and segmentation information on social networks; with this insight, marketers can measure the impact of social media on their business and understand how conversations on social networks and online communities influence marketing performance. adobe cq social communities<U+0097>used by marketers to leverage social media and dedicated branded communities on their digital properties; enables customers to build out their social presence on their websites with user-generated content alongside premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities and encourage customer connection to increase engagement and drive higher brand loyalty and conversions. adobe media optimizer adobe media optimizer combines portfolio and rules based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. it includes the following key product components: adobe adlens<U+0097>a cloud-based, unified ad management system for digital marketing efforts across search, display, and social media channels; offers insight, control, and automation for cross-channel campaign management; users can manage and optimize search, display and social advertising as a unified campaign; includes data integration with adobe sitecatalyst; enables advertisers to utilize conversion metrics to make strategic media decisions and deliver optimal return on their advertising spending; also provides integration with adobe audiencemanager for targeted audience segmentation to ensure marketers can have their advertising campaigns reach their intended targeted audiences. adlens was formerly known as efficient frontier, and also combines the features of our product formerly known as adobe searchcenter. adobe audiencemanager<U+0097>hosted software that enables advertisers and publishers to maximize their online ad investment through online audience optimization; helps marketers consolidate audience information from all available sources and assists with identifying, quantifying, and optimizing high-value target audiences, which can then be offered to advertisers via an integrated, secure, privacy-friendly management system that works across all advertising distribution platforms. adobe audienceresearch<U+0097>hosted software that provides publishers with certified metrics, enabling insight into audience size and engagement for websites, mobile applications, and digital magazines; leveraging data from adobe sitecatalyst installations, it certifies the quality of the data and delivers accurate and consistent reporting in real time through relationships with the media rating council, the leading digital auditing service, and the interactive advertising bureau, which drives industry guidelines for audience measurement. 21 table of contents adobe target adobe target helps organizations dynamically test and present highly customized experiences to a digital property in order to drive significantly higher conversion rates. it includes the following key product components: adobe recommendations<U+0097>hosted software that enables businesses to promote products and content online; utilizes flexible data and behavioral driven algorithms, allowing our customers to increase conversions on their websites by ensuring relevant choices are automatically presented to their customers, either on websites or through email campaigns. adobe search&promote<U+0097>hosted software which enables marketers to optimize how visitors browse, find, compare, and select relevant products and content on web and mobile sites; marketers can easily promote priority items based on business objectives and visitor intent, as well as automate merchandising and promotions activity via certain triggers or metrics; provides flexible search and navigation interfaces, social browsing, sort and filter options, refinements based on multiple facets such as color, gender and customer ratings, an advanced marketer console to monitor conversion metrics and paths, and a visual rule builder to manage promotions. adobe test&target<U+0097>hosted software that gives digital marketers a website optimization tool with the capabilities to make their online content and offers more relevant to their customers, yielding the potential for greater customer conversion; provides an intuitive interface for designing and executing tests, creating audience segments and targeting content. adobe test&target 1:1<U+0097>hosted software that enables digital marketers to personalize the presentation of content and offers that a visitor may find most relevant, increasing the likelihood of engagement and conversion; enables marketers to target individual site visitors rather than predefined visitor segments; includes self-learning algorithms which minimize the investment required to target individuals with personalized content and offers; content can be optimized to any key performance indicator, including revenue, conversion, or click-through rate. adobe experience manager adobe experience manager enables marketers to create, manage, and optimize online customer experiences to build brand, drive demand and extend reach in the digital world. it integrates adobe's broad portfolio of industry-leading tools to empower marketers to execute with ease, agility, and effectiveness. experience manager also facilitates collaboration with it by providing the unified tools and platform to enable them to rapidly develop and deploy new templates, designs, and components for web, mobile and social channels to business users. the foundation of our experience manager solutions is adobe cq, our wcm platform which enables organizations to deliver carefully tailored customer experiences across web and mobile channels. experience manager also provides a rich analytics framework by enabling powerful, embedded integrations with a collection of analytics applications for online business optimization. this framework enables marketers to collect, test, and measure customer interactions with their brand to further refine the user experience, reinforcing a sustained, virtuous cycle that is constantly optimizing. key capabilities offered by experience manager include: <U+0095> automated personalization<U+0097>marketers can deliver targeted content to customers based on their persona, context, and other data, and simulate user experiences for different personas. as marketers identify which offers and content are relevant to their customers, they can continually evolve their experiences by executing multiple testing to improve content relevance in any channel; <U+0095> cross-channel-marketers can rapidly deliver content to all screens, as adobe cq automatically detects a user's device and sends the representation optimized for its device group. content authors can simulate the experience for mobile sites and mobile applications as it would appear on a particular device; <U+0095> digital asset management <U+0097>provides the ability to organize and manage digital assets with a single repository; <U+0095> social communities<U+0097>marketers can easily embed social properties such as wikis, blogs, calendars, and forums to glean customer insights to drive their business forward, foster brand advocates to evangelize their products and services, and empower their customers to share their own content, driving deeper engagement with their brand; and <U+0095> campaign management<U+0097>automates the management of multi-channel campaigns to help marketers handle customer segments, lists, leads, and reports. 22 table of contents adobe experience manager includes the following key product components: adobe cq<U+0097>our wem, dam, and social collaboration platform that enables interactive marketers to leverage the online channel as the most cost-effective marketing vehicle to engage customers and prospects to increase competitive advantage and drive revenue; offered as a hosted and on-premise solution. adobe scene7<U+0097>hosted solution used to enhance, publish, and deliver dynamic marketing assets to web, mobile, social, email, and print; enables businesses to leverage consumer data and tailor content delivery to provide a rich, immersive digital experience to each consumer in real-time; content is tailored by dynamically generating and delivering variations of rich content that is relevant for consumer engagement across channels and devices; used by many leading online retail websites to automate the production and availability of rich media experiences, including zoom, dynamic sizing, personalization and interactive dynamic product catalogs. landing pages<U+0097>enables digital marketers to quickly create, edit, and publish landing pages and microsites that build brand, drive demand, and reach new customers with agile digital experiences. adobe cq social communities<U+0097>used by marketers to leverage social media and dedicated branded communities on their digital properties; enables customers to build out their social presence on their websites with user-generated content alongside premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities and encourage customer connection to increase engagement and drive higher brand loyalty and conversions. digital asset management<U+0097>provides a repository for organizing and managing digital assets; integrates with adobe cq and adobe's creative authoring tools to provide a seamless path from asset creation to storage, approval, publishing, and reuse; designed to manage assets and dynamically deliver rich media, including video, for multi-channel distribution; uses web-based shared workspaces for workflow-based idea sharing and offers 24/7 self-service of marketing materials and video and image libraries; simplifies planning, production, and distribution of digital assets within organizations and with external digital agencies. adobe crx<U+0097>an open, standards-based enterprise content management (<U+0093>ecm<U+0094>) platform, built on a modern architecture that is highly scalable; natively manages all content as defined in the content repository for java technology api version 2.0 specification; this programming interface, defined by the ecm industry, provides developers with a stable and well-defined, yet extensible content and query model that protects past and future investments. media & advertising solutions we provide solutions for creating, delivering and monetizing video, enabling customers such as media and entertaining companies to expand the reach of their business using an entire workflow from adobe. within our digital media business our content creation tools are managed and offered to help customers create professional and premium video content. as part of our video content creation solutions, we also offer adobe anywhere which enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity. as more and more premium video delivery has migrated to the web, adobe has built out solutions in our digital marketing business to assist customers with delivering, protecting and monetizing their video assets. in 2012, we announced project primetime, which is a unified video platform that helps customers achieve broadcast audience reach, lower operating costs, and boost revenue from ad sales. our solution delivers a tv-like viewing experience across platforms, including ios and android, and on devices from desktops to tablets to smart tvs. project primetime provides a single, end-to-end workflow that links our streaming, drm, ad serving, audience management, analytics, and optimization technologies. our efforts with project primetime are based on the development and integration of the following products and solutions: adobe access<U+0097>a scalable, flexible content protection solution which provides an efficient workflow to help companies deliver and protect premium video across desktops, mobile devices, and platforms, including ios and android; as an ultraviolet approved drm technology, it also extends audience reach and enables a variety of business models, including hd rental, subscription, and electronic sell-through. adobe auditude<U+0097>a video ad serving platform that provides premium tv-like commercial breaks during video delivery, supported by robust tools and services to drive the highest volume of advertising demand from direct and indirect sales; enables seamless ad insertion across pc, ios and android devices, set-top boxes, game consoles, and other internet-connected video playback devices; allows marketers to deliver relevant, targeted advertising with full control over ad quality and sequencing. 23 table of contents adobe media server<U+0097>a family of server-based software which provides video publishing and workflow capabilities that enable customers to deliver video to pc and non-pc platforms, including those running ios and android; utilizes flexible delivery methods which can save bandwidth costs and lighten network load; offered to customers with different levels of capabilities: <U+0095> adobe media server standard<U+0097>base level version enables customers to deliver video on-demand and live through http delivery to reach broad video audiences using ios and adobe flash player compatible devices and pcs. <U+0095> adobe media server professional<U+0097>combines with adobe access software to enable customers to stream protected, studio-grade content using a single drm workflow across desktops, connected tvs, tablets, and smartphones, including ios and android devices. <U+0095> adobe media server extended<U+0097>broadens video delivery broadcast capabilities by enabling customers to serve video to more viewers on a large scale with peer-to-peer capabilities. <U+0095> adobe media server on amazon web services<U+0097>an easy and affordable way for customers to deploy multiprotocol media streaming that scales to meet business needs; supports dynamic http packaging, protected http streaming, and drm for apple hls; enables a single packaging and protection workflow, and provides delivery scale through integration with amazon cloudfront. adobe media encoder<U+0097>a free media encoder and live audio and video capture software, also available as part of adobe creative cloud and our creative suite video products; streams audio and video in real time to adobe media server software; enables web broadcasts of live events such as sporting events, concerts, webcasts, and news and educational events. adobe pass for tv everywhere<U+0097>as part of the tv everywhere industry initiative, adobe pass enables content owners to verify a user's entitlement to content in a manner that is simple and secure; implemented as a hosted service, it allows for back-end integration based on the business rules required by both programmers and pay tv providers; helps content owners and pay tv providers take their content to the internet with a secure environment to prevent fraud, and a superior customer experience. adobe video streaming service<U+0097>via cdn partners, adobe offers hosted services for streaming on-demand video for the adobe flash player runtime across high-performance networks; built with adobe media server, adobe video streaming service provides an effective way to deliver .flv video to large audiences without the overhead of setting up and maintaining streaming server hardware and network. http dynamic streaming<U+0097>enables on-demand and live streaming of standards-based mp4 video over regular http connections; gives content creators, developers, and publishers more choice in high-quality media; while the real time message protocol remains the protocol of choice for lowest latency, fastest start, dynamic buffering, and stream encryption, http dynamic streaming enables leveraging of existing caching infrastructures, and provides tools for integrating content preparation into existing encoding workflows. digital marketing<U+0097>digital enterprise products adobe connect<U+0097>a rich web-based saas offering or on-premise perpetual license server communication system that enables organizations to reduce the costs of travel and increase the effectiveness of online training, marketing events, sales meetings and collaborative web conferencing solutions which are instantly accessible by customers, partners and employees using adobe flash player; consists of a core adobe connect events server or hosted service, and modules that provide specific application functionality, including adobe connect training and adobe connect events; can be deployed with either some or all of these components together; adobe connect training allows organizations to build a complete online training system with microsoft powerpoint presentations that include surveys, analysis, course administration and content management; adobe connect events allows users to provide seminar and training sessions as well as to conduct business presentations through the web. adobe livecycle collaboration service<U+0097>enables architects and developers to create more engaging and more dynamic user experiences that deliver multi-user, real-time collaboration features into new or existing rich internet applications; allows customers to offload management and processing for features such as chat, video, voip and white-boarding, ultimately to provide guided product or service selection, assisted product design or enhanced customer support. adobe livecycle connectors for ecm<U+0097>solutions that enable livecycle customers to connect their livecycle applications with other industry-leading enterprise content management systems, such as emc documentum, ibm filenet and ibm content manager. adobe livecycle content services<U+0097>offers a library of services that can be used with other livecycle solution components to create content-rich engagement applications whereby end users can share and collaborate on content development in content spaces as part of a company's business processes; supports check-in/check-out capabilities, keeps a complete audit history of all 24 table of contents document actions and provides a fully integrated set of content services ranging from an enterprise content repository to social collaboration tools such as enterprise forums; also includes team collaboration capabilities such as forums and discussions, and provides microsoft office plug-ins that enable users to interact with the process engine and content repository using microsoft word and microsoft excel. adobe livecycle mosaic<U+0097>provides rich internet application framework for rapidly assembling and engaging activity-centric enterprise applications, and provides knowledge workers with real-time, contextual information from multiple sources in a single, personalized view; used by developers to extend existing applications by exposing their business logic and user interfaces into application tiles that can be assembled to create unified views. adobe livecycle data services<U+0097>high-performance, scalable and flexible framework that streamlines the development of rias using flex and adobe air; abstracts the complexity required to create server push-based applications and supports a rich set of features to create real-time solutions; utilizes powerful data services and simplifies data management problems such as tracking changes, synchronization, paging and conflict resolution; deployed as a standard j2ee web application, which enables customers to leverage their existing infrastructure. adobe livecycle forms<U+0097>server-based software application that organizations can use to cost-effectively and securely extend their core business processes beyond their enterprise system; enables customers to create and deploy xml-based form templates as pdf, swf, or html for use with adobe reader or adobe flash player software, or with web browsers; provides for the capture of data from submitted forms and the transfer of the data directly into an organization's core business systems, thereby streamlining form-driven business processes and improving data accuracy. adobe livecycle reader extensions<U+0097>server-based software application that lets enterprises easily share interactive adobe pdf documents with external parties without requiring recipients of the documents to purchase acrobat software that normally would be necessary to interact with the adobe pdf documents they receive; unlocks features on an individual adobe pdf document by document basis so that when such a file is opened in the free adobe reader, users have access to tools that normally would not be available in adobe reader, such as reviewing and commenting functions, signatures to digitally sign pdf documents, embedding file attachments, enabling database and web service capabilities, and the ability to fill in form data, submit and save electronic documents locally. adobe livecycle output<U+0097>server-based solution that supports on-demand document processes including the generation of documents such as correspondence, confirmations, bids, or shipping labels; provides capabilities to merge xml data from back-end systems with livecycle designer es templates to generate documents in pdf, pdf/a, postscript, pcl, or zebra label formats; customers can customize electronic document packages by combining newly generated pdf documents with existing files from document repositories; customers can also convert pdf documents to print or image file formats and then route them automatically to support direct server-based printing or archiving operations. adobe livecycle pdf generator<U+0097>server-based software that automates the creation, assembly, distribution and archiving of pdf documents in combination with critical business processes; converts a wide range of native and standard file formats, and can combine newly created pdf documents with existing files or pages to assemble customized pdf packages; supports direct server-based pdf printing or can convert pdf documents to a wide variety of formats, including image formats and pdf/a. adobe livecycle production print<U+0097>server-based solution that performs high-volume jobs through efficient batch processes, generating documents such as statements, invoices, contracts, or welcome kits; merges xml, ascii or other data types from back-end systems with livecycle designer es templates to generate documents in a broad range of print or electronic formats to support high volume production requirements; enables customers to print document packages by collecting multiple jobs over time and then grouping them to minimize mailing costs. adobe livecycle digital signatures<U+0097>server-based software application that helps organizations automate the processing of electronic documents by providing batch-based capabilities to digitally sign and certify adobe pdf documents, validate digital signatures and encrypt/decrypt adobe pdf documents; safeguards information when it leaves a company's network and integrates with existing public key infrastructures. adobe livecycle rights management<U+0097>server-based software application that helps organizations manage information access securely with dynamic, persistent document control; allows for access control and auditing of adobe pdf, microsoft word, microsoft excel, microsoft powerpoint, ptc pro/engineer, dassault catia and lattice xvl cad document usage inside or outside the firewall, online or offline and across multiple document platforms; lets organizations know when a document has been viewed, printed or altered and restricts access so that only intended recipients can open, use and forward a document; allows for previously granted document permissions and access to be revoked; leverages acrobat and adobe reader and other client plug-in software to author and view protected documents. 25 table of contents adobe livecycle process management<U+0097>server-based process management application that allows organizations to orchestrate people, systems, content and business rules into streamlined, end-to-end processes that are accessible to process participants through engaging user interfaces, online or offline; provides out-of-box dashboards to help users gain insights into business operations in real time and management tools to fix day-to-day operational problems and make long-term process improvements. adobe livecycle business activity monitoring<U+0097>software that allows administrators and process participants to quickly identify bottlenecks, check progress and view other process information related to business transactions; comes in two versions: adobe livecycle business activity monitoring (<U+0093>bam<U+0094>) es standard, which allows for the monitoring of all livecycle processes with 16 out-of-the-box dashboards and, adobe livecycle bam es extended, which adds the ability to extend livecycle bam es to other enterprise business systems so that users can monitor business processes via dashboards inside and outside the livecycle environment. adobe livecycle managed services<U+0097>livecycle is available as on-premise software or as a managed services offering delivered in partnership with amazon.com. livecycle managed services customers pay adobe an annual subscription fee. in return, adobe provisions and manages a livecycle instance for the customer on amazon web services. by outsourcing the management of their livecycle instance to adobe, customers benefit from increased capital efficiency and reduced complexity. as a result, customers can focus more of their efforts on providing successful user outcomes and less on the tasks of managing computing infrastructure. adobe central pro output server<U+0097>a server-based software application for document generation that allows organizations to create personalized, customer-facing documents from any data source, including legacy, line-of-business, enterprise resource planning or crm applications; merges data with an electronic document template using a powerful processing engine to dynamically generate electronic documents such as purchase orders, invoices, statements and checks for delivery via adobe pdf, the web, e-mail, fax or print; works with adobe output designer which is a companion tool used to create sophisticated document templates. adobe livecycle designer<U+0097>desktop software application that simplifies the creation and maintenance of intelligent xml based forms for deployment as adobe pdf forms, html applications and flash based rias; provides an intuitive, graphical design tool for creating xml templates that look exactly as the author intended and previewing them before deployment; it also simplifies adding intelligence to documents, such as business and routing logic, and binding form fields to arbitrary xml schemes for seamless integration with enterprise applications. adobe output designer<U+0097>a design tool that allows users to create electronic document templates for use with adobe solutions for document generation; aids in the creation of electronic documents that exactly replicate existing paper documents. adobe output pak for mysap.com<U+0097>an sap-certified server-based software application for document generation that enables organizations to optimize their investment in their sap solution by creating personalized, professional-looking, customer-facing documents; provides an easy, fast and cost-effective way to create and maintain documents for the sap environment; integrates directly with an sap system to extract information which is merged with a document template that defines the layout and formatting of the document; output can be in a variety of formats, including adobe pdf, print, fax, e-mail and the web. adobe web output pak<U+0097>a server-based software application for document generation; creates documents in pdf and html for presentation on the web and in wireless markup language for presentation to a wireless device; allows users to personalize and control the look of documents based on the data the documents contain. print and publishing products adobe authorware<U+0097>a legacy rich media authoring tool used to develop caption based elearning on windows and macintosh based platforms; use of the product ranges from creating web-based tutorials to simulations incorporating audio and video; applications developed with authorware can be delivered on the web, over corporate networks or on cd-rom. adobe captivate<U+0097>enables users to rapidly create professional and engaging elearning content-including software simulation, quizzes, animation and multimedia-and deliver the content in .flv and other formats; the content can be created without any programming or multi-media skills and can be published to cd/dvds and learning management systems used in training, sales, marketing and customer support applications; often used in combination with adobe connect, adobe captivate provides a robust technology solution to bring understanding and retention to end users of rapid training and elearning solutions. adobe coldfusion<U+0097>provides a server-scripting environment and a set of features used by organizations for building database-driven scalable applications that are accessible through web browsers, adobe flash player and adobe air; built on an open java technology architecture and can be deployed on third-party java application servers that support the j2ee specification. 26 table of contents adobe coldfusion builder<U+0097>development tool for building coldfusion applications; provides a unified, customizable and extensible development environment to code applications, manage servers and deploy projects. adobe contribute<U+0097>an easy-to-use tool to update and publish web content, designed for non-technical business users who need to make minor changes to intranet and internet websites that conform to the structure, style, layout and site standards setup by a website administrator; streamlines the web content maintenance process and provides website administrators with a set of simple content management functionality to manage and administer websites; also provides bloggers with a simple tool to create and update their blogs. adobe director<U+0097>a tool for creating professional multimedia content that combines images, text, audio and video into presentations, interactive experiences and prototypes; for websites, it provides users with the ability to deliver multimedia content that supports three dimensional content and animations for use in various markets, including education, games and commerce; also enables the creation of fixed-media content for cd titles and dvd titles in the entertainment, education and corporate training markets. adobe elearning suite<U+0097>an integrated set of software for creating professional elearning and html5-based courseware; includes capabilities of adobe captivate, flash professional, dreamweaver, photoshop extended, acrobat, adobe presenter, adobe audition and adobe bridge. adobe framemaker<U+0097>an application for authoring and publishing long, structured, content-rich documents including books, documentation, technical manuals and reports; provides users a way to publish their content to multiple output formats, including print, adobe pdf, html, xml and microsoft word. adobe framemaker server<U+0097>extends the capabilities of framemaker software in an automated, server-based environment; includes features that facilitate high-volume publishing, including catalog, database, and directory publishing, as well as the production of personalized technical documents and custom ebooks. adobe font folio<U+0097>contains more than 2,400 typefaces from the adobe type library in opentype format, offering a type solution for print, the web, digital video or electronic documents; also includes adobe type manager which makes it easy to create beautiful text for print, web and video projects. adobe jrun<U+0097>a legacy application server solution based on the j2ee specification; integrates with our development tool offerings and is used to deploy applications for functions such as online banking and customer service. adobe pagemaker<U+0097>software used to create high-quality documents simply and reliably with robust page layout tools, templates and stock art. adobe pdf print engine<U+0097>a next-generation printing platform that enables complete, end-to-end pdf-based workflows using common pdf technology to generate, preview and print pdf documents; allows pdf documents to be rendered natively throughout a workflow, providing performance benefits which include eliminating the need to flatten transparent artwork. adobe postscript<U+0097>a printing and imaging page description language that delivers high quality output, cross-platform compatibility and top performance for graphically rich printing output from corporate desktop printers to high-end publishing printers; gives users the power to create and print visually rich documents with total precision; licensed to printing equipment and workflow software manufacturers for integration into their printing products. adobe robohelp<U+0097>an easy-to-use authoring and collaboration tool used by developers and technical writers to create professional help systems and documentation for desktops, smartphones, tablets and web-based applications; utilizes support for html5, webhelp, compiled windows html help (<U+0093>chm<U+0094>), air help, pdf, ebook, and native mobile apps. adobe shockwave player<U+0097>a rich media player used for deploying multimedia content for use in internet solutions including education, training, games and commerce. adobe technical communication suite<U+0097>an integrated set of software for technical communicators who create and delivery technical-orientated content; includes acrobat, adobe captivate, framemaker, illustrator and robohelp technologies; helps customers improve their workflows, especially technical communicators who want a single solution to meet their content creation and publishing needs. freehand mx<U+0097>a legacy professional vector graphics tool designers and illustrators use to create images. 27 table of contents competition the markets for our products and services are characterized by intense competition, new industry standards, evolving business and distribution models, disruptive software and hardware technology developments, frequent new product introductions, short product life cycles, price cutting with resulting downward pressure on gross margins and price sensitivity on the part of consumers. our future success will depend on our ability to enhance and better integrate our existing products, introduce new products on a timely and cost-effective basis, meet changing customer needs, extend our core technology into new applications and anticipate and respond to emerging standards, business models, software delivery methods and other technological changes. digital media in our digital media segment, we offer adobe creative cloud and adobe creative suite in multiple editions which consist of combinations of several of our technologies. in addition to offering the technologies within these products, we also offer many of them as individual software applications. these products compete with those from many companies, including apple, aviary, avid, corel, microsoft, quark and others, as well as from many lower-end offerings available on touch-enabled devices via app stores, and from various open source initiatives. of the competitors listed, no single company has offerings identical to our creative suite and creative cloud family of products, but our products face collective competition from a variety of point offerings, free products and downloadable apps. for instance, aviary provides for a free set of online, cloud-based creative tools via its partners' websites and mobile applications. its tools run inside web browsers and mobile applications and include an image editor, a vector graphics editor, a special effects tool, and audio and music tools. we believe our creative suite and creative cloud family of products competes favorably on the basis of features and functionality, ease of use, product reliability, value and performance characteristics. the individual technologies within creative cloud and the creative suite editions also work well together, providing broader functionality and shortened product training time for the individual who uses multiple applications to complete a project. as discussed below, we also believe our individual creative suite and creative cloud products compete favorably against those offered by competitors noted above. our indesign product, used for professional page layout, faces competition from offerings such as quark xpress in the professional page layout market. we believe indesign competes favorably due to the innovative features of indesign, its improved integration with our other products, our strong brand among users, positive reviews by industry experts, and more recent innovations which address customer challenges related to publishing for tablets which is delivered in concert with our new digital publishing suite offerings. professional drawing and illustration products are characterized by feature-rich competition, brand awareness and price sensitivity. our adobe illustrator product faces competition from companies such as acdsee, aviary, corel, mediascape, xara and the open source product called karbon14. competition in this market is also emerging with a new category of drawing and illustration applications on tablet and smartphone platforms. we offer adobe ideas for graphics creation on tablets, and other software companies, including autodesk with its sketchbook pro application, are extending their products and feature sets to platforms such as apple's ipad and potentially other tablet devices. we believe our products compete favorably due to high customer awareness of their rich features, especially the drawing and illustration functionalities, the technical capabilities of the product and our ability to leverage core technologies from our other established products. the demand for professional web page layout and professional web content creation tools is constantly evolving and highly volatile. we believe dreamweaver and flash professional face direct and indirect competition from desktop software companies such as bare bones software, flashdevelop, jetbrains, panic, macrabbit, macromates, and various proprietary and open source web authoring tools. we also face competition from microsoft visual studio products, and other integrated development environments that enable developers to create web applications from companies such as bea systems (a subsidiary of oracle), borland (owned by micro focus) and ibm. we believe our products compare favorably to these applications; however, our market share may be constrained by microsoft's ability to target its web software to users in markets it dominates. these target customers include users of microsoft office, microsoft windows operating system, the microsoft internet explorer web browser and microsoft visual studio. our flash technologies, including adobe flash player and adobe air, face competition from alternative approaches to building rich content and web applications such as javafx, html5, native applications and unity. 28 table of contents the html specification, which among other things describes the syntax and format for encoding web pages, has evolved over several decades and adobe has participated in its evolution. our tools are among the leading applications used by web designers and developers to create html-based content that is displayed and viewed in web browsers. the newest version of html, commonly known as html5, is being developed by an industry consortium that includes adobe and leading browser vendors such as apple, google and microsoft, and contains new features which compete with some of the features of flash. these features include the ability to create and display rich advertising and play video natively within the browser. we are working to implement support for html5 in our creative product solutions, and we believe we will provide the widest array of support and tooling for html5 content creation over time. we are also contributing adobe technology to webkit, the open source project utilized by popular internet browsers such as apple's safari and google's chrome browser, to improve the user experience for html5-based content in areas such as publishing and animated graphics. by increasing the capabilities for displaying rich content in browsers with html5, we believe we can increase the desire by web content creators for our tools that create such content. as it relates to flash, we believe that flash technology-based content and tooling have a significant technology lead over other solutions trying to replicate its feature sets on pc-based systems, particularly in use cases such as online gaming, web applications, 3d-based content, and premium online video delivery. given apple's considerable market share with smartphones and tablets, and apple's decision to not support adobe flash player on its mobile devices, in 2011 we decided (based on this and other factors) to discontinue new development on adobe flash player for mobile browser implementations in favor of supporting adobe air for the packaging of standalone mobile applications developed using flash technologies. as it relates to html5, we believe demand for authoring using new html5 features will intensify the competition in the professional web page layout market. we also believe the potential fragmentation of html5 implementations by the various browser vendors that compete with each other will create the need for tool improvements to address the disparities between platforms and devices that could result. our dreamweaver product, new adobe edge tools & services and adobe muse are well positioned to assist customers with migrating to new versions of standards such as html5, as well as delivering the means to create rich, interactive experiences on devices and screens of all sizes. we expect new tools and solutions to come to market that will compete with our tools. however, we believe our continuing innovation in our tools, and how these tools are integrated with other adobe technologies that are used by web content creators, creates a value proposition that is greater than those trying to compete with our web page content creation offerings. as customers such as publishers and media companies increase their desire to deliver their assets to new platforms such as mobile devices and tablets, we expect new and existing companies to continue to offer solutions that address these challenges that are competitive with our digital publishing suite. many design agencies are building capabilities to offer such solutions, and companies such as amazon, apple, aquafada, google, texterity and zinio offer an alternative format and business model for the delivery of newspaper and magazine content to mobile devices. with our adobe media server solution, we face competition from microsoft with its windows media server for windows media and silverlight, as well as apple, move networks, real networks, wowza media systems and others. our tools used to create applications for pcs and mobile devices such as smartphones and tablets are influenced by evolving industry standards, rapid software and hardware technology developments and frequent new product and technology introductions by companies or open-source initiatives targeting similar opportunities. technologies and products that compete with our tools for creating mobile applications include solutions that utilize java and scalable vector graphics. on apple devices running the ios operating system, on devices running microsoft operating systems and on devices running the google android operating system, developers can choose to use native development environments for those platforms. they can also utilize other developer solutions that can be compiled to run on such devices, including those from companies such as appcelerator, unity technologies, sencha and strobe. we believe our robust programming model and developer tools used to create rich content, our large developer community and ecosystem that utilize our tools and the growth of companies who utilize our flash, air, phonegap and phonegap build solutions as a basis for rich content and application delivery across multiple screens are key assets in our ability to effectively compete in this market. further, the rich expressiveness of flash, which provides the capability to deliver audio, video, motion graphics, vector graphics and visual effects resulting in rich user experiences and interfaces in browsers on pc platforms and as applications across pc and mobile device platforms such as ios and android, is a key differentiation when compared to the capabilities of alternate solutions, especially for gaming and premium video delivery use cases. the needs of digital imaging and video editing software users are constantly evolving due to rapid technology and hardware advancements in digital cameras, digital video cameras, printers, pcs, tablets, mobile phones and other new devices. our imaging and video software offerings, including photoshop, photoshop lightroom, photoshop elements, after effects, adobe audition, encore, adobe premiere elements and adobe premiere pro, face competition from companies offering similar products. we also 29 table of contents continue to face competition from new and free products, including web services and mobile/tablet applications that compete directly with our adobe revel offering. in professional digital imaging, software applications and services compete based on product features, brand awareness and price sensitivity. in addition to competition with apple's aperture product, our photoshop and photoshop lightroom products face direct and indirect competition from a number of companies, including corel. new image editing applications for mobile devices and tablets with features that compete with our professional products are also emerging as adoption of these devices grows. our adobe photoshop products compete favorably due to high customer awareness of the photoshop brand in digital imaging, the positive recommendations for our photoshop product by market influencers, the features and technical capabilities of the product and our ability to leverage core features from our other established products. our other digital imaging and video editing offerings, including adobe photoshop elements and adobe premiere elements, are subject to intense competition, including customer price sensitivity, competitor brand awareness and competitor strength in oem bundling and retail distribution. we face direct and indirect competition in the consumer digital imaging market from a number of companies that market software that competes with ours, including acd systems, ai soft (japan), apple, arcsoft, corel, i4 (japan), google, kodak, nova development, magix, microsoft, photodex corporation, sonic (owned by rovi), pinnacle (owned by avid) and sony. in addition, we face competition from device, hardware and camera manufacturers such as apple, canon, dell, hewlett-packard, nikon, phase one, sony and others as they try to differentiate their offerings by bundling, for free, their own digital imaging software, or those of our competitors. similarly, we face potential competition from operating system manufacturers such as apple with their iphoto product and microsoft as they integrate or offer hobbyist-level digital imaging and image management features with their operating systems. we also face potential competition from smartphone and tablet manufacturers that integrate imaging and video software into their devices to work with cameras that come as part of their smartphone and tablet offerings. in addition, new social networking platforms such as facebook (including its instagram offering) and portal sites such as google and yahoo! are becoming a direct means to post, edit and share images, bypassing the step of using image editing and sharing software. competition is also emerging with a new category of imaging and video applications on tablet and smartphone platforms. existing as well as new competitors are extending their products and feature sets to platforms such as apple's ipad and potentially other tablet devices. similarly, new cloud-based saas offerings continue to emerge which offer image editing and video-editing capabilities, as well as social and sharing features. in addition to competing with our own mobile applications such as photoshop express, our lightroom product and our photoshop elements and adobe premiere hobbyist products, these products could start to encroach upon the feature sets of our professional tools. applications for digital video editing, motion graphics, special effects, audio creation and dvd authoring face increasing competition as video professionals and hobbyists migrate towards the use of digital camcorders and digital video production on their computers, and dvd systems and online video for rich media playback. our after effects, adobe audition, encore and adobe premiere pro software products, as well as the adobe creative suite production premium edition which contains these products, face competition from companies such as apple, avid, canopus (owned by grass valley), sonic (owned by rovi) and sony. our adobe premiere elements software product, which is targeted for use by hobbyists, faces competition from companies such as apple, arcsoft, autodesk, avid, broderbund, corel, magix, microsoft and sony as well as video editing capabilities found in operating systems, hosted saas solutions, video editing solutions bundled by video camcorder manufacturers with their hardware offerings, and video editing solutions bundled onto smartphones. similarly, we face potential competition from operating system manufacturers such as apple with its imovie and idvd products and microsoft with its windows movie maker product as they integrate or offer hobbyist-level digital imaging and image management features with their operating systems. we believe we compete favorably against other digital imaging, digital video and consumer-focused image management software applications with our adobe photoshop elements and adobe premiere elements products due to strong consumer awareness of our brand in digital imaging and digital video, our relationships with significant oems, positive recommendations for our products by market influencers, our focus on the retail software channel and strong feature sets. after effects is a leader in professional compositing and visual effects due to its strong feature set and its integration with our other products that helps create a broad video editing platform for our customers. in professional digital video editing, we are an industry leader with adobe premiere pro and compete favorably due to our strong feature set, our oem relationships and the integration with our other products to create a broad digital video publishing platform for our customers. with our acrobat business, we continue to face competition from microsoft. their widely used office product offers a feature to save microsoft office documents as pdf documents, which competes with acrobat. they also offer a proprietary digital 30 table of contents rights management technology and a document format, called xml paper specification (<U+0093>xps<U+0094>), which competes with adobe pdf. given microsoft's market dominance, the pdf feature in office, xps, and any other competitive microsoft product or technology that is bundled as part of its office product or operating system or made freely available, could harm our overall acrobat market opportunity. our acrobat product family also faces competition in the pdf file creation market from many clone products marketed by companies such as adlib, active pdf, apple, global graphics, nuance, software995, sourcenext and others. in addition, other pdf creation solutions can be found at a low cost, or for free, on the web. for customers that use acrobat as part of document collaboration and document process management solutions, where electronic document delivery, exchange, collaboration, security and archival needs exist, our acrobat product family faces competition from entrenched office applications such as microsoft office and its integration with its sharepoint product. in the higher end of the electronic document market, acrobat pro and acrobat pro extended provide features which compete with other creative professional pdf tool providers, such as enfocus, dalim and zinio. google's google apps set of products also provides document creation and collaboration capabilities, including the ability to preview pdf documents, which can be used as an alternative to our collaboration features in acrobat. to address these competitive threats, we are working to ensure our adobe acrobat applications stay at the forefront of innovation in emerging opportunities such as pdf document generation, document collaboration and document security. digital marketing the markets in which our digital marketing business unit competes are growing rapidly and characterized by intense competition. our adobe marketing cloud solutions face competition from large companies such as google, yahoo!, microsoft, oracle, ibm, hp, salesforce.com and others, in addition to point product solutions and focused competitors. additionally, new competitors are constantly entering these markets, increasing competition. certain of these competitors provide software on demand to customers, generally through a web browser, or provide software that is installed by customers directly on their servers. in addition, we compete at times with our customers' or potential customers' internally developed applications. of the competitors listed, no single company has products identical to our digital marketing offerings. our digital marketing solutions compete in a variety of areas, including: reporting and analytics; multi-channel marketing and optimization; online and social marketing; web experience management and others. in the market of digital marketing, we believe our creative tools heritage differentiates us from our competitors; we have worked closely with marketing and creative customers for thirty years. we also believe we have market leadership in the digital marketing market, with current customers representing leading brands in the world including markets such as financial services, global media, retail and auto manufacturing. our comprehensive solution to serve the needs of customers in this market extends further than any other company addressing the opportunity; we integrate content and data, analytics, personalization, web experience management, campaign management and social capabilities in our adobe marketing cloud, surpassing the features of any competitor. most importantly, we provide a vision for our digital marketing customers as we engage with them across the important aspects of their business, extending from their use of our creative cloud, to how they manage, deliver, measure and monetize their content with our adobe marketing cloud. our current principal competitors for our reporting and analytics offerings include companies that offer web analytics and optimization services on-demand such as comscore (which recently acquired adxpose and certifica), google, ibm (which owns coremetrics, unica and tealeaf), microsoft, webtrends, xiti and yahoo!. we also compete with software and business intelligence vendors, such as infor (which owns epiphany), nielsen/netratings (which is a part of the nielsen online unit of the nielsen company) and sas institute. in addition, we also compete with online marketing service providers, such as doubleclick (owned by google), microsoft advertising (formerly aquantive when acquired by microsoft) and 24/7 real media (acquired by wpp). our insight products compete with channel analytics providers, such as asterdata (owned by teradata), clickfox, netezza (owned by ibm), qliktech and truviso. in addition to competing with large search, display and social companies, our adlens products and multi-channel campaign management offerings, including those obtained through our acquisition of efficient frontier, compete with point solutions providers such as bluekai, criteo, decidedna (owned by wpp), doubleclick search (owned by google), ignitionone, kenshoo and marin software. our target solutions compete with multivariate testing providers, such as kefta (owned by acxiom digital), memetrics (owned by accenture), monetate, optimizely, optimost (owned by hp) and [x + 1]. our target products and solutions compete with intra-site search vendors and merchandising solutions providers such as autonomy (owned by hp), celebros, endeca technologies (owned by oracle), fast search and transfer asa (owned by microsoft), fredhopper, google, nextopia software and sli systems. 31 table of contents our adobe social offerings compete primarily with social monitoring platforms such as radian6 (owned by salesforce.com) and visible technologies, as well as with social marketing companies such as buddy media (owned by salesforce.com), lithium technologies, vitrue (owned by oracle) and wildfire (owned by google). our experience manager solution competes with: general enterprise content platforms, including products from documentum (owned by emc), hp (which acquired autonomy), ibm, opentext, and oracle (which acquired fatwire); content management tools like microsoft sharepoint; large-scale wem systems from companies such as vignette (owned by opentext); and more specialized solutions, including products from alfresco, coremedia, percussion, and sdl. in addition, there are low-cost and open source alternatives, such as drupal, joomla!, and wordpress. many of the companies with which we compete offer a variety of products or services and as a result could also bundle their products or services, which may result in these companies effectively selling their products or services at or below market prices. in addition, large software, internet and database management companies have expanded and enhanced their offerings in the digital marketing area, either by developing competing services or by acquiring existing competitors or strategic partners of ours. for example, apple provides its iad service, google offers both a free and premium web analytics service and acquired doubleclick, one of our strategic partners, in 2007. also, microsoft offers a web analytics service, and offers microsoft advertising, which is based on microsoft's 2007 acquisition of aquantive; yahoo! also offers a web analytics service based on its acquisition of indextools; salesforce.com acquired buddy media and radian6 to provide services to monitor and analyze social media conversations; oracle acquired endeca technologies, fatwire, involver and vitrue and has entered into a definitive agreement to acquire eloqua, and hp acquired autonomy (which had previously acquired interwoven) to increase their presences in the digital marketing space; and ibm, with its coremetrics and unica acquisitions, has extended its e-retailing offering in an initiative it calls project northstar. these competitors, given their significant resources and preexisting relationships with our current and potential customers, could compete effectively against us. we believe competitive factors in our markets include the proven performance, security, scalability, flexibility and reliability of services; the strategic relationships and integration with third-party applications; the intuitiveness and visual appeal of services' user interfaces; the low total cost of ownership and demonstrable cost-effective benefits to customers; the ability of services to provide n-dimensional segmentation of information; pricing; the flexibility and adaptability of services to match changing business demands; enterprise-level customer service and training; perceived market leadership; the usability of services, including services being easy to learn and remember, efficient and visually compelling; the real-time availability of data and reporting; independence from portals and search engines; the ability to deploy the services globally and to provide multi-currency, multi-language and multi-character support and to have a local presence in international markets; and success in educating customers in how to utilize services effectively. we believe that we compete favorably with both the enterprise and low-cost alternatives, based on many of these competitive factors including our strong feature set, the breadth of our offerings, our focus on global, multi-brand, multi- language websites, our superior user experience, tools for building multi-screen, multi-channel applications, standards-based architecture, scalability and performance and leadership in industry standards efforts. our web conferencing solution, adobe connect, faces competition from many web conferencing vendors, including cisco webex, microsoft office live meeting (now a part of their microsoft lync offering), ibm lotus sametime and citrix gotomeeting (and their recent acquisition of netviewer). cisco webex is a market share leader, and microsoft has steadily increased its marketing of its solution as well as acquired skype which is a service that enables video calls via the internet. microsoft has brought to market products and technologies to address many of the market needs we focus on with our livecycle family of products. microsoft offers its eforms solution called infopath in certain versions of microsoft office and has added office forms services which extends their forms to users as ms outlook e-mail messages or to web browsers rather than the infopath client. they also continue to offer their windows rights management services in their windows server product which is designed to allow corporate networks to manage and enforce restrictions built into documents. certain windows operating systems contain a proprietary digital rights management technology which competes with our livecycle rights management. in addition, microsoft's office product includes sharepoint which competes with certain aspects of our livecycle products. microsoft has also delivered technology called windows presentation foundation and silverlight which offers an alternative to building ria applications within the microsoft .net framework. in the electronic forms solution market, in addition to competition from microsoft infopath based solutions, we face competition from ibm through their eforms solution recently rebranded as lotus workplace forms. similarly, we face competition for document process management solutions from workflow solution vendors such as pegasystems, lombardi (owned by ibm), nuance and ultimus. print and publishing our print and publishing product line targets many markets. in technical authoring and publishing, our adobe framemaker product faces competition from large-scale electronic publishing systems, xml-based publishing companies such as ptc, as well 32 table of contents as lower-end desktop publishing products such as microsoft word. competition is based on the quality and features of products, the level of customization and integration with other publishing system components, the number of hardware platforms supported, service and price. we believe we can successfully compete based upon the quality and features of the framemaker product and our extensive application programming interface. in desktop publishing, our adobe pagemaker product faces competition from other software products, including microsoft publisher. competition is based on the quality and features of products, ease-of-use, printer service support and price. we believe we have a strong product and can successfully compete with these types of applications based upon the quality and features of the pagemaker product, its strong brand among users and its widespread adoption among printer service bureaus. in printing technologies, we believe the principal competitive factors for oems in selecting a page description language or a printing technology are product capabilities, market leadership, reliability, price, support and engineering development assistance. we believe that our competitive advantages include our technology competency, oem customer relationships and our intellectual property portfolio. adobe postscript faces competition from hewlett-packard's proprietary pcl page description language and from developers of other page description languages based on the postscript language standard, including global graphics and zoran. in addition, microsoft's xps document format and autodesk's dwg format compete with adobe pdf and our postscript technologies and solutions. in the elearning authoring market, our adobe elearning suite and our adobe captivate product face competition from general content development tools such as microsoft powerpoint, screen recording tools such as techsmith's camtasia and more advanced elearning and software simulation solutions such as firefly, lectora and articulate. competition in this market is based on speed of development and completeness of the features of products, ease-of-use and price. we believe our product can successfully compete based upon the strength of its broad range of features, its strong brand among users and its widespread adoption among training developers. our adobe contribute product faces competition from solutions that provide for the simple creation of blogs and <U+0093>wikis,<U+0094> as well as basic content publishing products such as microsoft word, microsoft frontpage, microsoft notepad, basic html editors like ezhtmlarea and ektron, and content management solutions similar to those with which our day web experience management solution competes. competition in this market is based on usability, quality and features of products, the level of customization and integration with other wem components, the integration with web design tools, the number of hardware platforms supported, service and price. we believe we can successfully compete based upon the usability and price of contribute, its strong brand among users and integration with other wem components. in multimedia content authoring, our adobe director product faces competition from a variety of multimedia content authoring tools. competition is based on the quality and features of products, ease-of-use and price. we believe we have a strong product and can successfully compete based upon the quality and features of the director product, its strong brand among users, its widespread adoption among content developers and publishers and the widespread proliferation of the adobe shockwave player. in technical web authoring and publishing, our adobe robohelp product faces competition from large-scale web publishing systems, xml-based web publishing companies, as well as lower-end publishing products such as microsoft word. competition is based on the quality and features of products, the level of customization and integration with other publishing system components, service and price. we believe we can successfully compete based upon the quality and features of the robohelp product. our adobe coldfusion products face competition from major vendors including microsoft, ibm and oracle (via its bea subsidiary and acquisition of sun). our coldfusion products also compete with several technologies available today at no cost including the php and perl programming environments that are available for the apache web server. operations marketing and sales we market and distribute our products through sales channels, which include distributors, retailers, software developers, systems integrators, isvs and vars, as well as through oem and hardware bundle customers. we also market and license our products directly using our sales force and through our own website at www.adobe.com. we support our end users through local field offices and our worldwide distribution network, which includes locations in australia, austria, belgium, brazil, canada, china, czech republic, denmark, dubai, finland, france, germany, india, ireland, italy, japan, korea, mexico, moldova, the netherlands, norway, poland, portugal, romania, russia, singapore, south africa, spain, sweden, switzerland, taiwan, turkey, ukraine, the united arab emirates, the united kingdom and the united states. 33 table of contents we also license software with maintenance and support, which includes rights to upgrades, when and if available, support, updates and enhancements. the table below lists our significant customer, as a percentage of net revenue for fiscal 2012, 2011 and 2010. our significant customer is a distributor who sells products across our various segments. 2012 2011 2010 ingram micro 11 % 14 % 15 % we have multiple non-exclusive, independently negotiated distribution agreements with ingram micro and its subsidiaries covering our arrangements in specified countries and regions. each of these contracts has an independent duration, is independent of any other agreement (such as a master distribution agreement) and any termination of one agreement does not affect the status of any of the other agreements. in fiscal 2012, no single customer was responsible for over 10% of our gross trade receivables. in fiscal 2011, ingram micro, inc. represented 14% of our gross trade receivables. order fulfillment for physical distribution the procurement of the various components of packaged products, including dvds and printed materials, and the assembly of packages for retail and other applications products is controlled by our supply chain operations organization. we outsource our production, inventory and fulfillment activities to third parties in the united states, emea and apac. to date, we have not experienced significant difficulties in obtaining raw materials for the manufacture of our products or in the replication of dvds, printing and assembly of components. shippable backlog is comprised of unfulfilled orders, excluding those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy. we had minimal shippable backlog as of january 18, 2013 and january 20, 2012. services and support we provide professional services, technical support and customer service across all our customer segments, including enterprises, small/medium businesses, creative professionals, and consumers. our service and support revenue consists primarily of consulting fees, software maintenance and support fees and training fees. services we have a global professional services team dedicated to designing, developing and implementing solutions for enterprise customers in key vertical markets and to transfer technical expertise to our solution partners. the professional services team uses a comprehensive, customer-focused methodology to develop high quality solutions, which in turn deliver a competitive advantage to our enterprise customers. this methodology has been developed by capturing best practices from numerous client engagements across a diverse mix of solutions, industries, and customer preferences. based on this methodology, our teams are able to accelerate the time to value and maximize the return our clients earn on their investment in adobe solutions. in addition, adobe has also created a large and vibrant partner ecosystem that includes a mix of global system integrators (<U+0093>sis<U+0094>), regional sis, vars, and solution partners. adobe invests significant resources in enabling this ecosystem with the right skills and knowledge about our technologies and best practices. consequently, this ecosystem provides our clients several different choices of partners, and a large accessible pool of skilled resources that can help deploy adobe solutions. this approach not only creates value for our customers and partners, but also creates a large and productive go-to-market channel for our sales teams. support a significant portion of our support revenue is composed of our extended enterprise maintenance and support offerings. these offerings entitle customers to: <U+0095> the right to receive product upgrades and enhancements during the term of the maintenance and support period, which is typically one year; <U+0095> the right to receive technical support on the technology they have purchased from adobe; and <U+0095> the right to receive basic <U+0093>how to<U+0094> help in using our products. 34 table of contents we offer a range of support programs, from fee-based incidents to annual support contracts. additionally, we provide extensive self-help and online technical support capabilities via the web which allows customers quick and easy access to possible solutions. as a registered owner of the current version of an adobe desktop product, customers are eligible to receive getting started support on certain matters. support for some products and in some countries may vary. we provide product support through a combination of outsourced vendors and internal support centers, and through multiple channels including phone, chat web, and email. these support services are delivered by a global support organization that includes several regional and global support centers. these teams are responsible for providing timely, high quality technical expertise on all our products. we also offer developer support to partners and developer organizations. the adobe partner connection program focuses on providing developers with high-quality tools, software development kits, information and services. training we offer a comprehensive portfolio of training options to enable our customer and partner teams in the use of our products. our training portfolio includes free on-line informational services on our website (www.adobe.com) and a growing series of how-to books published by adobe press pursuant to a joint publishing agreement with peachpit press. we sponsor workshops, work with professional associations and user groups, and conduct regular beta testing programs. we also provide fee-based education services to enhance our customers<U+0092> use of our solutions, including a wide range of traditional and online training and certifications delivered by our team of training professionals. adobe's portfolio of technical training courses covers our digital media, digital marketing and other mature products and solutions. investments we make direct investments in privately held companies. we enter into these investments with the intent of securing financial returns as well as for strategic purposes as they often increase our knowledge of emerging markets and technologies, as well as expand our opportunities to provide adobe products and services. we also owned a limited partnership interest in adobe ventures iv l.p. (<U+0093>adobe ventures<U+0094>) that invested in early stage companies with innovative technologies. during fiscal 2010, adobe ventures was dissolved and all remaining assets were distributed to the partners. adobe ventures was managed by granite ventures, an independent venture capital firm and sole general partner of adobe ventures. product development as the software industry is characterized by rapid technological change, a continuous high level of investment is required for the enhancement of existing products and services and the development of new products and services. we develop our software internally as well as acquire products or technology developed by others by purchasing the stock or assets of the business entity that owned the technology. in other instances, we have licensed or purchased the intellectual property ownership rights of programs developed by others with license or technology transfer agreements that may obligate us to pay a flat license fee or royalties, typically based on a dollar amount per unit shipped or a percentage of the revenue generated by those programs. during fiscal years 2012, 2011 and 2010, our research and development expenses were $742.8 million, $738.1 million and $680.3 million, respectively. product protection we regard our software as proprietary and protect it under the laws of copyrights, patents, trademarks and trade secrets. we have a number of domestic and foreign patents and pending applications that relate to various aspects of our products and technology. while we believe our patents have value, no single patent is material to us or to any of our reporting segments. we protect the source code of our software programs as trade secrets and make source code available to third parties only under limited circumstances and subject to specific security and confidentiality constraints. from time to time, we secure rights to third party intellectual property as we decide is beneficial to our business. our products are generally licensed to end users under one of the following two methods: (1) we offer many products on a <U+0093>right to use<U+0094> basis pursuant to a license that restricts the use of the products to a designated number of devices. we also rely on copyright laws and on <U+0093>shrink wrap<U+0094> and electronic licenses that are not physically signed by the end user. copyright protection may be unavailable under the laws of certain countries and the enforceability of <U+0093>shrink wrap<U+0094> and electronic licenses has not been conclusively determined in all jurisdictions. 35 table of contents (2) we also offer products under a saas or on-demand model, where hosted software is provided on demand to customers, generally through a web browser. the use of these products is generally governed by terms of use associated with these products. policing unauthorized use of computer software is difficult and software piracy is a persistent problem for the software industry. this problem is particularly acute in international markets. we conduct anti-piracy programs directly and through certain external software associations. in addition, we have activation technology in certain products to guard against illegal use and will continue to do so in certain future products. employees as of november 30, 2012, we employed 11,144 people. we have not experienced work stoppages and believe our employee relations are good. available information our annual report on form 10-k, quarterly reports on form 10-q, current reports on form 8-k and amendments to reports filed or furnished pursuant to sections 13(a) and 15(d) of the securities exchange act of 1934, as amended, are available free of charge on our investor relations website at www.adobe.com/adbe as soon as reasonably practicable after we electronically file such material with, or furnish it to, the sec. the information posted on our website is not incorporated into this report. executive officers adobe<U+0092>s executive officers as of january 18, 2013 are as follows: name age positions shantanu narayen 49 president and chief executive officer mr. narayen currently serves as adobe<U+0092>s president and chief executive officer. mr. narayen joined adobe in january 1998 as vice president and general manager of adobe<U+0092>s engineering technology group. in january 1999, he was promoted to senior vice president, worldwide products and in march 2001 he was promoted to executive vice president, worldwide product marketing and development. in january 2005, mr. narayen was promoted to president and chief operating officer and in december 2007, he was appointed chief executive officer of adobe and joined the adobe board of directors. prior to joining adobe, mr. narayen co-founded pictra inc., a digital photo sharing software company, in 1996. he was director of desktop and collaboration products at silicon graphics inc. before founding pictra. mr. narayen is also a director of dell inc. mark garrett 55 executive vice president, chief financial officer mr. garrett joined adobe in february 2007 as executive vice president and chief financial officer. mr. garrett served as senior vice president and chief financial officer of the software group of emc corporation, a products, services and solutions provider for information management and storage, from june 2004 to january 2007, his most recent position since emc<U+0092>s acquisition of documentum, inc., an enterprise content management company, in december 2003. mr. garrett first joined documentum as executive vice president and chief financial officer in 1997, holding that position through october 1999 and then re-joining documentum as executive vice president and chief financial officer in 2002. mr. garrett is also a director of informatica corporation. michael dillon 54 senior vice president, general counsel mr. dillon joined adobe in august 2012 as senior vice president, general counsel and corporate secretary. prior to joining adobe, mr. dillon served as general counsel and corporate secretary of silver spring networks, a networking solutions provider, from november 2010 to august 2012. before joining silver spring networks, mr. dillon served in various capacities at sun microsystems, a diversified computer networking company, prior to its acquisition by oracle corporation. while at sun microsystems, from april 2006 to january 2010, mr. dillon served as executive vice president, general counsel and secretary, from april 2004 to april 2006, as senior vice president, general counsel and corporate secretary, and from july 2002 to march 2004 as vice president, products law group. from october 1999 until june 2002, mr. dillon served as vice president, general counsel and corporate secretary of oni systems corp, an optical networking company. 36 table of contents name age positions kevin lynch 46 senior vice president, chief technology officer mr. lynch currently serves as adobe<U+0092>s chief technology officer and senior vice president of the experience & technology organization. mr. lynch joined adobe as chief software architect and senior vice president for adobe<U+0092>s platform business unit through our acquisition of macromedia, inc. in december 2005. at macromedia, mr. lynch served as chief software architect and president of product development. prior to macromedia, mr. lynch participated in a variety of technical and management roles in startups including frame technology and general magic. bradley rencher 39 senior vice president and general manager, digital marketing mr. rencher serves as senior vice president and general manager of adobe<U+0092>s digital marketing business unit. mr. rencher joined omniture, inc. in january 2008 as vice president of corporate development and was promoted to senior vice president of business operations prior to adobe's acquisition of omniture in 2009. following the acquisition he joined adobe as vice president of business operations. mr. rencher was promoted to vice president and general manager, omniture business unit in 2010 and subsequently to senior vice president in 2011. prior to joining omniture, mr. rencher was a member of the technology investment banking team at morgan stanley from 2005 to 2008 and a member of the investment banking team at rbc capital markets from 1998 to 2004. matthew thompson 54 senior vice president, worldwide field operations mr. thompson joined adobe in january 2006 as senior vice president, worldwide field operations. prior to joining adobe, mr. thompson served as senior vice president of worldwide sales at borland software corporation, a software delivery optimization solutions provider, from october 2003 to december 2006. prior to joining borland, mr. thompson was vice president of worldwide sales and field operations for marimba, inc., a provider of products and services for software change and configuration management, from february 2001 to january 2003. from july 2000 to january 2001, mr. thompson was vice president of worldwide sales for calico commerce, inc., a provider of ebusiness applications. prior to joining calico, mr. thompson spent six years at cadence design systems, inc., a provider of electronic design technologies. while at cadence, from january 1998 to june 2000, mr. thompson served as senior vice president, worldwide sales and field operations and from april 1994 to january 1998 as vice president, worldwide professional services. david wadhwani 41 senior vice president and general manager, digital media mr. wadhwani serves as senior vice president and general manager of adobe's digital media business unit. prior to june 2010, mr. wadhwani was vice president and general manager of adobe<U+0092>s platform business unit. he joined adobe in 2005 through the acquisition of macromedia. prior to his time at macromedia, mr. wadhwani founded and was vp of engineering at iharvest, a content management company that was acquired by interwoven and worked at oracle in their database tools division. richard t. rowley 56 vice president, corporate controller and principal accounting officer mr. rowley joined adobe in november 2006 as vice president, corporate controller and principal accounting officer. prior to joining adobe, mr. rowley served as vice president, corporate controller, treasurer and principal accounting officer at synopsys, inc., a semiconductor design software company, from december 2002 to september 2005 and from 1999 to december 2002, mr. rowley served as vice president, corporate controller and principal accounting officer. from 1994 to 1999, mr. rowley served in several finance-related positions at synopsys. mr. rowley is a certified public accountant. 37"
## [5] "item 1. business overview we are an integrated communications company engaged primarily in providing an array of communications services to our residential, business, governmental and wholesale customers. our communications services include local and long-distance, network access, private line (including special access), public access, broadband, data, managed hosting (including cloud hosting), colocation, wireless and video services. in certain local and regional markets, we also provide local access and fiber transport services to competitive local exchange carriers (\"clecs\") and security monitoring. we strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services. based on our 13.7 million of total access lines at december 31, 2012, we were the third largest telecommunications company in the united states. we operate almost 75% of our total access lines in portions of colorado, washington, arizona, minnesota, florida, north carolina, oregon, iowa, utah, new mexico, missouri and nevada. we also provide local service in portions of idaho, ohio, wisconsin, virginia, texas, pennsylvania, montana, alabama, nebraska, indiana, arkansas, tennessee, wyoming, new jersey, north dakota, south dakota, kansas, michigan, louisiana, south carolina, illinois, georgia, mississippi, oklahoma and california. in the portion of these 37 states where we have access lines, which we refer to as our local service area, we are the incumbent local telephone company. we also operate 54 data centers throughout north america, europe and asia. we define a data center as any facility where we market, sell and deliver either colocation services or multi-tenant managed services, or both. we were incorporated under the laws of the state of louisiana in 1968. our principal executive offices are located at 100 centurylink drive, monroe, louisiana 71203 and our telephone number is (318) 388-9000. for a discussion of certain risks applicable to our business, financial condition and results of operations, see \"risk factors\" in item 1a of this report. the summary financial information in this section should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and notes thereto in item 8 and \"management's discussion and analysis of financial condition and results of operations\" in item 7 of this report. acquisitions acquisition of savvis on july 15, 2011, we acquired all of the outstanding common stock of savvis, a provider of cloud hosting, managed hosting, colocation and network services in domestic and international markets. we believe this acquisition enhanced our ability to provide information technology services to our existing business customers and strengthened our ability to attract new business customers. each share of savvis common stock outstanding immediately prior to the acquisition converted into the right to receive $30 per share in cash and 0.2479 shares of centurylink common stock. the aggregate consideration of $2.382 billion was based on: cash payments of $1.732 billion; 3 table of contents the 14.313 million shares of centurylink common stock issued to consummate the acquisition; the closing stock price of centurylink common stock at july 14, 2011 of $38.54; and the estimated net value of the pre-combination portion of certain share-based compensation awards assumed by centurylink of $98 million, of which $33 million was paid in cash. upon completing the acquisition, we also paid $547 million to retire certain pre-existing savvis debt and accrued interest. acquisition of qwest on april 1, 2011, we acquired all of the outstanding common stock of qwest, a provider of data, broadband, video and voice services nationwide and globally. we entered into this acquisition, among other things, to realize certain strategic benefits, including enhanced financial and operational scale, market diversification and leveraged combined networks. as of the acquisition date, qwest served approximately 9.0 million access lines and approximately 3.0 million broadband subscribers across 14 states. each share of qwest common stock outstanding immediately prior to the acquisition converted into the right to receive 0.1664 shares of centurylink common stock, with cash paid in lieu of fractional shares. the aggregate consideration of $12.273 billion was based on: the 294 million shares of centurylink common stock issued to consummate the acquisition; the closing stock price of centurylink common stock at march 31, 2011 of $41.55; the estimated net value of the pre-combination portion of share-based compensation awards assumed by centurylink of $52 million (excluding the value of restricted stock included in the number of issued shares specified above); and cash paid in lieu of the issuance of fractional shares of $5 million. we assumed approximately $12.7 billion of long-term debt in connection with our acquisition of qwest. effect of recent acquisitions our acquisitions in 2011 resulted in several important changes to our operations, including: providing services to an expanded number of densely-populated markets, which tend to afford consumers access to a greater range of competitive communications products than less dense markets; reducing the percentage of our total revenue derived from governmental support programs, which typically focus on disbursing payments to companies operating in less densely-populated areas; expanding and reconfiguring our operating regions to incorporate the qwest service areas in order to provide day-to-day decision making at the regional level as opposed to the more centralized structures formerly used by qwest; and offering certain services, such as cloud hosting, that centurylink did not historically provide. other acquisitions on july 1, 2009, we acquired all of the outstanding common stock of embarq corporation (\"embarq\"), a provider of data, internet, video and voice services for stock valued at approximately $6.1 billion on the acquisition date. as of the acquisition date, embarq served approximately 5.4 million access lines and approximately 1.5 million broadband subscribers across 18 states. we assumed approximately $4.9 billion of long-term debt in connection with our acquisition of embarq. 4 table of contents we regularly evaluate the possibility of acquiring additional assets in exchange for cash, securities or other properties, and at any given time may be engaged in discussions or negotiations regarding additional acquisitions. we generally do not announce our acquisitions or dispositions until we have entered into a preliminary or definitive agreement. references to acquired businesses in the discussion that follows, we refer to the incremental business activities that we now operate as a result of the savvis acquisition and the qwest acquisition as \"legacy savvis\" and \"legacy qwest\", respectively. references to \"legacy centurylink\", when used in comparison of our consolidated results for the years ended december 31, 2012 and 2011, mean the business we operated prior to the qwest and savvis acquisitions. financial and operational highlights the following table summarizes the results of our consolidated operations. our operating results include the operations of savvis for periods after july 15, 2011 and qwest for periods after april 1, 2011. years ended december 31, 2012 2011 2010 (dollars in millions) operating revenues $ 18,376 15,351 7,042 operating expenses 15,663 13,326 4,982 operating income $ 2,713 2,025 2,060 net income $ 777 573 948 december 31, 2012 2011 (dollars in millions) balance sheet data: total assets $ 54,020 56,044 total long-term debt(1) 20,605 21,836 total stockholders' equity 19,289 20,827 (1)total long-term debt is the sum of current maturities of long-term debt and long-term debt on our consolidated balance sheets. for total obligations, see \"management's discussion and analysis of financial condition and results of operations future contractual obligations\" in item 7 of this report. the following table summarizes certain of our operational metrics: as of december 31, 2012 2011 2010 (in thousands) operational metrics: total broadband subscribers(1) 5,848 5,652 2,349 total access lines(2) 13,748 14,584 6,489 (1)broadband subscribers are customers that purchase high-speed internet connection service through their existing telephone lines and fiber-optic cables. 5 table of contents (2)access lines are telephone lines reaching from the customers' premises to a connection with the public switched telephone network, or pstn. during the second quarter of 2012, we updated our methodology for counting broadband subscribers to include residential, business and wholesale subscribers instead of only residential and small business subscribers. we have restated our previously reported amounts to reflect this change. substantially all of our long-lived assets are located in the united states and substantially all of our revenues are from customers located in the united states. we estimate that less than 2% of our consolidated revenue is derived from providing telecommunications and data hosting services outside the united states. operations segments since acquiring qwest and savvis in 2011, we have reorganized our operations and associated reporting segments on three occasions, including in 2012 and early 2013. during the second quarter of 2012, in order to more effectively deploy the strategic assets acquired from qwest and savvis and to better serve our business and government customers, we internally restructured our business into the following operating segments: regional markets. consists primarily of providing strategic and legacy products and services to residential consumers, state and local governments, small to medium-sized businesses and enterprise customers that in each case are located mainly within one of our six regions. our strategic products and services offered to these customers include our private line, broadband, mpls, hosting, video services and wireless services. our legacy services offered to these customers consist primarily of local and long-distance service; wholesale markets. consists primarily of providing strategic and legacy products and services to other domestic and international communications providers. our strategic products and services offered to these customers are mainly private line (including special access) and mpls. our legacy services offered to these customers include unes which allow our wholesale customers the use of our network or a combination of our network and their own networks to provide voice and data services to their customers, long-distance and switched access services; enterprise markets network. consists primarily of providing strategic and legacy network communications products and services to national and international enterprise and government customers. our strategic products and services offered to these customers include our private line, broadband, mpls and hosting services. our legacy services offered to these customers consist primarily of local and long-distance services; and enterprise markets data hosting. consists primarily of providing colocation, managed hosting and cloud hosting services to national and international enterprise and government customers. 6 table of contents the following table shows the composition of our revenues by segment for 2012 and 2011 under our segment categorization as of december 31, 2012. years ended december 31, 2012 2011 change percentage of revenue: regional markets 54% 57% (3% ) wholesale markets 20% 22% (2% ) enterprise markets network 14% 13% 1% enterprise markets data hosting 6% 3% 3% other operating revenues 6% 5% 1% total 100% 100% for additional information on our segment data, including our 2010 segment results and information on certain centrally-managed assets and expenses not reflected in our segment reports, see note 13 segment information to the consolidated financial statements in item 8 of this report and \"management's discussion and analysis of financial condition and results of operations\" in item 7 of this report. on january 3, 2013, we announced a reorganization of our operating segments. beginning with the first quarter of 2013, we will report the following four segments in our consolidated financial statements: consumer, business, wholesale and data hosting. for additional information on this change, please see \"management's discussion and analysis of financial condition and results of operations\" in item 7 of this report. products and services our products and services include a variety of voice, broadband, data, information technology (\"it\"), video and other communications services. in 2011, we expanded our it services to include cloud hosting, managed hosting, colocation and network services. we offer our customers the ability to bundle together several products and services. for example, we offer integrated and unlimited local and long-distance services. our customers can also bundle two or more services such as broadband, video (including directv through our strategic partnership), voice and verizon wireless (through our strategic partnership) services. we believe our customers value the convenience and price discounts associated with receiving multiple services through a single company. most of our products and services are provided using our telecommunications network, which consists of voice and data switches, copper cables, fiber-optic cables and other equipment. our network serves approximately 13.7 million access lines and forms a portion of the public switched telephone network, or pstn. described below are our key products and services. strategic services our customers use our strategic services to access the internet, connect to private networks and transmit data. we also provide value-added services and integrated solutions that make communications more secure, reliable and efficient for our customers. we focus our marketing and sales efforts on these services: private line. private line (including special access) is a direct circuit or channel specifically dedicated for the purpose of directly connecting two or more sites. private line offers a 7 table of contents high-speed, secure solution for frequent transmission of large amounts of data between sites. we also provide private line transmission services to wireless service providers that use our fiber-optic cables connected to their towers, commonly referred to as fiber to the tower or wireless backhaul services, to support their next generation wireless networks; broadband. our broadband services allow customers to connect to the internet through their existing telephone lines and fiber-optic cables at high speeds. substantially all of our broadband subscribers are located within our local service area; mpls. multi-protocol label switching is standards-approved data networking technology, compatible with existing asynchronous transfer mode, or atm, and frame relay networks we provide to support real-time voice and video. this technology allows network operators flexibility to divert and route traffic around link failures, congestion and bottlenecks; managed hosting. managed hosting includes provision of centralized it infrastructure and a variety of managed services including cloud and traditional computing, application management, back-up, storage, and advanced services including planning, design, implementation and support services; colocation. colocation services enable our customers to install their own it equipment in our state-of-the art facilities through our centralized it infrastructure; ethernet. ethernet services include point-to-point and multi-point configurations that facilitate data transmissions across metropolitan areas and wide area networks; video. our video services include our facilities-based video, marketed as centurylink prism , which is a premium entertainment service that allows our customers to watch hundreds of television or cable channels and record up to four shows on one home digital video recorder. we also offer satellite digital television under an arrangement with directv that allows us to market, sell and bill for its services under its brand name; voip. voice over internet protocol, or voip, is a real-time, two-way voice communication service (similar to our traditional voice services) that originates over a broadband connection and often terminates on the pstn; and wireless services. our wireless services are offered under an agency arrangement with verizon wireless that allows us to market, sell and bill for its services under its brand name, primarily to customers who buy these services as part of a bundle with one or more of our other products and services. this arrangement allows us to sell the full complement of verizon wireless services. our current five-year arrangement with verizon wireless runs through 2015 and is terminable by either party thereafter. legacy services our legacy services represent our traditional voice, data and network services, which include the following: local. we offer local calling services for our regional markets customers within our local service area, generally for a fixed monthly charge. these services include a number of enhanced calling features and other services, such as call forwarding, caller identification, conference calling, voicemail, selective call ringing and call waiting, for which we generally charge an additional monthly fee. we also generate revenues from non-recurring services, such as inside wire installation, maintenance services, service activation and reactivation. for our wholesale customers, local calling services include primarily resale and unes, which allow our wholesale customers to use our network or a combination of our network and their own networks to provide voice and data services to their customers. local calling services also 8 table of contents include network transport, billing services and access to our network by other telecommunications providers and wireless carriers. local calling services provided to our wholesale customers allow other telecommunications companies the ability to originate or terminate telecommunications services on our network; long-distance. we offer our residential and business customers domestic and international long-distance services and toll-free services. our international long-distance services include voice calls that either terminate or originate with our customers in the united states; isdn. we offer integrated services digital network (\"isdn\") services, which uses regular telephone lines to support voice, video and data applications; wan. we offer wide area network (\"wan\") services, which allow a local communications network to link to networks in remote locations; and switched access services. we provide various forms of switched access services to wireline and wireless service providers for the use of our facilities to originate and terminate their interstate and intrastate voice transmissions. data integration data integration involves our sale of telecommunications equipment to customers for use on their premises and related professional services. these services include network management, installation and maintenance of telecommunication and data equipment and the building of proprietary fiber-optic networks for our governmental and other business customers. other revenues we also generate other operating revenues from universal service fund (\"usf\") revenues and surcharges and the leasing and subleasing of space in our office buildings, warehouses and other properties. the majority of our real estate properties are located in our local service area. additional information during 2008, we paid an aggregate of approximately $149 million for 69 licenses in the fcc's auction of 700 megahertz wireless spectrum. during the second quarter of 2012, we committed to a plan to sell our advanced wireless services a block and 700 mhz wireless spectrum in the a, b, and c blocks, which in the aggregate had a basis of $154 million. we sold $58 million of our wireless spectrum assets during the fourth quarter of 2012, and we sold another $43 million of our wireless spectrum assets in january 2013. in the aggregate, these transactions resulted in a gain of $32 million. we expect to reach agreements with various other purchasers for the remaining spectrum, and the consummation of which will be subject to regulatory approval. from time to time, we also make investments in other communications companies. for further information on regulatory, technological and competitive changes that could impact our revenues, see \"regulation\" and \"competition\" under this item 1 below and \"risk factors\" under item 1a below. for more information on the financial contributions of our various services, see \"management's discussion and analysis of financial condition and results of operations\" in item 7 of this report. patents, trade names, trademarks and copyrights either directly or through our subsidiaries, we have rights in various patents, trade names, trademarks, copyrights and other intellectual property necessary to conduct our business, such as our 9 table of contents centurylink and prism brand names. our services often use the intellectual property of others, including licensed software. we also occasionally license our intellectual property to others. sales and marketing we maintain local offices in most of the larger population centers within our local service area. these offices provide sales and customer support services in the community. we also rely on our call center personnel to promote sales of services that meet the needs of our customers. our strategy is to enhance our communications services by offering a comprehensive bundle of services and deploying new technologies to further enhance customer loyalty. we conduct most of our operations under the brand name \"centurylink.\" our satellite television service is offered on a co-branded basis under the \"directv\" name. our switched digital television service offering is branded under the name \"prism .\" the wireless service that we offer under our agency agreement with verizon wireless is marketed under the \"verizon wireless\" brand name. currently, certain data hosting, it and other services furnished through our savvis operations are marketed under the \"savvis\" or \"savvisdirect\" brand names. our approach to our regional markets' residential customers emphasizes customer-oriented sales, marketing and service with a local presence. we market our products and services primarily through direct sales representatives, inbound call centers, local retail stores, telemarketing and third parties. we support our distribution with direct mail, bill inserts, newspaper advertising, website promotions, public relations activities and sponsorship of community events and sports venues. our approach to our regional markets' business and government customers includes a commitment to deliver communications products and services that meet existing and future business needs through bundles of services and integrated service offerings. our focus is to be a comprehensive communications solution for our small office, mid-sized and select enterprise business and government customers. our approach to our wholesale markets' customers includes a commitment to deliver communications solutions that meet existing and future needs of national network telecommunications providers through bandwidth growth and quality of services. our approach to our enterprise market network customers includes a commitment to deliver network products and services that meet existing and future customer needs by offering private line, broadband, mpls and hosting services and well as local and long-distance services. our enterprise market data hosting operations utilize a solution-based selling approach. by working directly with potential and existing clients, we are able to understand our clients' it infrastructure and long-term goals. we also market through indirect channels, including collaborations with existing clients and technology providers, telecommunications companies and system integrators. network architecture most of our products and services are provided using our telecommunications network, which consists of voice and data switches, copper cables, fiber-optic cables and other equipment. our local exchange carrier networks also include central offices and remote sites, all with advanced digital switches and operating with licensed software. our fiber-optic cable is the primary transport technology between our central offices and interconnection points with other incumbent carriers. as of december 31, 2012, we maintained over 1.03 million miles of copper plant and approximately 157 thousand miles of fiber-optic plant in our local exchange networks. we also maintain separate networks in connection with providing fiber transport and clec services. most of our long distance service is provided through reselling arrangements with other long distance carriers, with the balance being provided directly through centurylink's own switches and 10 table of contents network equipment. all of our satellite television and wireless voice service is provided by other carriers under agency agreements. we continue to enhance and expand our network by deploying broadband-enabled technologies to provide additional capacity to our customers. rapid and significant changes in technology are expected to continue in the telecommunications industry. our future success will depend, in part, on our ability to anticipate and adapt to changes in customer demands and technology. in particular, we anticipate that continued increases in broadband usage by our customers will require us to make significant capital expenditures to increase network capacity or to implement network management practices to alleviate network capacity shortages, either of which could adversely impact our results of operation and financial condition. for additional information, see \"risk factors\", generally, in item 1a of this report, and, in particular, \"risk factors risks affecting our business increases in broadband usage may cause network capacity limitations, resulting in service disruptions, reduced capacity or slower transmission speeds for our customers.\" for more information, see item 2 of this report. regulation we are subject to significant regulation by the federal communications commission (\"fcc\"), which regulates interstate communications, and state utility commissions, which regulate intrastate communications in our local service area. these agencies issue rules to protect consumers and promote competition; they set the rates that telecommunication companies charge each other for exchanging traffic; and they have established usf to support the provision of services to high-cost areas. in most states, local voice service, switched and special access services and interconnection services are subject to price regulation, although the extent of regulation varies by type of service and geographic region. in addition, we are required to maintain licenses with the fcc and with the utility commissions of most of the states in our local service area. laws and regulations in many states restrict the manner in which a licensed entity can interact with affiliates, transfer assets, issue debt and engage in other business activities, and many mergers and acquisitions require approval by the fcc and some state commissions. historically, incumbent local exchange carriers (\"ilecs\") operated as regulated monopolies having the exclusive right and responsibility to provide local telephone services in their franchised service territories. as we discuss in greater detail below, passage of the telecommunications act of 1996, coupled with state legislative and regulatory initiatives and technological change, fundamentally altered the telephone industry by generally reducing the regulation of ilecs and creating a substantial increase in the number of competitors. we are considered an ilec. the following description discusses some of the major industry regulations that affect our traditional telephone operations, but numerous other regulations not discussed below could also impact us. some legislation and regulations are currently the subject of judicial, legislative and administrative proceedings which could substantially change the manner in which the telecommunications industry operates and the amount of revenues we receive for our services. neither the outcome of these proceedings, nor their potential impact on us, can be predicted at this time. for additional information, see item 1a of this annual report below. state regulation in recent years, most states have substantially reduced their regulation of ilecs. nonetheless, state regulatory commissions generally continue to regulate local service rates, intrastate access charges, state universal service funds and in some cases service quality, as they continue to grant and revoke certifications authorizing companies to provide communications services. state commissions traditionally regulated pricing through \"rate of return\" regulation that focused on authorized levels of earnings by ilecs. several states continue to regulate us in this manner. in most of our states, we are generally regulated under various forms of alternative regulation that typically limit our ability to increase rates for basic local voice service, but relieve us from the requirement to meet certain earnings tests. in a 11 table of contents few states, we have recently gained pricing freedom for the majority of retail services except for the most basic of services, such as stand-alone basic residential voice service. in most of the states in which we operate, we have gained pricing flexibility for certain enhanced calling services, such as caller identification and for bundled services that also include local voice service. state commissions periodically conduct proceedings to review the rates that we charge other telecommunications providers for using our network or for reselling our service pursuant to the telecommunications act of 1996. we are currently responding to carrier complaints, legislation or generic investigations regarding our intrastate switched access rates in several of our states. in particular, certain long-distance providers have disputed existing intercarrier compensation rates payable to us and other ilecs with respect to voip traffic or refused to pay access charges, based on the contention that tariffed switched access charges should not apply to voip traffic. on october 27, 2011, the fcc adopted an order comprehensively reforming federal intercarrier compensation and universal service policies and rules, as discussed further below under the heading \"federal regulation.\" among other things, this order preempted state regulatory commissions' jurisdiction over all terminating access charges, including intrastate access charges that have historically been subject to exclusive state jurisdiction. furthermore, the fcc decreed that, on a prospective basis, intercarrier compensation rates for voip traffic will be established at interstate access rates in the event intrastate switched access rates exceed interstate rates. the fcc order requires all terminating access rates including intrastate, interstate and reciprocal compensation rates to be reduced and unified over time. excluding the rate implications contemplated on a prospective basis by the recent fcc order, we will continue to vigorously defend and seek to collect our intrastate switched access revenue subject to outstanding disputes. these historical disputes are primarily over access charge compensation for voip traffic terminating on the public switched telephone network. the outcomes of these disputes cannot be determined at this time. if we are required to reduce our intrastate switched access rates as a result of any of these disputes or state initiatives, we will seek to recover displaced switched access revenues from state universal service funds or other services. however, the amount of such recovery, particularly from residential customers, is not assured. under state law, our telephone operating subsidiaries are typically governed by laws and regulations that (i) regulate the purchase and sale of ilecs, (ii) prescribe certain reporting requirements, (iii) require ilecs to provide service under publicly-filed tariffs setting forth the terms, conditions and prices of regulated services, (iv) limit ilecs' ability to borrow and pledge their assets, (v) regulate transactions between ilecs and their affiliates, and (vi) impose various other service standards. unlike many of our competitors, as an ilec we generally face \"carrier of last resort\" obligations which include an ongoing requirement to provide service to all prospective and current customers in our service area who request service and are willing to pay rates prescribed in our tariffs. in competitively-bid situations, such as newly-constructed housing developments or multi-tenant dwellings, this may constitute a competitive disadvantage to us if competitors can choose to focus on low-risk profitable customers and withhold service from high-risk unprofitable customers. in addition, strict adherence to carrier of last resort requirements may force us to construct facilities with a low likelihood of positive economic return. we operate in states where traditional cost recovery mechanisms, including rate structures, are under evaluation or have been modified. there can be no assurance that these states will continue to provide for cost recovery at current levels. federal regulation we are required to comply with the communications act of 1934, which requires us to offer services at just and reasonable rates and on non-discriminatory terms, as well as the 12 table of contents telecommunications act of 1996, which amended the communications act of 1934 primarily to promote competition. the fcc regulates interstate services provided by us, including the special access charges we bill for wholesale network transmission and the interstate access charges that we bill to long-distance companies and other communications companies in connection with the origination and termination of interstate voice and data transmissions. additionally, the fcc regulates a number of aspects of our business related to privacy, homeland security and network infrastructure, including access to and use of local telephone numbers. the fcc has responsibility for maintaining and administering the federal usf, which provides substantial support for maintaining networks in high-cost areas, as well as supporting service to low-income households, schools and libraries, and rural health care providers. like other communications network operators, ilecs must obtain fcc approval to use certain radio frequencies, or to transfer control of any such licenses. the fcc retains the right to revoke these licenses if a carrier materially violates relevant legal requirements. we, like other large and mid-sized ilecs, operate under price-cap regulation of interstate access rates. under price-cap regulation, limits imposed on a company's interstate rates are adjusted periodically to reflect inflation, productivity improvement and changes in certain non-controllable costs. in recent years, our operations and those of other telecommunications carriers have been further impacted by legislation and regulation imposing additional obligations on us, particularly with regards to providing broadband service, bolstering homeland security, increasing disaster recovery requirements, minimizing environmental impacts and enhancing privacy. these laws include the communications assistance for law enforcement act, and laws governing local telephone number portability and customer proprietary network information requirements. these laws and regulations may cause us to incur additional costs and could impact our ability to compete effectively. in december 2012, the fcc initiated a special access proceeding and has requested data, information and documents to allow it to conduct a comprehensive evaluation of competition in the special access market. the ultimate impact of this proceeding on the company is currently unknown. however, if the fcc were to adopt significant changes in regulations affecting special access services, this could adversely impact our operations or financial results. universal service fund and other related matters for decades, the fcc has regularly considered various intercarrier compensation reforms, generally with a goal to create a uniform mechanism to be used by the entire telecommunications industry for payments between carriers originating, terminating, or carrying telecommunications traffic. in connection therewith, the fcc solicited public comments on a variety of topics related to access charges and intercarrier compensation. the american recovery and reinvestment act of 2009 (the \"recovery act\") includes certain broadband initiatives that are intended to accelerate broadband deployment across the united states. the recovery act approved $7.2 billion in funding for broadband stimulus projects across the united states to be administered by two governmental agencies. the programs provide grants and loans to applicants for construction of certain broadband infrastructure, provision of certain broadband services, and support of certain broadband adoption initiatives. this program has attracted a wide range of applicants including states, municipalities, start-up companies and consortiums. the participation of other parties in these programs has increased competition in selected areas, which may increase our marketing costs and decrease our revenues in those areas. this trend may intensify if program participation increases. on october 27, 2011, the fcc adopted the connect america and intercarrier compensation reform order (\"caf order\"), intended to reform the existing regulatory regime to recognize ongoing shifts to new technologies, including voip, and gradually re-direct universal service funding to foster 13 table of contents nationwide broadband coverage. this initial ruling provides for a multi-year transition over the next decade as terminating intercarrier compensation charges are reduced, universal service funding is explicitly targeted to broadband deployment, and line charges paid by end user customers are gradually increased. we anticipate that these changes will substantially increase the pace of reductions in the amount of switched access revenues in our wholesale segment, while creating opportunities for increases in federal usf and retail revenue streams. on december 29, 2011, the caf order went into effect. at the same time, numerous parties filed a petition for reconsideration with the fcc seeking numerous revisions to the order. in january 2012, we joined more than two dozen parties in challenging certain aspects of the order by filing a separate appeal that is expected to be heard by the united states tenth circuit court of appeals in late 2013. future judicial challenges to the caf order are possible, which could alter or delay the fcc's proposed changes. in addition, based on the outcome of the fcc proceedings, various state commissions may consider changes to their universal service funds or intrastate access rates. moreover, rulemaking designed to implement the order is not complete, and several fcc proceedings relating to the order remain pending. for these and other reasons, we cannot predict the ultimate impact of these proceedings at this time. on january 31, 2012, the fcc adopted an order modernizing the program that provides assistance to qualifying low-income individuals for local voice service. these changes also affect state-specific programs that provide assistance to qualifying individuals. the impact of these changes on us and our low-income customers cannot be quantified at this time, but we may face increased administrative costs, additional audit requirements and potential customer disconnections as a result of this fcc order and its implementation. we received approximately $543 million, $510 million and $431 million of revenue from federal and state universal service programs for the years ended december 31, 2012, 2011 and 2010, respectively. such amounts represented approximately 3.0%, 3.3% and 6.1% of our 2012, 2011 and 2010 total operating revenues, respectively. other regulations certain of our telecommunications and data hosting services conducted in foreign countries are or may become subject to various foreign laws, including those regulating the protection and retention of data. competition general we compete in a rapidly evolving and highly competitive market and we expect intense competition to continue. we compete with cable and satellite companies, wireless providers, national telecommunications providers (such as at&t, inc. and verizon communications inc.) and a variety of other competitors. technological advances, regulatory and legislative changes have increased opportunities for alternative communications service providers, which in turn have increased competitive pressures on our business. these alternate providers often face fewer regulations and have lower cost structures than we do. in addition, the telecommunications industry has experienced substantial consolidation over the past decade and some of our competitors in one or more lines of our business are generally larger, have stronger brand names, have more financial and business resources and have broader service offerings than we currently do. over the past decade, fundamental technological, regulatory and legislative changes have significantly impacted the communications industry, and we expect these changes will continue. primarily as a result of regulatory and technological changes, competition has been introduced and 14 table of contents encouraged in each sector of the communications industry in recent years. as a result, we increasingly face competition from other communication service providers, as further described below. wireless telephone services increasingly constitute a significant source of competition with our ilec services. as a result, some customers have chosen to completely forego use of traditional wireline phone service and instead rely solely on wireless service for voice services. we anticipate this trend will continue, particularly if wireless service providers continue to expand their coverage areas, reduce their rates, improve the quality of their services and offer enhanced new services. substantially all of our access line customers are currently capable of receiving wireless services from at least one competitive service provider. technological and regulatory developments in wireless services, personal communications services, digital microwave, satellite, coaxial cable, fiber-optics, local multipoint distribution services, wifi, and other wired and wireless technologies are expected to further permit the development of alternatives to traditional landline services. moreover, the growing prevalence of electronic mail, text messaging, social networking and similar digital communications continues to reduce the demand for traditional landline voice services. the telecommunications act of 1996, which obligates ilecs to permit competitors to interconnect their facilities to the ilec's network and to take various other steps that are designed to promote competition, imposes several duties on an ilec if it receives a specific request from another entity which seeks to connect with or provide services using the ilec's network. in addition, each ilec is obligated to (i) negotiate interconnection agreements in good faith, (ii) provide nondiscriminatory \"unbundled\" access to all aspects of the ilec's network, (iii) offer resale of its telecommunications services at wholesale rates and (iv) permit competitors, on terms and conditions (including rates) that are just, reasonable and nondiscriminatory, to colocate their physical plant on the ilec's property, or provide virtual colocation if physical colocation is not practicable. current fcc rules require ilecs to lease a network element only in those situations where competing carriers genuinely would be impaired without access to such network elements, and where the unbundling would not interfere with the development of facilities-based competition. as a result of these regulatory, consumer and technological developments, ilecs also face competition from competitive local exchange carriers, or clecs, particularly in densely populated areas. clecs provide competing services through reselling the ilecs' local services, through use of the ilecs' unbundled network elements or through their own facilities. technological developments have led to the development of new services that compete with traditional ilec services. technological improvements have enabled cable television companies to provide traditional circuit-switched telephone service over their cable networks, and several national cable companies have aggressively pursued this opportunity. similarly, companies providing voip services provide voice communication services over the internet which compete with our traditional telephone service and our own voip services. similar to us, many cable, technology or other communications companies that previously offered a limited range of services are now offering diversified bundles of services, either through their own networks, reselling arrangements or joint ventures. as such, a growing number of companies are competing to serve the communications needs of the same customer base. such activities will continue to place downward pressure on the demand for our access lines and the pricing of our services. as both consumers and business customers increasingly demand high-speed connections for entertainment, communications and productivity, we expect the demands on our network will continue to increase over the next several years. to succeed, we and other network-based providers must ensure that our networks can deliver services that meet these increasing bandwidth requirements. we plan to continue to invest in our network to be able to meet this future demand. in addition, network reliability and security are increasingly important competitive factors in the enterprise business. 15 table of contents in addition to facing direct competition from those providers described above, ilecs increasingly face competition from alternate communication systems constructed by long distance carriers, large customers or alternative access vendors. these systems are capable of originating or terminating calls without use of the ilecs' networks or switching services. other potential sources of competition include non-carrier systems that are capable of bypassing ilecs' local networks, either partially or completely, through various means, including the provision of special access or independent switching services and the concentration of telecommunications traffic on a few of the ilecs' access lines. we anticipate that all these trends will continue and lead to decreased use of our networks. additional information about competitive pressures is located (i) under the heading \"risk factors risks affecting our business\" in item 1a of this report and (ii) in the discussion immediately below, which contains more specific information on how these trends in competition have impacted our segments. regional markets strategic services with respect to our strategic services, competition is based on price, bandwidth, service, promotions and bundled offerings. wireless carriers' fourth generation, or 4g, services are allowing them to more directly compete with our strategic services. in reselling directv video services, we compete primarily with cable and other satellite companies as well as other sales agents and resellers. we also compete with interexchange carriers and other broadband service providers. our prism residential video service faces substantial competition from a variety of competitors, including well-established cable companies and companies that deliver content over the internet and on mobile devices at little or no cost to their customers. many of our competitors for these strategic services are not subject to the same regulatory requirements as we are and therefore they are able to avoid significant regulatory costs and obligations our strategy is based on pricing, packaging of services and features, quality of service and meeting customer care needs and on maintaining our focus on increasing the subscribers of our broadband services. in order to remain competitive, we believe continually increasing connection speeds is important. as a result, we continue to invest in our network, which allows for the delivery of higher speed broadband services. while traditional atm-based broadband services are declining, they have been more than offset by growth in fiber-based broadband services. we also continue to expand our product offerings including facilities-based video services and enhance our marketing efforts as we compete in a maturing market in which a significant portion of consumers already have broadband services. legacy services although our status as an ilec continues to provide us advantages in providing local services in our local service area, as noted above we increasingly face significant competition as an increasing number of consumers are willing to substitute cable, wireless and electronic communications for traditional voice telecommunications services. this has led to an increase in the number and type of competitors within our industry and a decrease in our market share. as a result of this product substitution, we face greater competition in providing local and long distance services from wireless providers, resellers and sales agents (including ourselves), social media hosts and broadband service providers, including cable companies. we also continue to compete with traditional telecommunications providers, such as national carriers, smaller regional providers, clecs and independent telephone companies. our strategy to reduce access line loss is based primarily on our pricing, packaging of services and features, quality of service and meeting customer care needs. while bundle price discounts have 16 table of contents resulted in lower average revenues for our individual services, we believe service bundles continue to positively impact our customer retention. in addition to our bundle discounts, we also offer limited time promotions on our broadband service for prospective customers who want our broadband service in their bundle, which further aids our ability to attract and retain customers and increase usage of our services. data integration in providing data integration to our customers, we compete primarily with large integrators, equipment providers and national telecommunication providers. competition is based on package offerings and as such we focus on providing these customers individualized and customizable packages. our strategy is to provide our data integration through packages that include other strategic and legacy services. as such, in providing data integration we often face many of the same competitive pressures as we face in providing strategic and legacy services, as discussed above. wholesale markets strategic services in providing private line (including special access) services to our wholesale markets customers, we compete with large cable companies, as well as other regional and national carriers, other fiber providers and clecs. demand for our private line services continues to increase, despite our customers' optimization of their networks, industry consolidation and technological migration. while we expect that these factors will continue to impact our wholesale markets segment, we believe the growth in fiber-based special access provided to wireless carriers for backhaul will, over time, ultimately offset the decline in copper-based special access provided to wireless carriers as they migrate to ethernet services, although the timing and magnitude of this technological migration is uncertain. legacy services the provision of our legacy services to other communications providers is highly competitive, and has been and will continue to be adversely affected by product substitution, technological migration, industry consolidation and rate reductions. we face significant competition for access services from clecs, cable companies, resellers and wireless service providers as well as some of our own wholesale markets customers, which are deploying their own networks to provide customers with local services. by doing so, these competitors reduce traffic on our network. in addition, our long-distance revenues continue to decline as a result of customer migration to more technologically advanced services, price compression, and declining demand for traditional voice services. enterprise markets network strategic services our competitors for integrated data, internet, voice services and other it services range from mid-sized businesses to large enterprises. due to the size and capacity of some of these companies, they may be able to offer more inexpensive solutions to our customers. to compete, we focus on providing complex, secure and performance-driven services to our business customers through our global infrastructure. our network services continue to see pricing pressures on virtual private network and bandwidth services offset by increases in network services that support our colocation and managed hosting service offerings. our keys to growth include targeting the right clients, offering targeted business solutions to solve specific client needs and delivering compelling and comprehensive technical capabilities. 17 table of contents legacy services we face intense competition with respect to our legacy services and continue to see customers migrating away from these services and into strategic services. in addition, our legacy services revenues have been, and we expect they will continue to be, adversely affected by access line losses and price competition. data integration we expect data integration to continue to fluctuate from quarter to quarter as this offering tends to be more sensitive than others to changes in the economy and in spending trends of our federal government customers. in addition, changes to our compensation programs, which focus on higher margin strategic services, could negatively impact data integration revenues. enterprise markets data hosting strategic services our competitors for hosting, colocation and other it services include telecommunications companies, hardware manufacturers and system integrators that support the in-house it operations for a business or offer outsourcing solutions. due to the size and capacity of some of these companies, they may be able to offer more inexpensive solutions to our customers. to compete, we focus on providing complex, secure and performance-driven services to our business customers through our global infrastructure on the same terms outlined under the heading \"business enterprise markets network strategic services\" in item i of this report. for our colocation services, we continue to see pricing pressures with respect to these services as low-cost wholesale colocation providers continue to enter our market, and we expect this trend to continue. our services can be purchased individually or as part of a total outsourcing arrangement. environmental compliance several decades ago one of our subsidiaries acquired entities that may have owned or operated seven former \"manufactured gas\" plant sites that may require environmental remediation. from time to time we may incur other environmental compliance and remediation expenses, mainly resulting from the ownership of other prior industrial sites or the operation of vehicle fleets or power supplies for our communications equipment. although we cannot assess with certainty the impact of any future compliance and remediation obligations or provide you with any assurances regarding the ultimate impact thereof, we do not believe that future environmental compliance and remediation expenditures will have a material adverse effect on our financial condition or results of operations. seasonality overall, our business is not significantly impacted by seasonality. from time to time weather related problems have resulted in increased costs to repair our network and respond to service calls in some of our markets. the amount and timing of these costs are subject to the weather patterns of any given year, but have generally been highest during the third quarter and have been related to damage from severe storms, including hurricanes, tropical storms and tornadoes in our markets along the lower atlantic and gulf of mexico coastlines. employees at december 31, 2012, we had approximately 47,000 employees, of which approximately 18,000 are members of either the international brotherhood of electrical workers (\"ibew\") or the communications workers of america (\"cwa\"). approximately 12,000 of these employees are subject 18 table of contents to collective bargaining agreements that expired october 6, 2012. we are currently negotiating the terms of new agreements. in the meantime, the predecessor agreements have been extended, and the unions have agreed to provide at least twenty-four hour advance notice before terminating those predecessor agreements. see the discussion of risks relating to our labor relations in \"risk factors risks affecting our business\" in item 1a of this report. over the past several years, we have reduced our workforce primarily due to (i) integration efforts from our recent acquisitions; (ii) increased competitive pressures; and (iii) the loss of access lines. website access and important investor information our website is www.centurylink.com. the information contained on, or that may be accessed through, our website is not part of this annual report. you may obtain free electronic copies of our annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k and all amendments to those reports in the \"investor relations\" section of our website (ir.centurylink.com) under the heading \"sec filings.\" these reports are available on our website as soon as reasonably practicable after we electronically file them with the securities and exchange commission, or sec. we have adopted written codes of conduct that serve as the code of ethics applicable to our directors, officers and employees, including our principal executive officer and senior financial officers, in accordance with applicable laws and rules promulgated by the sec and the new york stock exchange. in the event that we make any changes (other than by a technical, administrative or non-substantive amendment) to, or provide any waivers from, the provisions of our code of conduct applicable to our directors or executive officers, we intend to disclose these events on our website or in a report on form 8-k filed with the sec. these codes of conduct, as well as copies of our guidelines on significant governance issues and the charters of our audit committee, compensation committee, nominating and corporate governance committee and risk evaluation committee, are also available in the \"corporate governance\" section of our website at www.centurylink.com/pages/aboutus/governance/ or in print to any shareholder who requests them by sending a written request to our corporate secretary at centurylink, inc., 100 centurylink drive, monroe, louisiana, 71203. investors may also read and copy any materials filed with the sec at the sec's public reference room at 100 f street, n.e., washington, d.c. 20549. for information on the operation of the public reference room, you are encouraged to call the sec at 1-800-sec-0330. for all of our electronic filings, the sec maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the sec. in connection with filing this annual report, our chief executive officer and chief financial officer made the certifications regarding our financial disclosures required under the sarbanes-oxley act of 2002, and its related regulations. in addition, during 2012, our chief executive officer certified to the new york stock exchange that he was unaware of any violations by us of the new york stock exchange's corporate governance listing standards. special note regarding forward-looking statements and related matters this report and other documents filed by us under the federal securities law include, and future oral or written statements or press releases by us and our management may include, forward-looking statements about our financial condition, operating results and business. these statements include, among others: statements concerning the benefits that we expect will result from our business activities and certain transactions we have completed, such as increased revenue and decreased capital or operating expenditures; 19 table of contents statements about our anticipated future operating and financial performance, financial position and liquidity, tax position, contingent liabilities, growth opportunities and growth rates, acquisition and divestiture opportunities, business prospects, regulatory and competitive outlook, investment and expenditure plans, investment results, financing alternatives and sources and pricing plans; and other similar statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts, many of which are highlighted by words such as \"may,\" \"would,\" \"could,\" \"should,\" \"plan,\" \"believes,\" \"expects,\" \"anticipates,\" \"estimates,\" \"projects,\" \"intends,\" \"likely,\" \"seeks,\" \"hopes,\" or variations or similar expressions. these forward-looking statements are based upon our judgment and assumptions as of the date such statements are made concerning future developments and events, many of which are beyond our control. these forward-looking statements, and the assumptions upon which they are based, are inherently speculative and are subject to a number of risks and uncertainties. actual events and results may differ materially from those anticipated, estimated, projected or implied by us in those statements if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect. factors that could affect actual results include but are not limited to: the timing, success and overall effects of competition from a wide variety of competitive providers; the risks inherent in rapid technological change; the effects of ongoing changes in the regulation of the communications industry, including the outcome or regulatory or judicial proceedings relating to intercarrier compensation, access charges, universal service, broadband deployment and net neutrality; our ability to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; our ability to effectively adjust to changes in the communications industry and changes in the composition of our markets and product mix caused by our recent acquisitions; our ability to successfully integrate recently-acquired operations into our incumbent operations, including the possibility that the anticipated benefits from our recent acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; our ability to use net operating loss carryovers of qwest in projected amounts; our ability to effectively manage our expansion opportunities, including retaining and hiring key personnel; possible changes in the demand for, or pricing of, our products and services, including our ability to effectively respond to increased demands for high-speed broadband service; our ability to successfully introduce new product or service offerings on a timely and cost-effective basis; our continued access to credit markets on favorable terms; our ability to collect our receivables from financially troubled communications companies; any adverse developments in legal or regulatory proceedings involving us; 20 table of contents our ability to continue to pay common share dividends in accordance with past practices, which may be affected by changes in our cash requirements, capital spending plans, cash flows or financial position; unanticipated increases or other changes in our future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements or otherwise; the effects of adverse weather; other risks referenced in this report or other of our filings with the sec; and the effects of more general factors such as changes in interest rates, in tax rates, in accounting policies or practices, in operating, medical, pension or administrative costs, in general market, labor or economic conditions, or in legislation, regulation or public policy. these and other uncertainties related to our business and our recent acquisitions are described in greater detail in item 1a of this report, which is subject to updating and supplementing by our subsequent sec reports. these risk factors should be considered in connection with any written or oral forward-looking statements that we or persons acting on our behalf may issue. anticipated events may not occur and our actual results or performance may differ materially from those anticipated, estimated or projected if one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect. additional risks that we currently deem immaterial or that are not presently known to us could also cause our actual results to differ materially from our expected results. given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. we undertake no obligation to update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise. further, the information about our intentions contained in this document is a statement of our intentions as of the date of this document and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. we may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise. investors should also be aware that while we do, at various times, communicate with securities analysts, it is against our policy to disclose to them selectively any material non-public information or other confidential information. accordingly, investors should not assume that we agree with any statement or report issued by an analyst irrespective of the content of the statement or report. to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility. unless otherwise indicated, information contained in this report and other documents filed by us under the federal securities laws concerning our views and expectations regarding the communications industry are based on estimates made by us using data from industry sources, and on assumptions made by us based on our management's knowledge and experience in the markets in which we operate and the communications industry generally. you should be aware that we have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness. our estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed below in item 1a of this report. i"
## [1] "--------------------------"
## [1] "Documents loading heavily on topic 2 are"
## [1] "item 1. business this annual report (including, but not limited to, the following section regarding managementâ<U+0080><U+0099>s discussion and analysis of financial condition and results of operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. words such as â<U+0080><U+009C>expects,â<U+0080> â<U+0080><U+009C>anticipates,â<U+0080> â<U+0080><U+009C>intends,â<U+0080> â<U+0080><U+009C>plans,â<U+0080> â<U+0080><U+009C>believes,â<U+0080> â<U+0080><U+009C>seeks,â<U+0080> â<U+0080><U+009C>estimatesâ<U+0080> and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this annual report. additionally, statements concerning future matters such as the development of new products, enhancements or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements. although forward-looking statements in this annual report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading â<U+0080><U+009C>risk factorsâ<U+0080> below, as well as those discussed elsewhere in this annual report. readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report. we undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this annual report. readers are urged to carefully review and consider the various disclosures made in this annual report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects. we incorporated in 1985 under the laws of the state of california. in 1991, we reincorporated in the state of delaware. we operate and report using a 52-53 week fiscal year ending the last sunday in september. our 52-week fiscal years consist of four equal quarters of 13 weeks each, and our 53-week fiscal years consist of three 13-week fiscal quarters and one 14-week fiscal quarter. the financial results for our 53-week fiscal years and our 14-week fiscal quarters will not be exactly comparable to our 52-week fiscal years and our 13-week fiscal quarters. the fiscal year ended september 30, 2012 included 53 weeks. the fiscal years ended september 25, 2011 and september 26, 2010 both included 52 weeks. overview in 1989, we publicly introduced the concept that a digital communication technique called cdma could be commercially successful in cellular wireless communication applications. cdma stands for code division multiple access and is one of the main technologies currently used in digital wireless communications networks (also known as wireless networks). cdma and tdma (time division multiple access), of which global system for mobile communications (gsm) is the primary commercial form, are the primary digital technologies currently used to transmit a wireless device userâ<U+0080><U+0099>s voice or data over radio waves using a public cellular wireless network. because we led, and continue to lead, the development and commercialization of cdma technology, we own significant intellectual property, including patents, patent applications and trade secrets, which applies to all versions of cdma that we implement in our own products and portions of which we license to other companies. the wireless communications industry generally recognizes that a company seeking to develop, manufacture and/or sell products that use cdma technology will require a patent license from us. we also continue our leading role in the development and commercialization of orthogonal frequency division multiple access (ofdma)-based technologies for which we have substantial intellectual property. sales of multimode cdma and lte (which stands for \"long term evolution\" and is an ofdma-based standard for cellular wireless communication applications) subscriber devices have grown significantly during the past year. our cdma licenseesâ<U+0080><U+0099> sales of such multimode cdma and ofdma devices are covered by their existing cdma license agreements with us. we have also licensed companies to make and sell ofdma products that do not also implement cdma, and more than 30 companies (including lg, nokia and samsung) have royalty-bearing licenses under all or a portion of our patent portfolio for use in such ofdma single-mode products. our revenues. we generate revenues by selling products and services, which include: â<U+0080>¢ integrated circuits (also known as chips or chipsets) and radio frequency (rf) and power management (pm) chips and system software used in mobile devices and in wireless networks; â<U+0080>¢ integrated circuits for use in wired devices, particularly broadband gateway equipment, desktop computers, televisions and blu-ray players; 1 â<U+0080>¢ equipment, software and services used by companies, including those in the transportation industry and governments, to wirelessly manage their assets and workforce; â<U+0080>¢ software products and services for content enablement across a wide variety of platforms and devices for the wireless industry; â<U+0080>¢ software products and services that enable mobile commerce services; and â<U+0080>¢ software and hardware development services. we also generate revenues by licensing portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. our integrated circuits business. we develop and supply integrated circuits and system software based on cdma, ofdma and other technologies for use in voice and data communications, networking, application processing, multimedia and global positioning system products. our integrated circuit products and system software are sold to and/or licensed to manufacturers that use our products in wireless devices, particularly mobile phones, tablets, laptops, data modules, handheld wireless computers and gaming devices, access points and routers, data cards and infrastructure equipment, and in wired devices, particularly broadband gateway equipment, desktop computers, televisions and blu-ray players. the mobile station modem (msm) integrated circuits, which include the mobile data modem, qualcomm single chip and qualcomm snapdragon processor-based devices, perform the core baseband modem functionality in wireless devices providing voice and data communications, as well as multimedia applications and global positioning functions. in addition, our snapdragon processors provide advanced application and graphics processing capabilities. our system software enables the other device components to interface with the integrated circuit products and is the foundation software enabling manufacturers to develop devices utilizing the functionality within the integrated circuits. our infrastructure equipment cell site modem (csm) integrated circuits and system software perform wireless standards-compliant processing of voice and data signals in the wireless operatorâ<U+0080><U+0099>s base station equipment to and from wireless devices. because of our experience in designing and developing cdma- and ofdma-based products, we not only design the baseband integrated circuit, but the supporting system as well, including the rf devices, pm devices and accompanying software products. this approach enables us to optimize the performance of the wireless device with improved product features and integration with the network system. we also provide support, including reference designs and tools, to enable our customers to reduce the time required to design their products and bring their products to market faster. we plan to add additional features and capabilities to our integrated circuit products to help our customers reduce the cost and size of their products, to simplify our customersâ<U+0080><U+0099> design processes and to enable more wireless devices and services. our licensing business. our patent portfolio includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products. we grant licenses to use portions of our intellectual property portfolio to manufacturers of wireless products, such as mobile devices, also known as subscriber units, which include handsets, other consumer devices (e.g., tablets, personal computers, e-readers), machine-to-machine devices (e.g., telematics devices, meter reading devices) and data modem cards, the infrastructure equipment required to establish and operate a network, and equipment to test networks and subscriber units. in partial consideration for such licenses, we collect fixed license fees (payable in one or more installments) and ongoing royalties on products sold by our licensees that incorporate our patented technologies. our asset tracking and services business. we design, manufacture and sell equipment, license software and provide services to our customers to manage their assets, products and workforce. we offer satellite- and terrestrial-based two-way wireless information and position location services to transportation and logistics fleets to enable our customers to track the location and monitor the performance of their assets and to deliver and collect data with their personnel. our wireless device software and related services business. we provide software products and services for the global wireless industry. our brew products and services enable wireless operators, device manufacturers and software developers to provide over-the-air and pre-loaded wireless applications and services. our plaza products and services enable wireless operators, device manufacturers and publishers to create and distribute mobile content across a variety of platforms and devices. we also offer xiam wireless content discovery and recommendation products to help wireless operators improve usage and adoption of digital content and services and qchat, a push to talk product optimized for third generation (3g) networks. our mobile commerce business. in fiscal 2012, we began a pilot of a new product application trademarked as pay, which is marketed on a standalone basis to quick serve restaurants and retailers. the pay service enables consumers to make payments to quick serve restaurants and retailers on their mobile devices at the point of sale. our other businesses. we continue to invest in display and other product and services initiatives. we intend to license our next generation interferometric modulator (imod) display technology in the future, while we continue to develop and directly commercialize only certain imod consumer-targeted mobile products. our imod display technology, based on a micro-electro-mechanical-systems (mems) structure combined with thin film optics, is intended to provide performance and power consumption benefits as compared to other display technologies. 2 wireless communications industry use of wireless telecommunications devices has increased dramatically in the past decade. according to wireless intelligence estimates as of november 5, 2012, the number of worldwide mobile connections is expected to reach approximately 6.6 billion by the end of 2012 and approximately 8.3 billion by 2016. growth in the early days of wireless communications was driven by the need to make voice calls in a mobile environment. more recently, increases in demand are primarily driven by the desire to have access to high-speed data services in a mobile environment. this is evidenced by the widespread deployments of 3g (third generation) across the globe and strong traction for 4g (fourth generation). each generation has enabled successively higher data transmission rates. according to wireless intelligence estimates, the number of global 3g/4g connections reached 1.9 billion and is expected to reach approximately 4.0 billion in 2016. (3g/4g includes 3g, 4g and multimode 3g/4g technologies.) there are several drivers for the growth in 3g/4g, including but not limited to: â<U+0080>¢ consumer awareness and desire for data services; â<U+0080>¢ consumer demand for data-centric smartphone devices; â<U+0080>¢ emergence of new data devices; â<U+0080>¢ mature 3g networks with high data rates; â<U+0080>¢ deployments of higher-data rate 4g in developed regions; and â<U+0080>¢ growth of 3g in emerging regions. the last few years have witnessed a significant increase in the consumerâ<U+0080><U+0099>s awareness and willingness to use mobile data services. applications such as email, access to the mobile internet, downloading of videos and social networking are driving the demand for 3g/4g services and more capable devices. according to reports from the cdma development group and the global mobile suppliers association (gsa), as of november 2012, approximately 800 wireless networks now support 3g globally, a sign that wireless operators are making network investments to address the growing demand for wireless data. wireless operators are continuing to make network investments by upgrading their networks. according to gsa, all of the global wcdma operators have upgraded their networks to offer high speed packet access (hspa) services, and 50% of hspa operators have launched hspa+, an evolution of hspa. gsa also reports that more than 110 commercial networks support 4g lte (long term evolution). with support for higher data rates and increased capacity, networks are expected to evolve to keep up with the growing demand for wireless data. the mobile internet is helping increase demand for 3g/4g smartphones as the ability to access data is simplified and enhanced when using a smartphone. in the early days of the smartphone, these devices were designed primarily for high-end business users. however, innovation and competition are helping to make available a broader set of devices that provide compelling user experiences at consumer acceptable price points, which make such devices more accessible by a larger portion of the subscriber base. the need to stay connected anywhere, anytime is helping drive demand for data connectivity on notebook and netbook computers with either embedded 3g/4g connectivity or via an external 3g/4g usb modem. new device categories, such as tablets and e-readers, have also emerged over the last few years. these new devices take advantage of the capabilities of 3g/4g networks to browse the mobile internet, and download applications, digital books, newspapers and magazines anywhere. other emerging device categories, such as machine-to-machine communication (allowing both wireless and wired systems to communicate with other devices), gaming consoles and other consumer electronic devices, are also expected to help further drive global demand for 3g/4g. demand for wireless voice and data services in emerging regions is driving the rapid transition from 2g (second generation) to 3g. 3g network technology provides an efficient way for wireless operators to offer both voice and data services to address these demands, and since fixed broadband penetration is very low in these regions, 3g presents a cost effective means of providing broadband capabilities to consumers. wireless technologies the significant growth in the use of wireless devices worldwide, such as smartphones and tablets, and demand for data services and applications requires constant innovation to further improve the user experience, expand capacity and enable dense deployments of low power nodes, such as picocells and femtocells. to meet these requirements, progressive generations of wireless communications technology standards have evolved. the wireless standards used for mobile communications within individual countries are generally determined by the telecommunication service providers operating in those countries and, in some instances, local government regulations. such determinations are typically based on economic criteria and the service 3 providerâ<U+0080><U+0099>s evaluation of each technologyâ<U+0080><U+0099>s ability to provide the features and functionality required for its business plan. more than two decades ago, the european community developed regulations requiring the use of the gsm standard, a tdma-based, 2g technology. in addition, several versions of cdma technology were adopted worldwide as public cellular standards. the first version, known as cdmaone, is a 2g cellular technology that was first commercially deployed in the mid-1990s. the other subsequent versions of cdma are referred to as 3g technologies. second generation. compared to first generation analog systems, 2g digital technology provided for significantly enhanced efficiency within a fixed spectrum, resulting in greatly increased voice capacity. 2g technologies also enabled numerous enhanced services, such as sms texting service, but data services were generally limited to low-speed transmission rates. the main 2g digital cellular technologies in use today are called cdmaone, a form of cdma and a technology largely developed and patented by us, and gsm, a form of tdma. many gsm operators deployed 2g mobile packet data technologies, such as general packet radio service (gprs) and enhanced data rates for global evolution (edge) in areas serviced by gsm. according to wireless intelligence estimates as of november 5, 2012, there were approximately 4.5 billion 2g connections worldwide, representing approximately 70% of total wireless connections. third generation. as a result of demand for wireless networks that simultaneously carry both high-speed data and voice traffic, the international telecommunications union (itu), a standards setting organization, adopted the 3g standard known as imt-2000, encompassing six terrestrial operating radio interfaces, each of which incorporates our intellectual property. two are tdma-based, three are cdma-based and the other is ofdma-based. the three cdma-based 3g technologies are known commonly throughout the wireless industry as: â<U+0080>¢ cdma2000, including 1x (including revisions a through e) and 1xev-do (ev-do or evolution data optimized) (including revisions a through c, developed by 3rd generation partnership project two (3gpp2)) (all of these use the frequency division duplex (fdd) method); â<U+0080>¢ wideband cdma (wcdma), also known as universal mobile telecommunications systems (umts), including high speed packet access (hspa), part of 3rd generation partnership project (3gpp) releases 5 and 6, and hspa+, part of 3gpp releases 7, 8, 9, 10, 11, 12 and beyond (all of these use the fdd method); and â<U+0080>¢ cdma time division duplex (tdd), of which there are currently two versions, time division duplex-cdma (td-cdma) and time division-synchronous cdma (td-scdma). both are part of the specifications developed by 3gpp. according to wireless intelligence estimates, there were approximately 1.8 billion 3g worldwide connections, representing approximately 29% of total wireless connections. some of the advantages of 3g cdma technology over 2g technologies include increased network capacity, improved user experience, higher capacity for data and faster access to data and higher data throughput rates. cdma2000 and wcdma are widely deployed today in wireless networks throughout the world. td-scdma has been deployed in china. ev-do revision b in the cdma2000 family was launched in 2010; release 7 of hspa+ was launched in 2009; and release 8 of hspa+ was launched in 2010. hspa+ continues to evolve, even as 4g technologies are beginning to be deployed. hspa+ release 8 introduced multicarrier operation, which aggregates multiple channels to offer wider bandwidths, supporting 10 mhz of bandwidth in release 8 and up to 40 mhz in release 11. 3gpp is making plans to develop specifications for release 12. there have been widespread developments of release 8 networks around the world in 2011 and 2012. the various revisions of the 3g cdma specifications have significantly increased network performance capacity and data speeds. it is expected that future revisions of the 3g cdma specifications will provide further enhancements. cdma2000 (1x, 1xev-do, ev-do revision a/b) networks are deployed by wireless operators that support both voice and a wide range of high-speed wireless data services. enhancements based upon cdma2000 revision e standard, called 1x advanced, further increases voice capacity of cdma2000 1x networks. the standardization for 1x advanced is complete, devices supporting the technology are available and network deployments are in process. another set of enhancements based upon 1xev-do revision c, also called do advanced, improve the performance of 1xev-do revision a/b networks. the first phase of do advanced is deployed in commercial networks. enhancements based upon these updated standards and improved implementations have been and will continue to be deployed in our products and wireless networks to increase capacity and data rates. gsm operators around the world, including those in the european community and in the united states, have focused primarily on the umts frequency division duplex (fdd) radio interface of the imt-2000 standard, known as wcdma, for their network evolution. wcdma is based on our cdma technology and incorporates many of our patented inventions (as do all of the cdma and ofdma radio interfaces of the imt-2000 standard). the majority of the worldâ<U+0080><U+0099>s wireless device and infrastructure manufacturers (more than 145 and including all leading suppliers) have licensed our technology for use in wcdma products, enabling them to utilize this wcdma mode of the 3g standards. the three itu 3g cdma radio interfaces are all based on the core principles of cdma technology, and our intellectual property rights include a valuable patent portfolio essential to implementation of each of the 3g cdma standards. in addition, 4 our patent portfolio includes technologies that contribute to commercially successful product implementations. generally, we have licensed substantially all of our relevant patents to our cdma subscriber and infrastructure equipment licensees. these 3g cdma versions (cdma2000, wcdma and td-scdma) require separate implementations that are not interchangeable. while the fundamental core technologies are derived from cdma and, in addition to other features and functionality, are covered by our patents, their specifications each require unique infrastructure products, network design, air interface protocols and management. however, subscriber roaming amongst systems using different air interfaces is made possible through multimode wireless subscriber devices. fourth generation. release 10 of 3gppâ<U+0080><U+0099>s long term evolution (lte), the predominant global ofdma-based standard, and 802.16m, an upgrade of ieee 802.16e (wimax or worldwide interoperability for microwave access), have both been approved by the itu to become what are called imt-advanced technologies. release 10 of lte and wimax 802.16m support additional features, wider bandwidths and higher data rates than previous versions of these ofdma air interfaces, which are part of imt-2000. there is no uniform industry agreement on the 4g definition; 4g is now broadly used to include ofdma technologies that are part of the ituâ<U+0080><U+0099>s imt (imt-2000 and imt-advanced) standards and has also been used in marketing campaigns by certain carriers for the 3g wcdma evolution to hspa+. since lte typically will be overlaid over existing 3g networks, seamless interoperability with 3g (including all cdma-based 3g technologies) has been standardized by 3gpp and 3gpp2. the first deployments of lte have been based on release 8, formally a part of the 3g imt-2000 standard. according to wireless intelligence estimates, the total number of global 4g lte connections reached approximately 40 million and is expected to reach approximately 560 million in 2016. wimax 802.16e was deployed ahead of lte and targeted unpaired spectrum using a tdd radio interface. lte supports both paired spectrum, using lte fdd, and unpaired spectrum, using lte tdd, and is able to address many of the unpaired spectrum bands targeted by wimax. compared to wimax, lte is expected to achieve greater economy of scale through its interoperability with 3g. certain wireless operators have selected wimax because of regulatory considerations specific to their networks and spectrum holdings. many wimax operators have announced that they are planning to move to lte tdd. for over ten years, we have pursued research and development of ofdma-based wireless communication technologies, and, as a result, have developed and acquired significant related intellectual property. accordingly, we believe that each of the ofdma-based 4g standards incorporates our patented technologies. more than 30 companies (including lg, nokia and samsung) have entered into royalty-bearing license agreements under our patent portfolio for use in ofdma products that do not also implement cdma-based standards. multimode products that implement both ofdma and cdma technologies will, in most cases, be licensed under our existing cdma license agreements. our engineering resources. we have significant engineering resources, including engineers with substantial expertise in cdma, ofdma and a broad range of other technologies. using these engineering resources, we expect to continue to develop new versions of cdma, ofdma and other technologies, develop alternative technologies for certain specialized applications, participate in the formulation of new voice and data communication standards and technologies and assist in deploying digital voice and data communications networks around the world. investments in new and existing products, services and technologies. we continue to invest in research and development in a variety of ways in an effort to extend the demand for our products and services. we develop, commercialize and actively support 3g cdma-based technologies, as well as ofdma-based lte technologies, products and network operations, to grow our royalty revenues and integrated circuit and related software revenues. from time to time, we may also make acquisitions to meet certain technology needs, to obtain development resources or to pursue new business opportunities. we develop on our own, and with our partners, innovations that are integrated into our product portfolio to further expand the opportunity for wireless and enhance the value of our products and services. these innovations are expected to enable our customers to improve the performance or value of their existing services, offer these services more affordably and introduce revenue-generating broadband data services ahead of their competition. we make investments to provide our integrated circuit customers with chipsets designed on leading-edge technology nodes that combine multiple technologies for use in consumer devices, including smartphones, consumer electronics and other data devices. in addition to 3g and 4g lte technologies, our chipsets support other wireless and wired connectivity technologies including wireless local area network (wlan), bluetooth, ethernet, global positioning system (gps), global navigation satellite system (glonass), powerline communication, passive optical networking, ethernet-over-coax (eoc) and ethernet switching. our integrated chipsets often include multiple technologies, including advanced multimode modems, application processors and graphics engines, as well as the tools to connect these diverse pieces of technology. we continue to support android, windows phone/rt and other mobile client software environments in our chipsets. we continue to develop our interferometric modulator (imod) and other display technologies. we intend to license our next generation imod display technology in the future, while we continue to develop and directly commercialize only certain 5 imod consumer-targeted mobile products. our imod display technology, based on a micro-electro-mechanical-systems (mems) structure combined with thin film optics, is intended to provide performance and power consumption benefits as compared to other display technologies. we make investments in the development of technologies to address the growth of mobile data traffic, including 3g/lte and wi-fi products designed for implementation of small cells, which can be used by carriers to extend the capacity of licensed and unlicensed wireless spectrum. we make strategic investments that we believe open new opportunities for our technology, support the design and introduction of new products and services and/or possess unique capabilities or technology. to the extent that such investments become liquid and meet our strategic objectives, we intend to make regular periodic sales of our interests in these investments that are recognized in net investment income. revenue concentrations, significant customers and geographical information consolidated revenues from international customers and licensees as a percentage of total revenues were 95%, 94% and 95% in fiscal 2012, 2011 and 2010, respectively. during fiscal 2012, 42%, 22% and 14% of our revenues were from customers and licensees based in china, south korea and taiwan, respectively, as compared to 32%, 19% and 17% during fiscal 2011, respectively, and 29%, 27% and 12% during fiscal 2010, respectively. a small number of customers/licensees historically have accounted for a significant portion of our consolidated revenues. in fiscal 2012, 2011 and 2010, revenues from samsung electronics constituted more than 10% of consolidated revenues. in addition, in fiscal 2012, revenues from hon hai precision industry co., ltd./foxconn, its affiliates and other suppliers to apple inc. constituted more than 10% of consolidated revenues; in fiscal 2011, revenues from htc constituted more than 10% of consolidated revenues; and in fiscal 2010, revenues from lg electronics constituted more than 10% of consolidated revenues. operating segments qct segment. qct is a leading developer and supplier of integrated circuits and system software based on cdma, ofdma and other technologies for use in voice and data communications, networking, application processing, multimedia and global positioning system products. qctâ<U+0080><U+0099>s integrated circuit products and system software are sold to or licensed to manufacturers that use our products in wireless devices, particularly mobile phones, tablets, laptops, data modules, handheld wireless computers and gaming devices, access points and routers, data cards and infrastructure equipment, and in wired devices, particularly broadband gateway equipment, desktop computers, televisions and blu-ray players. the msm integrated circuits, which include the mobile data modem, qualcomm single chip and qualcomm snapdragon processor-based devices, perform the core baseband modem functionality in wireless devices providing voice and data communications, as well as multimedia applications and global positioning functions. in addition, our snapdragon processors provide advanced application and graphics processing capabilities. qctâ<U+0080><U+0099>s system software enables the other device components to interface with the integrated circuit products and is the foundation software enabling manufacturers to develop devices utilizing the functionality within the integrated circuits. in fiscal 2012, qct shipped approximately 590 million msm integrated circuits for wireless devices worldwide as compared to approximately 483 million and 399 million in fiscal 2011 and 2010, respectively. qct revenues comprised 63%, 59% and 61% of total consolidated revenues in fiscal 2012, 2011 and 2010, respectively. qct utilizes a fabless production model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. integrated circuits are die cut from silicon wafers that have been assembled into packages or modules and have completed the final test manufacturing processes. die cut from silicon wafers are the essential components of all of our integrated circuits and a significant portion of the total integrated circuit cost. we employ both turnkey and two-stage manufacturing models to purchase our integrated circuits. turnkey is when our foundry suppliers are responsible for delivering fully assembled and tested integrated circuits. under the two-stage manufacturing model, we purchase wafers and die from semiconductor manufacturing foundries and contract with separate third-party manufacturers for probe, assembly and final test services. we rely on independent third-party suppliers to perform the manufacturing and assembly, and most of the testing, of our integrated circuits based primarily on our proprietary designs and test programs. our suppliers also are responsible for the procurement of most of the raw materials used in the production of our integrated circuits. the primary foundry suppliers for our various digital, analog/mixed-signal, rf and pm integrated circuits are global foundries inc., international business machines corporation, samsung electronics co. ltd., semiconductor manufacturing international corporation, taiwan semiconductor manufacturing company and united microelectronics corporation. the primary semiconductor assembly and test suppliers are advanced semiconductor engineering, amkor technology, siliconware precision industries and statschippac. the majority of our foundry and subcontract assembly and test suppliers are located in the asia-pacific region. qct offers a broad portfolio of products, including both wireless device and infrastructure integrated circuits, in support of 6 cdma2000 1x and 1xev-do, as well as the ev-do revision a/b evolutions of cdma 2000 technology. leveraging our expertise in cdma, we also developed and offer integrated circuits supporting the wcdma version of 3g for manufacturers of wireless devices. more than 80 device manufacturers have selected our wcdma products that support gsm/gprs, wcdma, hsdpa (high-speed downlink packet access), hsupa (high-speed uplink packet access) and hspa+ for their devices. qct also sells multimode products for the lte standard, which offer seamless backward compatibility to existing 3g technologies. our integrated circuit products span a broad range of products, from entry-level products for emerging regions, such as our qualcomm reference design (qrd) products, up to very high-end devices. our chipsets integrate unique combinations of features, such as multi-megapixel cameras, videotelephony, streaming multimedia, audio, 3d graphics, advanced position-location capabilities through integrated gpsone technology and peripheral connectivity, to enable a wide range of devices. our izat location technologies are featured in more than 50 operator networks around the globe. by combining location data from satellite systems (gps and glonass), cellular and wi-fi networks, sensors and cloud-based assistance servers, our location products deliver accurate, always-on location awareness that enhances the mobile experience. we offer both integrated and stand alone location products for use in mobile phones, tablets, notebooks, cameras and other consumer devices. the snapdragon family of processors is a highly integrated, mobile optimized system on a chip incorporating our advanced technologies, including high performance central processing units (cpu), graphics processing units (gpu) and modems, multimedia subsystems, including audio, video and camera capabilities, and highly accurate gps engines. our cpu cores are custom designed to deliver high levels of compute performance at ultra-low power, allowing manufacturers to design slim and powerful devices that last longer between charges. our gpus are also custom designed to deliver graphics performance for gaming and user interfaces. the snapdragon family also incorporates our modem technology for advanced mobile broadband and a feature-rich multimedia subsystem that delivers audio and high-definition video capabilities. our modems are built to work with increasingly complex networks. they support the latest communication technologies and adapt to network conditions and user needs in real time to enable delivery of faster, smoother data and voice connections. our 3g/4g modem roadmap delivers the latest network technologies across multiple product tiers and devices. this roadmap is the result of our years of research into emerging network standards and the development of chipsets that take advantage of these new standards, while maintaining backward compatibility with existing standards. through our acquisition in may 2011 of atheros communications, inc., which was renamed qualcomm atheros, inc., qct also offers an expanded portfolio of connectivity technologies, which complements our mobile business and extends our capability into networking and infrastructure products. qct is a leading provider of wireless and wired connectivity products, including networking products for consumers, carriers and enterprise equipment, mobile handsets and mobile and fixed computing and consumer electronics products. our wireless products consist of integrated circuits and system software for wlan, bluetooth and frequency modulation (fm) as well as technologies that enable location data and services, including gps and glonass. our wireless technologies are provided in the form of wlan, bluetooth and fm integrated products, wlan and bluetooth combination and standalone products. our wired connectivity products consist of integrated circuits and software for ethernet, powerline and passive optical networks. our wired portfolio enables delivery of richer, comprehensive multi-connectivity product platforms to our networking, computing and consumer electronics customer base. our passive optical network technologies provide our customers with solutions for their fiber optics, broadband and access businesses. we employ our wlan, powerline and ethernet technologies in combination to deliver hybrid platforms known as hy-fi products. the market in which our qct segment operates is intensely competitive. qct competes worldwide with a number of united states and international designers and manufacturers of semiconductors. as a result of global expansion by foreign and domestic competitors, technological changes and the potential for further industry consolidation, we anticipate the market to remain very competitive. we believe that the principal competitive factors for our products may include performance, level of integration, quality, compliance with industry standards, price, time-to-market, system cost, design and engineering capabilities, new product innovation and customer support. we also compete in both single- and dual-mode environments against alternative communications technologies including but not limited to, gsm/gprs/edge, tdma, td-scdma and wimax. qctâ<U+0080><U+0099>s current competitors include, but are not limited to, major companies such as broadcom, csr plc, freescale, hisilicon technologies, intel, lantiq, marvell technology, mediatek, nvidia, renesas electronics, spreadtrum communications, st-ericsson (a joint venture between ericsson mobile platforms and st-nxp wireless), texas instruments and via telecom, as well as major communications equipment companies such as matsushita, motorola mobility and samsung, who design at least some of their own integrated circuits and software for certain products. qct also faces competition from some early-stage companies. our competitors devote significant amounts of their financial, technical and other resources to develop and market competitive products and, in some cases, to develop and adopt competitive digital cellular technologies, and those efforts may materially and adversely affect qct. moreover, competitors may offer more attractive product pricing or financing terms or have a more established presence in certain device markets or emerging geographic regions than we do as a means of gaining access to the market or customers. 7 qtl segment. qtl grants licenses or otherwise provides rights to use portions of our intellectual property portfolio, which includes certain patent rights essential to and/or useful in the manufacture and sale of certain wireless products, including, without limitation, products implementing cdmaone, cdma2000, wcdma, cdma tdd (including td-scdma), gsm/gprs/edge, lte and/or wimax standards and their derivatives. qtl licensing revenues are comprised of license fees as well as royalties based on worldwide sales by licensees of products incorporating or using our intellectual property. license fees are fixed amounts paid in one or more installments. royalties are generally based upon a percentage of the wholesale (i.e., licenseeâ<U+0080><U+0099>s) selling price of licensed products, net of certain permissible deductions (e.g., certain shipping costs, packing costs, vat, etc.). revenues generated from royalties are subject to quarterly and annual fluctuations. qtl revenues comprised 33%, 36% and 33% of total consolidated revenues in fiscal 2012, 2011 and 2010, respectively. separate and apart from licensing manufacturers of subscriber and network equipment, we have entered into certain patent arrangements with competitors of our qct segment, such as broadcom, fujitsu, mediatek, nec, renesas electronics, texas instruments and via telecom. the purpose of these arrangements is to provide our qct segment and the counterparties certain freedom of operation with respect to each partyâ<U+0080><U+0099>s integrated circuits business. in every case, these agreements expressly reserve the right for qtl to seek royalties from the customers of such integrated circuit suppliers with respect to such suppliersâ<U+0080><U+0099> customersâ<U+0080><U+0099> sales of cdma-, wcdma- and ofdma-based wireless devices into which such suppliersâ<U+0080><U+0099> integrated circuits are incorporated. we face competition in the development of intellectual property for future generations of digital wireless communications technology and services. on a worldwide basis, we currently compete primarily with the gsm/gprs/edge digital wireless communications technologies. gsm has been utilized extensively in europe, much of asia other than japan and south korea, and certain other countries. to date, gsm has been more widely adopted than cdma; however, cdma technologies have been adopted for all 3g wireless systems. in addition, most gsm operators have deployed gprs, a packet data technology, as a 2g bridge technology, and a number of gsm operators have deployed edge. however, the majority of gsm operators have already augmented their networks with 3g wcdma and hspa. according to gsa, as of november 2012, more than 110 wireless operators have commercially deployed and other wireless operators have started testing ofdma technology (e.g., lte, wimax), a multi-carrier transmission technique not based on cdma technology, which divides the available spectrum into many carriers, with each carrier being modulated at a low data rate relative to the combined rate for all carriers. according to gsa, more than 300 wireless operators have committed to deploy lte networks, an ofdma-based standard. we have invested in both the acquisition and the development of ofdma technology and intellectual property. we expect that upon the deployment of ofdma-based networks, the products implementing such technologies generally will be multimode and will also implement cdma-based technologies. the licenses granted under our existing cdma license agreements generally cover multimode cdma/ofdma devices, and our licensees are obligated to pay royalties under their cdma license agreements for such devices. further, over 30 companies (including lg, nokia and samsung) have royalty-bearing licenses under our patent portfolio for use in single-mode ofdma products (which do not implement any cdma-based standards). qwi segment. qwi revenues comprised 3%, 4% and 6% of total consolidated revenues in fiscal 2012, 2011 and 2010, respectively. the four divisions aggregated into qwi are: qes division. qes provides equipment, software and services to enable companies to wirelessly manage their assets and workforce. qes offers satellite- and terrestrial-based two-way wireless connectivity and position location services to transportation and logistics fleets that permit customers to track the location and monitor performance of their assets, communicate with their personnel and collect data. the qes division markets and sells products through a sales force, partnerships and distributors based in the united states, europe, latin america and canada. wireless transmissions and position tracking for satellite-based systems are provided by using leased transponders on commercially available geostationary earth orbit satellites. the terrestrial-based systems use wireless digital and analog terrestrial networks for information transmission and the global positioning system constellation for position tracking. existing competitors of our qes division offering alternatives to our products are aggressively pricing their products and services and could continue to do so in the future. we face several key competitors to our satellite- and terrestrial-based mobile fleet management and asset tracking products and services both domestically and internationally. these competitors are offering new value-added products and services similar in many cases to our existing or developing technologies. emergence of new competitors, particularly those offering low-cost terrestrial-based products and satellite-based products, may adversely impact our margins and intensify competition in new regions. similarly, some original equipment manufacturers of trucks and truck components are beginning to offer built-in, on-board fleet management and position location reporting systems that may adversely impact our margins and intensify competition for existing and new customers. qis division. qis provides software products and content enablement services to wireless operators worldwide to support and accelerate the growth and advancement of wireless data products and services. we offer brew and plaza platform products and services for wireless applications development, device configuration, application distribution and billing and payment. we also offer xiam wireless content discovery and recommendation products to help wireless operators improve usage and adoption of digital content and services by presenting relevant and targeted offers to customers across all digital channels. the 8 qchat product enables one-to-one (private) and one-to-many (group) push-to-talk (ptt) calls over 3g networks. the technology also allows over-the-air upgrades of mobile device software, management of group membership by subscribers and ad-hoc creation of chat groups. our qis division has numerous current and emerging competitors for each of its products and services whose relative degree of success may adversely impact our margins and sales volumes. competing offerings to the brew and plaza products primarily include device manufacturer application and widget stores, such as appleâ<U+0080><U+0099>s app store for the iphone platform, operator-focused application and widget retailing and content distribution products and direct-to-consumer mobile storefronts. our qchat product competes primarily with the iden ptt service in the united states; the ptt services business is nascent outside of the united states with several competing standards- and non-standards-based technologies. qgov division. qgov provides development and other services and related products involving wireless communications technologies to government agencies and their contractors. based on the percentage of qgov revenues to our total consolidated revenues, no government agencies or their contractors are major customers. firethorn division. in fiscal 2012, firethorn began a pilot of a new product application trademarked as pay, which is marketed on a standalone basis to quick serve restaurants and retailers. the pay service enables consumers to make payments to quick serve restaurants and retailers on their mobile devices at the point of sale. qsi segment. qsi makes strategic investments that we believe will open new opportunities for our technologies, support the design and introduction of new products and services for voice and data communications or possess unique capabilities or technology. many of these strategic investments are in early-stage companies. qsi also holds wireless spectrum. as part of our strategic investment activities, we intend to pursue various exit strategies from each of our qsi investments at some point in the future. other businesses. nonreportable segments are comprised of display and other product and services initiatives, including: qmt division. qmt intends to license its next generation interferometric modulator (imod) display technology in the future, while continuing to develop and directly commercialize only certain imod consumer-targeted mobile products. qmtâ<U+0080><U+0099>s imod display technology, based on a mems structure combined with thin film optics, is intended to provide performance and power consumption benefits as compared to other display technologies. as displays in all types of mobile devices trend toward higher performance, pixel density, power consumption and outdoor viewability continue to be significant factors to overall display performance. we believe imod displays can provide a competitive advantage in these areas. in fiscal 2011, we initiated construction of a manufacturing facility in taiwan for imod displays with the initial phase expected to be completed in early fiscal 2013. we are evaluating strategic options for this new manufacturing facility, which include, but are not limited to, operating the facility in support of our commercialization efforts and/or a sale to, or joint venture with, a third party. additional information regarding our operating segments is provided in the notes to our consolidated financial statements in this annual report in \"notes to consolidated financial statements, note 8. segment information.\" corporate structure we operate our businesses through our parent company, qualcomm incorporated, and multiple direct and indirect subsidiaries. we have developed our corporate structure in order to address various legal, regulatory, tax, contractual compliance, operations and other matters. effective october 1, 2012, qualcomm incorporated completed a corporate reorganization in which the assets of certain of its businesses and functions, as well as the stock of certain of its direct and indirect subsidiaries, were contributed to qualcomm technologies, inc. (qti), a wholly-owned subsidiary of qualcomm incorporated that was created for purposes of the reorganization. qtl continues to be operated by qualcomm incorporated, which continues to own the vast majority of our patent portfolio. substantially all of our products and services businesses, including qct, and substantially all of our engineering, research and development functions, are now operated by qti and its subsidiaries. neither qti nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by qualcomm incorporated. the changes in our corporate structure generally formalize the way we have historically operated our primary businesses. the changes have been implemented, among other reasons, in order to enhance our ability to quickly deliver products to our customers and to assist our products and services businesses to fully participate in the sectors in which they operate, including in their development, use and distribution of software received pursuant to open source software licenses, while further protecting and insulating our valuable patent portfolio. research and development the communications industry is characterized by rapid technological change, requiring a continuous effort to enhance existing products and develop new products and technologies. our research and development team has a demonstrated track record of innovation in voice and data communication technologies. our research and development expenditures in fiscal 2012, 9 2011 and 2010 totaled approximately $3.9 billion, $3.0 billion and $2.5 billion, respectively, and as a result, we continue to expand our intellectual property portfolio. research and development expenditures were primarily related to the development of integrated circuit products, next generation cdma and ofdma technologies and other initiatives to support the acceleration of advanced wireless products and services, including lower cost devices, the integration of wireless with consumer electronics and computing, the convergence of multiband, multimode, multinetwork products and technologies, third-party operating systems and services platforms. the technologies supporting these initiatives may include cdma2000 1x, 1xev-do, ev-do revision a, ev-do revision b, 1x advanced, wcdma, hsdpa, hsupa, hspa+, td-scdma, lte and td-lte. research and development expenditures were also incurred related to the development of imod and other display technologies, plaza products and other technologies. we have research and development centers in various locations throughout the world that support our global development activities and ongoing efforts to advance cdma, ofdma and a broad range of other technologies. we continue to use our substantial engineering resources and expertise to develop new technologies, applications and services and make them available to licensees to help grow the communications industry and generate new or expanded licensing opportunities. in addition to internally sponsored research and development, we perform contract research and development for various government agencies and commercial contractors. sales and marketing sales and marketing activities of our operating segments are discussed under operating segments. other marketing activities include public relations, advertising, web-marketing, participation in technical conferences and trade shows, development of business cases and white papers, competitive analyses, industry intelligence and other marketing programs, such as marketing development funds with our customers. our corporate marketing department provides company information on our internet site and through other media regarding our products, strategies and technology to industry analysts and for publications. competition competition to our operating segments is discussed under operating segments. competition in the communications industry throughout the world continues to increase at a rapid pace as consumers, businesses and governments realize the potential of wireless communications products and services. we have facilitated competition in the wireless communications industry by licensing and enabling a large number of manufacturers. although we have attained a significant position in the industry, many of our current and potential competitors may have advantages over us, which include, among others, motivation by our customers in certain circumstances to find alternate suppliers or choose alternate technologies and foreign government support of other technologies (e.g., gsm) or our competitors. in addition, our competitors may have established more extensive relationships with local distribution and original equipment manufacturer companies in emerging geographic regions (e.g., china) or a more established presence in certain device markets. these relationships may affect customersâ<U+0080><U+0099> decisions to purchase products or license technology from us. accordingly, new competitors or alliances among competitors could emerge and rapidly acquire significant market positions to our detriment. we expect to continue to face competition throughout the world as new technologies and services are introduced in the future and as additional companies compete with our products or services based on 3g, 4g or other technologies. although we intend to continue to make substantial investments in developing improvements to existing and new products and technologies, our competitors may introduce alternative products, services or technologies that threaten our business. it is also possible that the price we charge for our products and services may continue to decline as competition continues to intensify. patents, trademarks and trade secrets we rely on a combination of patents, copyrights, trade secrets, trademarks and proprietary information to maintain and enhance our competitive position. we have an extensive portfolio of united states and foreign patents, and we continue to pursue patent applications around the world. our patents have broad coverage in many countries, including china, japan, south korea, europe, brazil, india, taiwan and elsewhere. a substantial portion of our patents and patent applications relate to digital wireless communications technologies, including patents that are essential or may be important to the commercial implementation of cdma2000, wcdma (umts), td-scdma, td-cdma and ofdma products. standards bodies have been informed that we hold patents that might be essential for all 3g standards that are based on cdma. we have committed to such standards bodies that we will offer to license our essential patents for these cdma standards on a fair and reasonable basis free from unfair discrimination. we have also informed standards bodies that we hold patents that might be essential for certain standards that are based on ofdma technology (e.g., 802.16e, 802.16m and lte (including fdd and tdd versions)) and have committed to offer to license our essential patents for these ofdma standards on a fair and reasonable basis free from unfair discrimination. 10 since our founding in 1985, we have focused heavily on technology development and innovation. these efforts have resulted in a leading intellectual property portfolio related to, among other things, wireless technology. because all commercially deployed forms of cdma and their derivatives require the use of our patents, our patent portfolio is the most widely and extensively licensed portfolio in the industry with over 220 licensees. over the years a number of companies have challenged our patent position but at this time most, if not all, companies in the industry recognize that any company seeking to develop, manufacture and/or sell products that use cdma technologies will require a license or other rights to use our patents. as part of our strategy to generate licensing revenues that continue to support our research and development investments and support worldwide adoption of our cdma technology, we provide rights to design, manufacture and sell products utilizing certain portions of our intellectual property to other companies, including those companies listed on our internet site (www.qualcomm.com). we have licensed or otherwise provided rights to use our patented technologies to interested companies on terms that are fair, reasonable and free from unfair discrimination. unlike some other companies in our industry that hold back certain key technologies, we offer interested companies essentially our entire patent portfolio for use in cellular subscriber devices and cell site infrastructure equipment. our strategy to make our patented technologies broadly available has been a catalyst for industry growth, helping to enable a wide range of companies offering a broad array of wireless products and features while driving down average and low-end selling prices for 3g handsets and other wireless devices. by licensing or otherwise providing rights to use our patented technologies to a wide range of equipment manufacturers, encouraging innovative applications, supporting equipment manufacturers with integrated chipset and software products, and focusing on improving the efficiency of the airlink for wireless operators, we have helped 3g cdma evolve, grow and reduce device pricing all at a faster pace than the second generation technologies that preceded it (e.g., gsm). under our subscriber unit, infrastructure equipment and test equipment license agreements, licensees are generally required to pay us a fixed license fee as well as ongoing royalties based on a percentage of the wholesale (i.e., licenseeâ<U+0080><U+0099>s) selling price, net of certain permissible deductions (e.g., certain shipping costs, packing costs, vat, etc.), of each licensed product and/or a fixed per unit amount. license fees are paid in one or more installments, while royalties generally are payable based on sales throughout the life of the licensed patents. our licensing terms are reasonable and fair to the companies that benefit from our intellectual property and provide significant incentives for others to invest in cdma applications, as evidenced by the significant growth in the cdma portion of the wireless industry and the number of cdma participants. our license agreements generally provide us rights to use certain of our licenseesâ<U+0080><U+0099> technology and intellectual property rights to manufacture and sell certain components (e.g., application-specific integrated circuits) and related software, subscriber units and/or infrastructure equipment. in most cases, our use of our licenseesâ<U+0080><U+0099> technology and intellectual property does not require us to pay royalties based on the sale of our products. however, under some of the licenses, if we incorporate certain of our licensesâ<U+0080><U+0099> licensed technology or intellectual property into certain of our products, we are obligated to pay royalties on the sale of such products. corporate responsibility at qualcomm, we realize that we have a significant role to play as we strive to better our local and global communities through ethical business practices, socially empowering technology applications, educational and environmental programs and employee diversity and volunteerism. â<U+0080>¢ our company. we strive to meet and exceed industry standards for ethical business practices, product responsibility, and supplier management. â<U+0080>¢ our environment. we aim to grow our operations while minimizing our carbon footprint, conserving water and reducing waste. â<U+0080>¢ our community. we are committed to growing strategic relationships with a wide range of local organizations and programs that develop and strengthen communities worldwide. â<U+0080>¢ our workplace. we provide a safe and healthy work environment where diversity is embraced and various opportunities for training, growth, and advancement are strongly encouraged for all employees. â<U+0080>¢ wireless reach. we invest in projects that foster entrepreneurship, aid in public safety, enhance delivery of health care, enrich teaching and learning and improve environmental sustainability through the use of 3g and next-generation technologies. employees at september 30, 2012, we employed approximately 26,600 full-time, part-time and temporary employees. during fiscal 2012, the number of employees increased by approximately 5,400, primarily due to increases in engineering resources. available information 11 our internet address is www.qualcomm.com. there we make available, free of charge, our annual report on form 10-k, quarterly reports on form 10-q, current reports on form 8-k and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the securities and exchange commission (sec). we also make available on our internet site public financial information for which a report is not required to be filed with or furnished to the sec. our sec reports and other financial information can be accessed through the investor relations section of our internet site. the information found on our internet site is not part of this or any other report we file with or furnish to the sec. the public may read and copy any materials that we file with the sec at the secâ<U+0080><U+0099>s public reference room located at 100 f street, n.e., washington, d.c. 20549. the public may obtain information on the operation of the public reference room by calling the sec at (202) 551-8090. the sec also maintains electronic versions of our reports on its website at www.sec.gov. executive officers our executive officers (and their ages at september 30, 2012) are as follows: paul e. jacobs, age 49, has served as chairman of the board of directors since march 2009, as a director since june 2005 and as chief executive officer since july 2005. he served as group president of qwi from july 2001 to june 2005. in addition, he served as executive vice president from february 2000 to june 2005. dr. jacobs was a director of a123 systems, inc. from november 2002 to july 2012. dr. jacobs holds a b.s. degree in electrical engineering and computer science, an m.s. degree in electrical engineering and a ph.d. degree in electrical engineering and computer science from the university of california, berkeley. steven r. altman, age 51, has served as vice chairman since november 2011. he served as president from july 2005 to november 2011, as executive vice president from november 1997 to june 2005 and as president of qtl from september 1995 to april 2005. mr. altman holds a b.s. degree in police science and administration from northern arizona university and a j.d. degree from the university of san diego. derek k. aberle, age 42, has served as executive vice president and group president since november 2011. he served as executive vice president and president of qtl from september 2008 to november 2011 and as senior vice president and general manager of qtl from october 2006 to september 2008. mr. aberle joined qualcomm in december 2000 and prior to october 2006 held positions ranging from legal counsel to vice president and general manager of qtl. mr. aberle holds a b.a. degree in business economics from the university of california, santa barbara and a j.d. degree from the university of san diego. cristiano r. amon, age 42, has served as executive vice president, qualcomm technologies, inc. (a wholly-owned subsidiary of qualcomm incorporated) and co-president of qualcomm mobile & computing (qmc) since october 2012. he served as senior vice president, qualcomm incorporated and co-president of qmc from june 2012 to october 2012, as senior vice president, qct product management from october 2007 to june 2012 and as vice president, qct product management from september 2005 to october 2007. mr. amon joined qualcomm in 1995 as an engineer and throughout his tenure at qualcomm held several other technical and leadership roles. mr. amon holds a b.s. degree in electrical engineering from unicamp, the state university of campinas, brazil. andrew m. gilbert, age 49, has served as executive vice president, qualcomm europe, inc. (a wholly-owned subsidiary of qualcomm incorporated) and european innovation development since january 2011. he served as executive vice president and president of qualcomm europe from september 2010 to january 2011, as executive vice president and president of qis and qualcomm europe from may 2009 to september 2010 and as executive vice president and president of qis, mft and qualcomm europe from january 2008 to may 2009. he served as senior vice president and president of qualcomm europe from november 2006 to january 2008 and as president of qualcomm europe from february 2006 to november 2006. mr. gilbert joined qualcomm in january 2006 as vice president of qualcomm europe. prior to joining qualcomm, he served as vice president and general manager of flarion technologiesâ<U+0080><U+0099> european, middle eastern and african regions from may 2002 to january 2006. matthew s. grob, age 46, has served as executive vice president, qualcomm technologies, inc. and chief technology officer since october 2012. he served as executive vice president, qualcomm incorporated and chief technology officer from july 2011 to october 2012 and as senior vice president, engineering from july 2006 to july 2011. mr. grob joined qualcomm in august 1991 as an engineer and throughout his tenure at qualcomm held several other technical and leadership roles. mr. grob holds a b.s. degree in electrical engineering from bradley university and an m.s. degree in electrical engineering from stanford university. margaret â<U+0080><U+009C>peggyâ<U+0080> l. johnson, age 50, has served as executive vice president, qualcomm technologies, inc. and president of global market development since october 2012. she served as executive vice president, qualcomm incorporated and president of global market development from january 2011 to october 2012. she served as executive vice president of the 12 americas and india from january 2008 to january 2011 and as executive vice president since december 2006. she served as president of mft from december 2005 to january 2008 and as president of qis from july 2001 to january 2008. she served as senior vice president and general manager of qis from september 2000 to july 2001. ms. johnson holds a b.s. degree in electrical engineering from san diego state university. william e. keitel, age 59, has served as executive vice president since december 2003 and as chief financial officer since february 2002. he previously served as senior vice president and corporate controller from may 1999 to february 2002. mr. keitel holds a b.a. degree in business administration from the university of wisconsin and an m.b.a. from arizona state university. james p. lederer, age 52, has served as executive vice president, qualcomm technologies, inc. and general manager of qct since october 2012. he served as executive vice president, qualcomm incorporated and general manager of qct from may 2009 to october 2012, as executive vice president, qct business planning and finance from may 2008 to may 2009 and as senior vice president, finance from april 2005 to may 2008. mr. lederer joined qualcomm in 1997 as senior manager, corporate finance and throughout his tenure at qualcomm held several other finance and leadership roles. mr. lederer holds a b.s. degree in business administration (finance/mis) and an m.b.a. from the state university of new york at buffalo. steven m. mollenkopf, age 43, has served as president and chief operating officer since november 2011. he served as executive vice president and group president from september 2010 to november 2011, as executive vice president and president of qct from august 2008 to september 2010, as executive vice president, qct product management from may 2008 to july 2008, as senior vice president, engineering and product management from july 2006 to may 2008 and as vice president, engineering from april 2002 to july 2006. mr. mollenkopf joined qualcomm in 1994 as an engineer and throughout his tenure at qualcomm held several other technical and leadership roles. mr. mollenkopf holds a b.s. degree in electrical engineering from virginia tech and an m.s. degree in electrical engineering from the university of michigan. venkata s.m. â<U+0080><U+009C>murthyâ<U+0080> renduchintala, age 47, has served as executive vice president, qualcomm technologies, inc. and co-president of qmc since october 2012. he served as senior vice president, qualcomm incorporated and co-president of qmc from june 2012 to october 2012, as senior vice president, qct engineering from october 2007 to june 2012 and as vice president, qct engineering from april 2004 to october 2007. dr. renduchintala holds a b.e. in electrical engineering, an m.b.a. and a ph.d. degree in digital communication from the university of bradford, united kingdom. donald j. rosenberg, age 61, has served as executive vice president, general counsel and corporate secretary since october 2007. he served as senior vice president, general counsel and corporate secretary for apple inc. from december 2006 to october 2007. from may 1975 to november 2006, mr. rosenberg held numerous positions at ibm corporation, including senior vice president and general counsel. mr. rosenberg holds a b.s. degree in mathematics from the state university of new york at stony brook and a j.d. from st. johnâ<U+0080><U+0099>s university school of law. james h. thompson, age 48, has served as executive vice president, engineering for qualcomm technologies, inc. since october 2012. he served as senior vice president, engineering for qualcomm incorporated from july 1998 to october 2012. dr. thompson joined qualcomm in 1992 as a senior engineer and throughout his tenure at qualcomm held several other technical and leadership roles. dr. thompson holds b.s., m.s. and ph.d. degrees in electrical engineering from the university of wisconsin, madison. daniel l. sullivan, age 61, has served as executive vice president of human resources since august 2001. he previously served as senior vice president of human resources from february 1996 to july 2001. dr. sullivan holds a b.s. degree in communication from illinois state university, an m.a. degree in communication from west virginia university and a ph.d. in communication from the university of nebraska."
## [2] "item 1. business general corning traces its origins to a glass business established in 1851. the present corporation was incorporated in the state of new york in december 1936. the company’s name was changed from corning glass works to corning incorporated on april 28, 1989. corning incorporated is a world leader in the manufacture of specialty glass and ceramics. drawing on more than 160 years of materials science and process engineering knowledge, corning creates and makes keystone components that enable high-technology systems for consumer electronics, mobile emissions control, telecommunications and life sciences. corning operates in five reportable segments: display technologies, telecommunications, environmental technologies, specialty materials and life sciences. corning manufactures and processes products at approximately 70 plants in 13 countries. display technologies segment corning’s display technologies segment manufactures glass substrates for active matrix liquid crystal displays (lcds) that are used primarily in notebook computers, flat panel desktop monitors, and lcd televisions. corning’s facilities in kentucky, japan, taiwan, and china, and those of our equity affiliates in korea, develop, manufacture and supply high quality glass substrates using a proprietary fusion manufacturing process and technology expertise. our display technologies equity affiliates consist of samsung corning precision materials co., ltd. (samsung corning precision materials), of which corning owns 50%, samsung electronics co., ltd. owns 43% and three other shareholders own the remaining 7%, and samsung corning advanced glass, llc, owned equally by corning and samsung mobile display co., ltd. samsung corning precision materials is a leading supplier of lcd glass substrates to display manufacturers in korea. samsung corning advanced glass, llc manufactures specialty glass substrates for the rapidly expanding organic light emitting diode (oled) device market. the business intends to combine corning’s lotus™ glass substrate technology and samsung display’s oled display expertise, to provide outstanding product solutions for current and future oled technologies. samsung corning precision materials’ financial statements are attached in item 15, exhibits and financial statement schedules. corning is a technology leader in this market, introducing large-sized glass substrates used by our customers in the production of larger lcds for monitors and televisions. we are recognized for providing product innovations that help our customers produce larger, lighter, thinner and higher-resolution displays more affordably. in industry language, glass sizes advance in what are called generations. glass substrates are currently available from corning in sizes up to generation 10 (2,850mm x 3,050mm). generation 10 glass substrates are produced at an advanced manufacturing facility located at sakai display products’ industrial complex in sakai city, japan, which eliminates the need for traditional packaging, shipping, and delivery methods. large substrates (generation 5 and higher) allow lcd manufacturers to produce larger and a greater number of panels from each substrate. the larger size leads to economies of scale for lcd manufacturers. corning invented its proprietary fusion manufacturing process, which is the cornerstone of the company’s technology leadership in the lcd industry. the automated process yields high quality glass substrates with excellent dimensional stability and uniformity – essential attributes for the production of increasingly larger, high performance active matrix lcds. corning’s fusion process is scalable and is thought to be the most effective process in producing large size substrates. in 2006, corning launched eagle xg®, the industry’s first lcd glass substrate that is free of heavy metals. in 2010, leveraging the eagle xg® composition, corning introduced eagle xg® slim glass, a line of slim glass substrates which enables lighter-weight portable devices and thinner televisions and monitors. in 2011, corning launched corning lotus™ glass, a high-performance display glass developed to enable cutting-edge technologies, including organic light-emitting diode (oled) displays and next generation liquid crystal displays (lcd). corning lotus glass helps support the demanding manufacturing processes of both oled and liquid crystal displays for high performance, portable devices such as smart phones, tablets, and notebook computers. and in 2012, corning introduced corning® willow™ glass, our ultra-slim flexible glass for use in next-generation consumer electronic technologies. not only does this technology support thinner backplanes for both oled and lcd displays, it also allows for curved displays for immersive viewing or mounting on non-flat surfaces. corning incorporated – 2012 form 10-k 1 back to contents lcd glass manufacturing is a highly capital intensive business. corning has made significant investments to expand its lcd glass facilities in response to customer demand. the environment is very competitive. important attributes for success include efficient manufacturing, access to capital, technology know-how, and patents. patent protection and proprietary trade secrets are important to this segment’s operations. corning has a growing portfolio of patents relating to its products, technologies and manufacturing processes. corning licenses certain of its patents to samsung corning precision materials and other third parties and generates royalty income from these licenses. refer to the material under the heading “patents and trademarks” for information relating to patents and trademarks. the display technologies segment represented 36% of corning’s sales for 2012. telecommunications segment the telecommunications segment produces optical fiber and cable, and hardware and equipment products for the worldwide telecommunications industry. corning invented the world’s first low-loss optical fiber approximately 40 years ago and now offers a range of optical fiber technology products and enhancements for a variety of applications, including premises, fiber-to-the-home access, metropolitan, long-haul and submarine networks. corning makes and sells infinicor® fibers for local area networks, data centers and central offices; smf-28e+™ single-mode optical fiber that provides additional transmission wavelengths in metropolitan and access networks; smf-28® ull fiber; leaf® optical fiber for long-haul, regional and metropolitan networks; clearcurve® ultra-bendable single-mode fiber for use in multiple dwelling units and fiber-to-the-home applications; clearcurve® ultra-bendable multimode fiber for data centers and other enterprise networks; clearcurve® vsdn® ultra-bendable optical fiber designed to support emerging high-speed interconnects between computers and other consumer electronics devices; and vascade® submarine optical fibers for use in submarine networks. corning has optical fiber manufacturing facilities in north carolina, china and india. a significant portion of corning’s optical fiber is sold to subsidiaries and affiliates including corning cable systems llc, beijing ccs optical fiber cable co., ltd., chengdu ccs optical fiber cable co., ltd. and corning cable systems polska sp. z o.o. optical fiber is cabled by these subsidiaries prior to being sold to end users. corning’s remaining fiber production is sold directly to end users or third party cablers around the world. corning’s cabling operations include facilities in north carolina, poland, china, germany and smaller regional locations and equity affiliates. corning’s hardware and equipment products include cable assemblies, fiber optic hardware, fiber optic connectors, optical components and couplers, closures and pedestals, splice and test equipment and other accessories for optical connectivity. for copper connectivity, corning’s products include subscriber demarcation, connection and protection devices, xdsl (different variations of digital subscriber lines) passive solutions and outside plant enclosures. each of these product lines may be combined in corning’s fiber-to-the-premises solutions. corning also provides distributed antenna system solutions for flexible wireless coverage in the rapidly growing wireless market. corning has manufacturing operations for hardware and equipment products in north carolina, arizona, virginia and texas, as well as europe, mexico, israel and china. in addition, corning offers products for the cable television industry, including coaxial connectors and associated tools. patent protection is important to the segment’s operations. the segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. the segment licenses certain of its patents to third parties and generates revenue from these licenses, although the royalty income is not currently material to this segment’s operating results. corning is licensed to use certain patents owned by others, which are considered important to the segment’s operations. refer to the material under the heading “patents and trademarks” for information relating to the company’s patents and trademarks. the telecommunications segment represented 27% of corning’s sales for 2012. environmental technologies segment corning’s environmental technologies segment manufactures ceramic substrates and filter products for emissions control in mobile and stationary applications around the world. in the early 1970’s, corning developed an economical, high-performance cellular ceramic substrate that is now the standard for catalytic converters in vehicles worldwide. as global emissions control regulations tighten, corning has continued to develop more effective and durable ceramic substrate and filter products for gasoline and diesel applications. corning manufactures substrate and filter products in new york, virginia, china, germany and south africa. corning sells its ceramic substrate and filter products worldwide to manufacturers of emission control systems who then sell to automotive and diesel vehicle or engine manufacturers. although most sales are made to the emission control systems manufacturers, the use of corning substrates and filters is generally required by the specifications of the automotive and diesel vehicle or engine manufacturers. patent protection is important to the segment’s operations. the segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. corning is licensed to use certain patents owned by others, which are also considered important to the segment’s operations. refer to the material under the heading “patents and trademarks” for information relating to the company’s patents and trademarks. the environmental technologies segment represented 12% of corning’s sales for 2012. specialty materials segment the specialty materials segment manufactures products that provide more than 150 material formulations for glass, glass ceramics and fluoride crystals to meet demand for unique customer needs. consequently, this segment operates in a wide variety of commercial and industrial markets that include display optics and components, semiconductor optics components, aerospace and defense, astronomy, ophthalmic products, telecommunications components and cover glass that is optimized for portable display devices and televisions. our cover glass, known as corning® gorilla® glass, is a thin sheet glass designed specifically to function as a cover glass for display devices such as tablets, notebook pcs, televisions and mobile phones. elegant and lightweight, corning gorilla glass is durable enough to resist many real-world events that commonly cause glass failure, enabling exciting new applications in technology and design. early in 2012, corning launched corning® gorilla® glass 2, the next generation in our corning gorilla glass suite of products. corning gorilla glass 2 enables up to a 20% reduction in glass thickness, while maintaining the industry-leading damage resistance, toughness and scratch-resistance. and in january 2013, we introduced corning® gorilla® glass 3 with native damage resistance. this latest version of our damage-resistant cover glass for consumer electronic devices is based on a completely new glass composition, with durability enhancements developed at the atomic structural level of the glass. corning gorilla glass is manufactured in kentucky, japan and taiwan. corning incorporated – 2012 form 10-k 2 back to contents semiconductor optics manufactured by corning includes high-performance optical material products, optical-based metrology instruments, and optical assemblies for applications in the global semiconductor industry. corning’s semiconductor optics products are manufactured in new york. other specialty glass products include glass lens and window components and assemblies and are made in new york, new hampshire, kentucky and france or sourced from china. patent protection is important to the segment’s operations. the segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. brand recognition and loyalty, through well-known trademarks, are important to the segment. refer to the material under the heading “patents and trademarks” for information relating to the company’s patents and trademarks. the specialty materials segment represented approximately 17% of corning’s sales for 2012. life sciences segment as a leading developer, manufacturer and global supplier of scientific laboratory products for more than 90 years, corning’s life sciences segment collaborates with researchers seeking new approaches to increase efficiencies, reduce costs and compress timelines in the drug discovery process. using unique expertise in the fields of materials science, surface science, optics, biochemistry and biology, the segment provides innovative solutions that improve productivity and enable breakthrough discoveries. life sciences laboratory products include general labware and equipment as well as media and reagents for cell culture research and scale-up, genomics, drug discovery, microbiology and chemistry. corning manufactures these products in the united states in maine, new york, new jersey, california, utah, virginia, massachusetts and north carolina, and outside of the u.s. in mexico, france, poland, the united kingdom and china. the products are marketed worldwide, primarily through distributors to pharmaceutical and biotechnology companies, academic institutions, hospitals, government entities, and other research facilities. in addition to being a global leader in consumable glass and plastic laboratory tools for life science research, corning continues to be an innovative force developing and producing unique technologies such as corning® epic® technology for high throughput screening; corning® hyper platform of vessels for increased cell yields; novel surfaces, such as corning® cellbind® surface; corning® osteo assay surface and corning® synthemax® ii surface; and corning® microcarriers for cell scale-up, therapy and vaccine applications. in the fourth quarter of 2012, corning acquired the majority of the discovery labware business from becton, dickinson and company (bd). the acquisition of the bd discovery labware business expands our market presence in the global laboratory consumables market, especially in the asian markets of india, korea, and japan. corning’s broad portfolio of laboratory products and services will be enhanced by the addition of the discovery labware businesses’ four main product platforms: plastic consumable labware; biologically coated plastic consumable labware; cell culture reagents; and adme/tox (absorption, distribution, metabolism, excretion and toxicity) products. corning sells life science products under these primary brands: corning, costar, pyrex, axygen, and gosselin. through the acquisition of the discovery labware business, additional brands have been added to our portfolio such as: corning® matrigel, corning® gentest, corning®biocoat and falcon®. patent protection is important to the segment’s operations. the segment has a growing portfolio of patents relating to its products, technologies and manufacturing processes. brand recognition and loyalty, through well-known trademarks, are important to the segment. refer to the material under the heading “patents and trademarks” for information relating to the company’s patents and trademarks. the life sciences segment represented approximately 8% of corning’s sales for 2012. all other all other primarily includes development projects and new product lines, certain corporate investments, samsung corning precision materials’ non-lcd business, corning’s eurokera and keraglass equity affiliates with saint gobain vitrage s.a. of france, which manufacture smooth cooktop glass/ceramic products, and corsam, an equity affiliate established between corning and samsung corning precision materials to provide glass technology research. development projects and new product lines involve the use of various technologies for new products such as advanced flow reactors, thin-film photovoltaics and adjacency businesses in pursuit of thin, strong glass applications. the other segment represented less than 1% of corning’s sales for 2012. additional explanation regarding corning and its five reportable segments is presented in management’s discussion and analysis of financial condition and results of operations and note 20 (reportable segments) to the consolidated financial statements. corporate investments corning and the dow chemical company (dow chemical) each own half of dow corning corporation (dow corning), an equity company headquartered in michigan that manufactures silicone products worldwide. dow corning is a leader in silicon-based technology and innovation, offering more than 7,000 products and services. dow corning is the majority-owner of hemlock semiconductor group, a market leader in the production of high purity polycrystalline silicon for the semiconductor and solar energy industries. dow corning’s sales were $6.1 billion in 2012. additional discussion about dow corning appears in the legal proceedings section. dow corning’s financial statements are attached in item 15, exhibits and financial statement schedules. corning and ppg industries, inc. each own half of pittsburgh corning corporation (pcc), an equity company in pennsylvania that manufactures glass products for architectural and industrial uses. pcc filed for chapter 11 bankruptcy reorganization in april 2000. corning also owns half of pittsburgh corning europe n.v. (pce), a belgian corporation that manufactures glass products for industrial uses primarily in europe. additional discussion about pcc and pce appears in the legal proceedings section. additional information about corporate investments is presented in note 7 (investments) to the consolidated financial statements. corning incorporated – 2012 form 10-k 3 back to contents competition corning competes across all of its product lines with many large and varied manufacturers, both domestic and foreign. some of these competitors are larger than corning, and some have broader product lines. corning strives to sustain and improve its market position through technology and product innovation. for the future, corning believes its competitive advantage lies in its commitment to research and development, and its commitment to quality. there is no assurance that corning will be able to maintain or improve its market position or competitive advantage. display technologies segment corning, including samsung corning precision materials, is the largest worldwide producer of glass substrates for active matrix lcd displays. the environment for lcd glass substrate products is very competitive and corning believes it has sustained its competitive advantages by investing in new products, such as corning lotus glass, providing a consistent and reliable supply and using its proprietary fusion manufacturing process. this process allows us to deliver glass that is larger, thinner and lighter, with exceptional surface quality and without heavy metals. asahi glass, nippon electric glass and avan strate, inc. are corning’s principal competitors in display glass substrates. telecommunications segment competition within the telecommunications equipment industry is intense among several significant companies. corning is a leading competitor in the segment’s principal product lines, which include optical fiber and cable, and hardware and equipment. the competitive landscape includes industry consolidation, price pressure and competition for the innovation of new products. these competitive conditions are likely to persist. corning believes its large scale manufacturing experience, fiber process, technology leadership and intellectual property assets yield cost advantages relative to several of its competitors. the primary competing producers of optical fiber and cable products are ofs (a furukawa company), fujikura ltd., sumitomo electric and prysmian group. for hardware and equipment products, significant competitors are 3m company, te connectivity, ofs (a furukawa company) and commscope. environmental technologies segment for worldwide automotive ceramic substrate products, corning has a major market position that has remained relatively stable over the past year. corning has also established a strong presence in the heavy duty and light duty diesel vehicle market and believes its competitive advantage in automotive ceramic substrate products for catalytic converters and diesel filter products for exhaust systems is based upon global presence, customer service, engineering design services and product innovation. corning’s environmental technologies products face principal competition from ngk, denso, and ibiden. specialty materials segment corning is one of very few manufacturers with deep capabilities in materials science, optical design, shaping, coating, finishing, metrology, and system assembly. additionally, we are addressing emerging needs of the consumer electronics industry with the development of chemically strengthened glass. corning gorilla glass is a thin-sheet glass that is better able to survive events that most commonly cause glass failure. its advanced composition allows a deeper layer of chemical strengthening than is possible with most other chemically strengthened glasses, making it both durable and damage resistant. our products and capabilities in this segment position the company to meet the needs of a broad array of markets including display, semiconductor, aerospace/defense, astronomy, vision care, industrial/commercial, and telecommunications. for this segment, schott, shin-etsu quartz products, asahi glass, carl zeiss, nikon, nippon electric glass, transitions optical, oerlikon, hoya and heraeus are the main competitors. life sciences segment corning is a leading supplier of glass and plastic laboratory products, with a growing plastic products market presence in north america, europe, and asia, and a solid laboratory glass products market presence in the americas. corning seeks to maintain a competitive advantage by emphasizing product quality, product availability, supply chain efficiency, a wide product line and superior product attributes. for laboratory products, greiner, nunc, kimble-chase, and duran are the principal worldwide competitors. corning also faces increasing competition from two large distributors that have pursued backward integration or introduced private label products. raw materials corning’s production of specialty glasses, ceramics, and related materials requires significant quantities of energy, uninterrupted power sources, certain precious metals, and various batch materials. although energy shortages have not been a problem recently, the cost of energy remains volatile. corning has achieved flexibility through engineering changes to take advantage of low-cost energy sources in most significant processes. specifically, many of corning’s principal manufacturing processes can be operated with natural gas, propane, oil or electricity, or a combination of these energy sources. availability of resources (ores, minerals, polymers, and processed chemicals) required in manufacturing operations, appears to be adequate. corning’s suppliers, from time to time, may experience capacity limitations in their own operations, or may eliminate certain product lines. corning believes it has adequate programs to ensure a reliable supply of batch materials and precious metals. for many products, corning has alternate glass compositions that would allow operations to continue without interruption in the event of specific materials shortages. certain key materials and proprietary equipment used in the manufacturing of products are currently sole-sourced or available only from a limited number of suppliers. any future difficulty in obtaining sufficient and timely delivery of components could result in lost sales due to delays or reductions in product shipments, or reductions in corning’s gross margins. corning incorporated – 2012 form 10-k 4 back to contents patents and trademarks inventions by members of corning’s research and engineering staff have been, and continue to be, important to the company’s growth. patents have been granted on many of these inventions in the united states and other countries. some of these patents have been licensed to other manufacturers, including companies in which corning has equity investments. many of our earlier patents have now expired, but corning continues to seek and obtain patents protecting its innovations. in 2012, corning was granted over 320 patents in the u.s. and over 630 patents in countries outside the u.s. each business segment possesses a patent portfolio that provides certain competitive advantages in protecting corning’s innovations. corning has historically enforced, and will continue to enforce, its intellectual property rights. at the end of 2012, corning and its wholly-owned subsidiaries owned over 4,800 unexpired patents in various countries of which about 2,800 were u.s. patents. between 2013 and 2015, approximately 9% of these patents will expire, while at the same time corning intends to seek patents protecting its newer innovations. worldwide, corning has over 7,900 patent applications in process, with about 1,900 in process in the u.s. corning believes that its patent portfolio will continue to provide a competitive advantage in protecting corning’s innovation, although corning’s competitors in each of its businesses are actively seeking patent protection as well. the display technologies segment has over 530 patents in various countries, of which over 230 are u.s. patents. no one patent is considered material to this business segment. some of the important u.s.-issued patents in this segment include patents relating to glass compositions and methods for the use and manufacture of glass substrates for display applications. there is no group of important display technology segment patents set to expire between 2013 and 2015. the telecommunications segment has over 1,950 patents in various countries, of which over 1,050 are u.s. patents. no one patent is considered material to this business segment. some of the important u.s.-issued patents in this segment include: (i) patents relating to optical fiber products including dispersion compensating fiber, low loss optical fiber and high data rate optical fiber and processes and equipment for manufacturing optical fiber, including methods for making optical fiber preforms and methods for drawing, cooling and winding optical fiber; (ii) patents relating to optical fiber ribbons and methods for making such ribbon, fiber optic cable designs and methods for installing optical fiber cable; and (iii) patents relating to optical fiber connectors, termination and storage and associated methods of manufacture. there is no group of important telecommunications segment patents set to expire between 2013 and 2015. the environmental technologies segment has over 400 patents in various countries, of which over 250 are u.s. patents. no one patent is considered material to this business segment. some of the important u.s.-issued patents in this segment include patents relating to cellular ceramic honeycomb products, together with ceramic batch and binder system compositions, honeycomb extrusion and firing processes, and honeycomb extrusion dies and equipment for the high-volume, low-cost manufacture of such products. there is no group of important environmental technologies patents set to expire between 2013 and 2015. the specialty materials segment has about 450 patents in various countries, of which over 300 are u.s. patents. no one patent is considered material to this business segment. some of the important u.s.-issued patents in this segment include patents relating to protective cover glass, ophthalmics glasses and polarizing dies, and semiconductor/microlithography optics and blanks, metrology instrumentation and laser/precision optics, glass polarizers, specialty fiber, and refractories. there is no group of important specialty materials patents set to expire between 2013 and 2015. the life sciences segment has over 300 patents in various countries, of which over 150 are u.s. patents. no one patent is considered material to this business segment. some of the important u.s.-issued patents in this segment include patents relating to methods and apparatus for the manufacture and use of scientific laboratory equipment including nucleic acid arrays, multiwell plates, and cell culture products as well as equipment and processes for label independent drug discovery. there is no group of important life sciences patents set to expire between 2013 and 2015. products reported in all other include development projects, new product lines, and other businesses or investments that do not meet the threshold for separate reporting. many of the company’s patents are used in operations or are licensed for use by others, and corning is licensed to use patents owned by others. corning has entered into cross licensing arrangements with some major competitors, but the scope of such licenses has been limited to specific product areas or technologies. corning’s principal trademarks include the following: axygen, corning, celcor, clearcurve, duratrap, eagle xg, epic, evolant, gorilla, hpfs, lanscape, pretium, pyrex, steuben, falcon, and smf-28e. protection of the environment corning has a program to ensure that its facilities are in compliance with state, federal and foreign pollution-control regulations. this program has resulted in capital and operating expenditures during the past several years. in order to maintain compliance with such regulations, capital expenditures for pollution control in continuing operations were approximately $16 million in 2012 and are estimated to be $5 million in 2013. corning’s 2012 consolidated operating results were charged with approximately $40 million for depreciation, maintenance, waste disposal and other operating expenses associated with pollution control. corning believes that its compliance program will not place it at a competitive disadvantage. employees at december 31, 2012, corning had approximately 28,700 full-time employees, including approximately 11,700 employees in the united states. from time to time, corning also retains consultants, independent contractors, temporary and part-time workers. unions are certified as bargaining agents for approximately 23.4% of corning’s united states employees. corning incorporated – 2012 form 10-k 5 back to contents executive officers of the registrant wendell p. weeks chairman, chief executive officer and president mr. weeks joined corning in 1983 and was named a vice president and deputy general manager of the telecommunications products division in 1995, vice president and general manager in 1996, senior vice president in 1997, senior vice president of opto-electronics in 1998, executive vice president in 1999, president, corning optical communications in 2001, president and chief operating officer of corning in 2002, and president and chief executive officer in 2005. mr. weeks became chairman and chief executive officer on april 26, 2007, and president on december 31, 2010. mr. weeks is a director of merck & co. inc. mr. weeks has been a member of corning’s board of directors since 2000. age 53. james b. flaws vice chairman and chief financial officer mr. flaws joined corning in 1973 and served in a variety of controller and business management positions. mr. flaws was elected assistant treasurer of corning in 1993, vice president and controller in 1997, vice president of finance and treasurer in may 1997, senior vice president and chief financial officer in december 1997, executive vice president and chief financial officer in 1999 and to his current position in 2002. mr. flaws is a director of dow corning corporation. mr. flaws has been a member of corning’s board of directors since 2000. age 64. kirk p. gregg executive vice president and chief administrative officer mr. gregg joined corning in 1993 as director of executive compensation. he was named vice president of executive resources and employee benefits in 1994, senior vice president, administration in december 1997 and to his current position in 2002. he is responsible for human resources, information technology, procurement and transportation, aviation, community affairs, government affairs, business services and corporate security. prior to joining corning, mr. gregg was with general dynamics corporation as corporate director, key management programs, and was responsible for executive compensation and benefits, executive development and recruiting. age 53. lawrence d. mcrae executive vice president, strategy and corporate development mr. mcrae joined corning in 1985 and served in various financial, sales and marketing positions. he was elected vice president corporate development in 2000, senior vice president corporate development in 2003, and senior vice president strategy and corporate development in october 2005. he was elected to his present position in october 2010. mr. mcrae is on the board of directors of dow corning corporation, and samsung corning precision materials co., ltd. age 54. david l. morse executive vice president and chief technology officer dr. morse joined corning in 1976 in glass research, and worked as a composition scientist in developing and patenting several major products. he served in a variety of product and materials research and technology director roles, and was appointed division vice president and technology director for photonic technology groups beginning in march 1999, and became director of corporate research, science and technology in december 2001. he was elected vice president in january 2003, becoming senior vice president and director of corporate research in 2006. dr. morse was elected to his current position in may 2012. he is on the board of dow corning corporation and a member of the national academy of engineering and the national chemistry board. age 60. jeffrey evenson senior vice president and operations chief of staff dr. evenson joined corning in june 2011 and was elected to his current position at that time. he serves on the management committee and oversees a variety of strategic programs and growth initiatives. prior to joining corning, dr. evenson was a senior vice president with sanford c. bernstein, where he served as a senior analyst since 2004. before that, dr. evenson was a partner at mckinsey & company, where he led technology and market assessment for early-stage technologies. age 47. r. tony tripeny senior vice president, corporate controller and principal accounting officer mr. tripeny joined corning in 1985 as the corporate accounting manager of corning cable systems, and became the keller facility’s plant controller in 1989. in 1993, he was appointed equipment division controller of corning cable systems and, in 1996 corporate controller. mr. tripeny was appointed chief financial officer of corning cable systems in july 2000. in 2003, he took on the additional role of telecommunications group controller. he was appointed division vice president, operations controller in august 2004, and vice president, corporate controller in october 2005. mr. tripeny was elected to his current position in april 2009. he is on the board of directors of hardinge inc. age 53. vincent p. hatton senior vice president and general counsel mr. hatton joined corning in 1981 as an assistant corporate counsel and became a division counsel in 1984. mr. hatton was named assistant general counsel, specialty materials in may 1993, and director of the legal department in 1995. mr. hatton was elected vice president in 1998 and senior vice president in 2003. mr. hatton was elected to his current position on march 1, 2007. age 62. document availability a copy of corning’s 2012 annual report on form 10-k filed with the securities and exchange commission is available upon written request to ms. denise a. hauselt, vice president, secretary and assistant general counsel, corning incorporated, hq-e2-10, corning, ny 14831. the annual report on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, and amendments pursuant to section 13(a) or 15(d) of the exchange act of 1934 and other filings are available as soon as reasonably practicable after such material is electronically filed or furnished to the sec, and can be accessed electronically free of charge, through the investor relations line on corning’s web site at www.corning.com. the information contained on the company’s website is not included in, or incorporated by reference into, this annual report on form 10-k. other additional information in response to item 1 is found in note 20 (reportable segments) to the consolidated financial statements and in item 6 (selected financial data). corning incorporated – 2012 form 10-k 6 back to contents i"
## [3] "item 1.businesstrimble navigation limited, a california corporation ( trimble or the company or we or our or us ), provides technology solutions that enable professionals and field mobile workers to improve or transform their work processes. our solutions are used across a range of industries including agriculture, architecture, civil engineering, construction, environmental management, government, natural resources, transportation and utilities. representative trimble customers include engineering and construction firms, contractors, surveying companies, farmers and agricultural companies, enterprise firms with large-scale fleets, energy, mining and utility companies, and state, federal and municipal governments. our products are sold based on return on investment and frequently provide other benefits such as lower operational costs, higher productivity, improved quality, enhanced safety and compliance, and reduced environmental impact. product examples include: equipment that automates large industrial equipment such as tractors and bulldozers; surveying instruments; integrated systems that track fleets of vehicles and workers and provide real-time information and powerful analytics to the back-office; data collection systems that enable the management of large amounts of geo- referenced information; software solutions that connect all aspects of a construction site or farm; and building information modeling (bim) software that is used throughout the design, build, and operation of buildings. we also manufacture components for in-vehicle navigation and telematics systems, and timing modules used in the synchronization of wireless networks. many of our products integrate positioning or location technologies with wireless communications and software or information technologies. information about location or position is transmitted via a wireless link to a domain-specific software application which enhances the productivity of the worker, asset or work process. position is provided through a number of technologies including the global positioning system (gps), other global navigation satellite systems (gnss) and their augmentation systems, and systems that use laser, optical, inertial or other technologies to establish position. software is a key element of most of our solutions. our software may be delivered either via a licensed or embedded software model or in a hosted environment using a subscription-based software as a service (saas) model. many of our software and services offerings can be used as stand-alone applications, or as part of a broader, more integrated industry workflow solution. examples include software systems for conceptual and structural design, and software for business management/optimization functions in specific industries.we design, develop and market our own products. the majority of our software products are engineered and developed in-house, with some use of third party applications, modules or contract development. our manufacturing strategy includes a combination of in-house assembly and third-party subcontractors. our global operations include major development, manufacturing, or logistics operations in the united states, sweden, finland, germany, new zealand, canada, the united kingdom, the netherlands, china, and india. products are sold through dealers, representatives, joint ventures, and other channels throughout the world, typically in more than 100 countries. these channels are supported by our own offices located in 34 countries around the world.we began operations in 1978 and incorporated in california in 1981. our common stock has been publicly traded on nasdaq since 1990 under the symbol trmb.technology overviewbroadly, our technological capabilities span the design, development and integration of hardware, software and communications systems. these capabilities include domain-specific application software development, real-time and embedded software development, analytics, development of sensor technologies and systems - including those used for geographic positioning or location, 1, 2 or 3d measurement, asset management, and the integration of real-time connectivity and communications. our solutions typically integrate some combination of these technologies, in ways designed to specifically improve a work task or a work process within an industry. our capabilities in positioning and sensing technologies include high-precision satellite positioning using global navigation satellite system, or gnss, systems, laser measurement, alignment and 3d scanning, optical measurement, metric digital imaging, inertial measurement technologies, and rf identification (rfid) technologies. a significant portion of our revenue is derived from applying global navigation satellite system (gnss), technology to terrestrial applications. gnss includes the network of 24 orbiting u.s. global positioning system (gps) satellites, the russian glonass radio navigation satellite system, as well as the future european community and chinese radio navigation satellite systems. our high precision gnss products are based on proprietary receiver technology and, over time, advances in positioning, wireless communications, and information technologies have enabled us to add more capability to our products and thereby deliver more value to our users. one example is the trimble rtx service, which is delivered via satellite or wireless networks to enable users in many parts of the world to determine high accuracy positions using a single gnss receiver. our laser and optical products either measure distances and angles to provide a 5table of contentsposition in three dimensional space or are used as highly accurate laser references from which a position can be established. laser scanning and optical imaging systems produce clouds of 3d points, or produce high resolution digital imagery from which accurate measurements can be made. our software and information technology solutions enable our customers to optimize their business processes and workflows, improve their productivity and data flow, and provide a host of novel features, collaboration possibilities and analytical capabilities. these software products range from embedded real-time firmware, through field service and location oriented solutions on handheldand other small footprint devices, to scalable server-based solutions that integrate field data with large scale enterprise back-office applications. our software capabilities also incorporate extensive 3-d modeling, analysis and design platforms, civil engineering alignment selection solutions, design and data preparation software, building information modeling (bim) software, cloud-based collaboration solutions, applications for advanced surveying and geospatial data collection and analysis, as well as a large suite of domain-specific software applications used across a host of industries including agriculture, construction, utilities, transportation and natural resources. these software solutions are built on configurable and enterprisegrade scalable platforms that can be tailored to the workflows that our customers follow to implement their customized business processes. we complement our core offerings with other elective software products that are delivered as either licensed software or in a hosted environment using the saas model. our mobile resource management suite of products is an example of a subscription-based saas offering. our software products, whether they run on a mobile device, on a backend server behind the firewall, in our hosting center, or in the desktop environment, allow our customers to improve their productivity, gain insight into their projects and operations, enhance their decision making and to gain maximum benefit from a broad range of other trimble products and systems. we frequently integrate or embed wireless communications technologies in our solutions to facilitate real-time data flow, communication and situational awareness across sites and between work sites or vehicles and offices. wireless communication techniques used include cellular, wifi, bluetooth, satellite communications and proprietary wireless communications technologies.business strategyour business strategy is developed around an analysis of several key elements: attractive markets - we focus on underserved markets that offer potential for revenue growth, profitability and market leadership. innovative solutions that provide significant benefits to our customers - we seek to apply our technology to applications in which position data is important and where we can create unique value by enabling enhanced productivity in the field or field to back office. we look for opportunities in which the rate of technological change is high and which have a requirement for the integration of multiple technologies into a solution. distribution channels to best access our markets - we select distribution channels that best serve the needs of individual markets. these channels can include independent dealers, joint ventures, oem sales, distribution alliances with key partners as well as direct sales to end users. we view international expansion as an important element of our strategy and continue to develop international channels.business segments and marketswe are organized into four reporting segments encompassing our various applications and product lines: engineering and construction, field solutions, mobile solutions and advanced devices. our segments are distinguished by the markets they serve. each segment consists of businesses which are responsible for product development, marketing, sales, strategy and financial performance.engineering and constructionthe engineering and construction segment primarily serves customers working in architecture, engineering, construction, surveying, natural resources and government. in the planning, design, construction and operation/maintenance of civil infrastructure such as roads, railways, airports, power plants and transmission lines, our solutions are used across the entire project lifecycle to improve productivity, reduce waste and re-work, and enable more informed decision making through enhanced situational awareness, data flow and project collaboration. at the same time, our solutions can improve worker safety and reduce environmental impact. our suite of integrated products and technologies in this area includes software for optimized route selection and design, systems to automatically guide and control construction equipment such as bulldozers, graders and paving equipment, systems to monitor, track and manage assets, equipment and workers, and software to facilitate the sharing and communication of data in real time. together, these solutions are designed 6table of contentsto transform how work is done within the civil engineering industry. an example is the connected site, which integrates data and information across the entire construction process. this includes data from site positioning and machine control systems, construction asset management equipment and services and various software applications. utilizing wireless and internet-based site communications infrastructure, trimble connected site solutions include the ability to track and control equipment, perform remote machine diagnostics and reduce re-work. by leveraging the connected site technology, contractors gain greater insight into their operations, helping them to improve productivity and asset utilization while at the same time lowering costs and improving worker safety. to bolster the software solutions we provide to the connected site, we formed a joint venture with caterpillar in october of 2008, called virtualsite solutions, or vss. vss develops software for fleet management and connected worksite solutions. its initial products are subscription-based software solutions that include asset management and machine diagnostics capabilities. vss solutions, as part of the connected site portfolio, are being sold through an independent dealer channel under the name of sitech. we expect to have all initially targeted trade areas covered by the end of 2013. a separate joint venture with caterpillar, caterpillar-trimble control technologies (ctct) was formed in 2002 to develop the next generation of advanced electronic guidance and control products for earthmoving machines. the joint venture develops machine control products that use site design information combined with accurate positioning technology to automatically control dozer blades and other machine tools. the joint venture supplies both trimble and caterpillar, who each market, distribute, service and support the products using both companies' independent distribution channels. caterpillar offers products as a factory-installed option, while trimble continues to address the aftermarket with products for earthmoving machines from caterpillar and other equipment manufacturers.our portfolio of products for the commercial, industrial and residential building industry spans the entire design-build-operate lifecycle of a building and is used by architects, designers, general contractors, sub-contractors, trades, and facility owners. these solutions serve to improve productivity, to enhance data sharing and collaboration across different teams and to help keep projects within cost targets and time schedules. the suite of technologies and solutions used in the building industry include software for 3d conceptual design and modeling, building information modeling (bim) software which is used in design, construction and maintenance, advanced integrated site layout and measurement systems, applications for sub-contractors and trades such as mechanical, electrical and plumbing (mep) and heating, ventilation and air conditioning (hvac), together with a suite of software applications for construction project management, project coordination/collaboration, project cost estimation and for capital program & facility management. together, these solutions for the building sector serve to automate, streamline and transform working processes within and across the industry. our solutions provide customer benefits such as reduced costs, reduced waste and re-work, increased efficiencies, faster project completion times, improved information flow, better decision making, and enhanced quality control. for example, through the collaboration and interconnection of design and construction data from various professional and trade groups working on a project, conflicts or interferences between the location of different elements of a building can be identified digitally within the building information model,prior to fabrication and construction. this saves time and cost compared to their discovery after fabrication and during on-site construction, as is often the case with more conventional building processes. professional surveyors and engineers providing services to the construction, engineering, mining, oil & gas, energy & utilities, government and land management sectors use our products and solutions to replace less productive conventional methods of surveying, mapping, 2d or 3d modeling, measurement, reporting and analysis. our suite of solutions used in these activities include field based data collection systems and field software, real time communications systems and back-office software for data processing, modeling, reporting and analysis. our field based technologies are used in handheld, land mobile and airborne applications and incorporate technologies such as mobile application software, high precision global navigation satellite systems (gnss), robotic measurement systems, inertial positioning, 3d laser scanning, digital imaging, optical or laser measurement, and unmanned aerial vehicles (uavs). our office based products include software for planning, data processing and editing, quality control, 3d modeling, intelligent data analysis and feature extraction, deformation monitoring and analysis, project reporting and data export. our customers in this area gain benefits from the use of our products including significantly improved productivity in both field and office activities when compared to more conventional methods, improved safety through non-contact measurement and detection of potentially dangerous ground or structure movement, reduced costs, faster project completion times and improved data flow.we sell and distribute our products in the engineering and construction segment through multiple global networks of independent dealers with expertise and customer relationships in their respective segments, each supported by trimble personnel. these channels are supplemented by relationships that create additional channel breadth including our joint ventures with caterpillar and nikon, direct strategic account relationships, as well as private branding arrangements with other companies.competitors in this segment are typically companies that provide optical, laser or gnss positioning products as well as companies that produce software specific to the construction process. our principal competitors are topcon corporation and 7table of contentshexagon ab.representative products sold in this segment include:trimble vx spatial station integrating the technologies of advanced optical and robotic surveying, metric imaging and 3d scanning, the trimble vx spatial station is a unique, highly versatile, accurate and complete 3d measurement solution designed for surveyors. trimble vision technology provides video-assisted remote instrument control and advanced 3d models and image-rendered 3d surfaces can be produced when the system is combined with trimble realworks software.trimble r10 gnss system introduced in the fourth quarter of 2012, the product includes new features including an enhanced trimble hd-gnss processing engine, trimble surepoint technology, an electronic bubble and traceable tilt value system which replaces conventional spirit levels used on surveyors poles - and trimble 360 satellite tracking, and the trimble xfill service which enables customers to continue working during loss of radio or cellular communications by making use of trimble's satellite based gnss data services, providing coverage in many areas within the americas, europe, russia and cis, africa, asia and australia. our r10 gnss system combines advanced receiver technology and a proven system design to provide maximum accuracy and productivity for a variety of surveying applications.trimble access software our trimble access software is a powerful field and office surveying solution that expedites data collection, processing, analysis and project information delivery through streamlined workflows and internet-enabled collaboration and control amongst project team members. with trimble access software, surveyors have access to powerful yet familiar tools for typical work such as topographic surveys, staking, or control as well as various streamlined workflows for specialized applications, such as road surveying, tunneling, monitoring and mining.geospatial solutions our geospatial solutions family enables mobile mapping companies to capture georeferenced data, extract features and attributes, and analyze conditions and change, thereby generating information to better manage assets and operations. aerial and land mobile mapping systems incorporating imaging and 3d laser scanning, combined with powerful gis, photogrammetry and feature extraction software, generate high accuracy as-built drawings and 3d models for the transportation, utilities, energy transmission and distribution industries.gatewing x100 aerial mobile mapping system the gatewing x100 system integrates a revolutionary lightweight and autonomous unmanned aerial vehicle (uav) into a high-tech terrain mapping solution incorporating mission planning, automatic field image acquisition and fully digital and automated image processing software. the gatewing x100 system expands our customer's capabilities by providing a solution that delivers data-rich mapping of areas with ease of access and reduced costs. the system is used across multiple industries, for applications such as topographic surveying, volume calculations in mining, erosion monitoring, and infrastructure mapping. gcs family of grade control systems trimble grade control systems use gps, total station and other positioning technology along with design information to position the blade or bucket for earthmoving and site preparation. trimble offers a complete line of systems that are easy to use, fully upgradeable and flexible enough to meet a wide range of application and job site requirements. use of these systems enables contractors to finish projects faster with less rework, improved material usage and lower costs.trimble construction manager software the trimble construction manager software enables the management of construction assets from one centralized software interface. the software works with one of several hardware locator devices to help track and manage the use of assets on and off site, leading to improved equipment productivity, fuel consumption, and maintenance monitoring. virtualsite solutions, a joint venture between caterpillar and trimble, was formed to develop the next generation of software for fleet management and connected worksite solutions to be sold through the sitech dealer distribution channel.tekla products tekla provides a suite of software including tekla bim, tekla bimsight, tekla structures, and tekla civil. the tekla suite of software can be used by contractors, structural engineers, steel detailers, and fabricators, as well as concrete detailers and manufacturers. the highly detailed as-built structural models are designed to make building contractors more efficient and productive, while also facilitating easy collaboration and sharing of data across different disciplines, thus making construction processes more precise and efficient.trimble sketchup software sketchup software enables architects, engineers and professionals in related disciplines to design, document and validate building plans by constructing interactive 3d models at any degree of complexity. sketchup offers an easy-to-learn user interface and accessible pricing options which have served to widely proliferate the use of 3d models. sketchup pro software allows project stakeholders across multiple disciplines to exchange cad and bim data in a variety of standard formats and adds functionality for documentation, quantitative reporting, and other advanced modeling operations.8table of contentsproliance software proliance software allows infrastructure-intensive organizations to optimize the design-build-operate project lifecycle for complex capital projects, construction and real estate programs, and extensive facility portfolios. our proliance software was designed for large building owner/operators, real estate developers, and engineering-driven organizations managing $250 million or more annually in new project construction or facility renovations.trimble layout solutions trimble layout solutions meet the needs of general, concrete, mechanical, electrical and plumbing contractors. using the trimble mep layout solution, mechanical, electrical and plumbing contractors can increase productivity significantly by providing precise location of pipe, duct, and cable tray hangers and avoiding costly mistakes in the building process. spectra precision branded products our spectra precision products include a broad range of laser based tools for interior, drywall and ceilings, hvac, and mechanical contractors. designed to replace traditional methods of measurement and leveling for a wide range of interior construction applications, our laser tools are easy to learn and use and include rotating lasers for horizontal leveling and vertical alignment, as well as laser pointers and a laser based distance measuring device. the line of products also includes surveying instruments such as total stations, gnss receivers and field data collectors.field solutionsour field solutions segment addresses the agriculture and geographic information system (gis) markets.our agriculture products consist of guidance and positioning systems, automated application systems and information management solutions that enable farmers to improve crop performance, profitability and environmental quality. trimble precision agriculture solutions can assist farmers throughout every step of their farming process beginning with land preparation and throughout the planting, nutrient and pest management, and harvesting phases of a crop cycle. we provide manual and automated navigation guidance for tractors and other farm equipment used in spraying, planting, cultivation and harvesting applications. the benefits to the farmer include faster machine operation, higher yields, and lower consumption of chemicals than conventional equipment. we also provide positioning solutions for leveling agricultural fields in irrigation applications and aligning drainage systems to better manage water flow in fields. in addition, we provide solutions to automate applications of pesticide and seeding. our connected farm strategy enables information management solutions for data management, field to office data transfer and record keeping.we use multiple distribution channels to access the agricultural market, including independent dealers and partners such as cnh global. a significant portion of our sales came through cnh global and dealer networks. competitors in this market are either vertically integrated implement companies such as john deere, or agricultural instrumentation suppliers such as raven, hemisphere gps, and novariant.our gis product line is centered on handheld data collectors that gather information in the field to be incorporated into gis databases. our handheld unit enables this data to be collected and automatically stored while confirming the location of the asset. by utilizing a combination of wireless technologies this information can be communicated from the field worker to the back-office gis and also gives the field worker the ability to download information from the database. this capability provides significant advantages to users including improved productivity, accuracy and access to information in the field.distribution for gis products is primarily through a network of independent dealers and business partners, supported by trimble personnel. primary markets for our gis products and solutions include both governmental and commercial users. users are most often municipal governments and natural resource agencies. commercial users include utility companies. competitors in this market are typically survey instrument companies utilizing gnss technology such as topcon and leica.representative products sold in this segment include:cfx/fmx our cfx and fmx are touchscreen displays offering affordable guidance, steering and precision agriculture capabilities. they provide gnss-based functionality for vehicle operators to steer tractors, sprayers, fertilizer applicators, air seeders and large tillage tools that require consistent pass-to-pass accuracy to help save fuel, increase efficiency and reduce input costs for agricultural operations.field-iq system our field-iq system is a section control and variable rate application control system that prevents seed and fertilizer overlap, controls the rate of material applications and monitors seed delivery and fertilizer blockage.autopilot system our gnss-enabled, agricultural navigation system connects to a tractor s steering system and automatically steers the tractor along a precise path to within three centimeters or less. this enables both higher machine productivity and more precise application of seed and chemicals, thereby reducing costs to the farmer.9table of contentsez-steer system our value-added assisted steering system, when combined with any of our guidance display systems, automatically steers agricultural vehicles along a path within 20 centimeters or less. this system installs in less than thirty minutes and is designed to reduce gaps and overlaps in spraying, fertilizing, and other field applications, as well as reduce operator fatigue.trimble connected farm solution our end-to-end solution combines in-cab precision control, field record-keeping and seamless field to office information management.greenseeker and weedseeker sensors our crop sensing technology reduces farmers costs and environmental impact by controlling the application of nitrogen, herbicide, and other crop inputs for optimum plant growth.juno series our juno family includes compact and cost-effective gps handhelds designed to equip an entire workforce for data collection and fieldwork.geoexplorer series our geoexplorer family combines a gnss receiver in a rugged handheld making it easy to collect and maintain data about objects in the field.fieldport software our fieldport software focuses on automating field service processes and operational efficiency for water and wastewater utility customers.utilitycenter software our utilitycenter software is a gis-based enterprise suite of modules oriented towards the electric and gas utilities market. modules include outage management or oms, mobile asset management, data collection, staking, network tracing & isolation and field-based editing.mobile solutionsour mobile solutions segment provides both hardware and software applications for managing mobile work, mobile workers, and mobile assets. the software is provided in both a client server model or web-based. our software is provided through our hosted platform for a monthly subscription service fee or as a perpetual license with annual maintenance and support fees.our vehicle solutions typically include an onboard proprietary hardware device consisting of a gps receiver, business logic, sensor interface, and a wireless modem. our solution usually includes the communication service from/to the vehicle to our data center and access over the internet to the application software.our mobile worker solutions include a rugged handset device and software designed to automate service technician work in the field at the point of customer contact. the mobile worker handset solutions also synchronize to a client server at the back office for integration with other mission-critical business applications.our scheduling and dispatch solution is an enterprise software program to optimize scheduling and routing of field service technicians. for dynamic capacity management, our capacity planner, capacity controller, and intelligent appointer modules round out this innovative service delivery automation technology.our market strategy targets opportunities in specific vertical markets where we believe we can provide a unique value to the end-user by tailoring our solutions for a particular industry. major markets include transportation and logistics, telecommunications, utilities, field service, construction logistics, direct store delivery, forestry, public safety, and oil and gas. in august 2011, we acquired privately-held peoplenet, a provider of solutions to the transportation and logistics market. peoplenet provides fleets with software and hardware solutions that help manage regulatory compliance, fuel costs, driver safety, and customer visibility. in june 2012, trimble acquired privately-held geotrac systems inc., a provider of fleet management and worker safety solutions for the oil and gas industry. in october 2012, we acquired privately-held tmw systems, a provider of enterprise software to transportation and logistics companies. tmw's transportation software platform serves as a central hub from which the core operations of transportation organizations are managed, data is stored and analyzed, and mission critical business processes are automated. our enterprise strategy focuses on sales to large enterprise accounts with more than 1,000 vehicles or routes. here, in addition to a trimble-hosted solution, we can also integrate our service directly into the customer s it infrastructure, giving them improved control of their information. in this market, we sell directly to end-users. sales cycles tend to be long due to field trials followed by an extensive decision-making process. our principal competitors in this segment are qualcomm, fleetmatics, teletrac, and mcleod.representative products sold in this segment include:fleet productivity our fleet productivity solution offerings are comprised primarily of the geomanager, peoplenet, and fleetworks mobile platforms. the geomanager system provides field service companies different levels of service that run from snapshots of fleet activity to real-time fleet dispatch capability via access to the web-based platform through a secure internet 10table of contentsconnection. the peoplenet system includes solutions encompassing route management, safety and compliance, end-to-end vehicle management, and supply chain communications. peoplenet's products are used by greater than 1,500 transportation fleets in the us and canada. the carcube/fleetworks solution is tailored for transportation and logistics companies in europe and australia.taskforce the taskforce software solution provides scheduling and dispatch solutions for field service technicians by synchronizing the right human and physical resources required to optimize a field service resource network. the system manages significant numbers of dynamic scheduling resources in an unpredictable field service environment to increase productivity, field force utilization, and control-to-field employee ratios.enterprise software tmw systems provides enterprise software to transportation and logistics companies. the company's software platform automates business processes spanning the entire surface transportation lifecycle, delivering visibility, control, and decision support for the intricate relationships and complex processes involved in the movement of freight. tmw's enterprise software currently integrates with peoplenet's fleet productivity solutions, and jointly they serve more than 3,000 fleets around the world. consumer packaged goods, or cpg this software solution operates in the microsoft ce/pocket or winmobile pc environment and addresses the pre-sales, delivery, route sales, and full service vending functions performed by mobile workers. the software handles all communications from/to the mobile computer as well as from/to the host and any other erp or decision support systems.public safety we provide a suite of solutions for the public safety sector including our pocketcitation system which is an electronic ticketing system that enables law enforcement officers to issue traffic citations utilizing a mobile handheld device. within this sector, we also provide desktop software which enables accident investigators and other public safety professionals to reconstruct and simulate vehicle accidents.cengea solutions cengea provides spatially-enabled land and supply chain management software solutions to improve business processes across the forestry, agriculture and environment/natural resources industries.advanced devicesadvanced devices includes the product lines from our embedded technologies, timing, applanix, trimble outdoors, military and advanced systems (mas), and thingmagic businesses. with the exception of trimble outdoors and applanix these businesses share several common characteristics: they are hardware centric, generally market to original equipment manufacturers, or oem, system integrators or service providers, and have products that can be utilized in a number of different end-user markets and applications. the various operations that comprise this segment were aggregated on the basis that no single operation accounted for more than 10% of our total revenue, operating income or assets.within embedded technologies and timing, we supply gnss modules, licensing and complementary technologies, and gnss-integrated sub-system solutions for applications requiring precise position, time or frequency. embedded technologies and timing serves a broad range of vertical markets including telecommunications, automotive electronics, and commercial electronics. sales are made directly to oems, system integrators, value-added resellers and service providers who incorporate our components into a complete system-level solution. we have a cooperative licensing deal with nokia for our global navigation satellite system (gnss), patents related to designated wireless products and services involving location technologies, such as gps, assisted gps, or galileo. we also have a licensing agreement with marvell semiconductors for our full gps digital signal processor (dsp) software as well as tools for development support and testing. competitors in this market include symmetricom, inc. and u-blox.our mas business supplies gps receivers and embedded modules that use the military s gps advanced capabilities. the modules are principally used in aircraft navigation and timing applications. military products are sold directly to either the u.s. government or defense contractors. sales are also made to authorized foreign end users. competitors in this market include rockwell collins, l3 and raytheon.our trimble outdoors business utilizes gps-enabled smartphones and feature phones to provide information for outdoor recreational activities. some of the recreational activities include hiking, biking, backpacking, hunting, fishing, and boating. consumers purchase the trimble outdoors product through our wireless operator partners which include at&t, verizon, sprint and t-mobile or from our smartphone channels which include the apple itunes and google play stores. competitors in this market include alltrails and motion x. our applanix business is a leading provider of advanced products and enabling solutions that maximize productivity through mobile mapping and positioning to professional markets worldwide. applanix develops, manufactures, sells, and supports high-value, precision products that combine gnss with inertial sensors for accurate measurement of position and attitude, flight management systems, and scalable mobile mapping solutions used in airborne, land, and marine applications. sales are made by our direct sales force to end users, systems integrators, and oems, and through regional agents. competitors include leica, igi and novatel.11table of contentsour thingmagic business is a leading provider of ultra high frequency (uhf) radio frequency identification (rfid) reader modules, finished/fixed-position rfid readers and design services. thingmagic rfid readers support demanding high-volume applications deployed by some of the world s largest industrial automation firms, manufacturers, healthcare organizations, retailers and consumer companies. thingmagic consulting, design and development services assist customers with the integration of auto-identification and sensing technologies into everyday products and solutions. sales are made directly to oems, system integrators, value-added resellers and solution providers who incorporate our technology into point products or complete system-level solutions. competitors include motorola, impinj, alien technologies and sirit.representative products sold in this segment include:gps receiver modules the lassen , copernicus , condor , and panda families of gps modules are full-function gps modules in a variety of form factors, some smaller than your fingertip.tm3000 asset tracking device our tm3000 product is a flexible, open platform that enables a broad range of applications such as: fleet management, mobile asset tracking and recovery, and driver monitoring and assistance. this device integrates wireless communications, a positioning function, and an application engine in a package designed to meet the needs of service-focused businesses.thunderbolt gps disciplined clock our thunderbolt clock is a fifth-generation product from our gps timing and synchronization division, which outputs precision time and frequency. it also serves as the architectural basis for gps disciplined clocks sold to manufacturers of cdma, wimax and lte infrastructure.applanix pos/av system our integrated gnss/inertial system for airborne surveying measures aircraft position to an accuracy of a few centimeters and aircraft attitude (angular orientation) to an accuracy of 30 arc seconds or better. this system is typically interfaced to large format cameras and scanning lasers for producing geo-referenced topographic maps of the terrain.applanix dss digital sensor system our digital airborne imaging solution produces high-resolution orthophoto map products. certified by the usgs, the system consists of a mapping grade digital camera that is tightly integrated with a gnss/inertial system, flight management system, or fms, and processing software for automatic geo-referencing of each pixel.force 524d module this dual frequency, embedded gps module is used in a variety of military airborne applications.trimble outdoors service our website (www.trimbleoutdoors.com) allows consumers to plan trips that sync with their gps-enabled cell phones to enable off road navigation. consumers can also research specific trips on-line as part of trip pre-planning. after a trip users are able to share outdoor and off-road experiences on-line with their friends and family on the trimble outdoors website or through facebook and twitter.trimble indoor mobile mapping solution our indoor mobile mapping solution, or timms, is the optimal fusion of technologies for capturing spatial data of indoor and other gnss-denied areas. it produces both lidar and spherical video and enables the creation of accurate, real-life representations (maps, models) of interior spaces with all of their contents.thingmagic rfid readers our rfid readers include the mercury family of embedded reader modules for the integration of rfid into oem products including printers, handheld scanners and other stationary and mobile devices. our broad portfolio of finished/fixed-position rfid readers are used to develop asset tracking, personnel identification, secure access and other solutions that accelerate productivity and address customer needs for manageability, scalability, security, low total cost of ownership, and enterprise network integration.acquisitions and joint venturesour growth strategy is centered on developing and marketing innovative and complete value-added solutions to our existing customers, while also marketing them to new customers and geographic regions. in some cases, this has led to partnering with or acquiring companies that bring technologies, products or distribution capabilities that will allow us to establish a market beachhead, penetrate a market more effectively, or develop solutions more quickly than if we had done so solely through internal development. the following companies were acquired during fiscal 2012 and are combined in the results of operations since the date of acquisition:vico software, inc.on october 31, 2012, we acquired the assets of privately-held vico software, inc. (vico) of boulder, colorado, a provider of 5d virtual construction software and consulting services. the vico business performance is reported under our engineering and construction business segment.refraction technology, inc.12table of contentson october 4, 2012, we acquired the assets of privately-held refraction technology, inc. (ref tek) of plano, texas, a leading provider of seismic sensors and high-frequency data logging systems. the ref tek business performance is reported under our engineering and construction business segment.tmw systems, inc. on october 2, 2012, we acquired privately-held tmw systems holding llc, including its operating subsidiary, tmw systems, inc. (tmw) of beachwood, ohio, a provider of enterprise software to transportation and logistics companies. tmw s performance is reported under our mobile solutions business segment.logicway on september 6, 2012, we acquired privately-held logicway of oldenzaal, netherlands, a provider of software for automating payroll and expenses with a specific focus on the transportation and logistics industry. logicway s performance is reported under our mobile solutions business segment.winestimatoron august 6, 2012, we acquired privately-held winestimator, inc., a provider of construction cost estimating and cost-modeling software. winestimator s performance is reported under our engineering and construction business segment.geotrac systems inc.on june 8, 2012, we acquired privately-held geotrac systems inc. of calgary, canada, a provider of wireless fleet management and worker safety solutions for the oil and gas industry. geotrac systems inc. s performance is reported under our mobile solutions business segment.sketchupon june 1, 2012, we acquired sketchup, a popular 3d modeling platform, and related assets from google inc. sketchup s performance is reported under our engineering and construction business segment.gatewingon april 5, 2012, we acquired privately-held gatewing of gent, belgium, a provider of lightweight unmanned aerial vehicles for photogrammetry and rapid terrain mapping applications. gatewing s performance is reported under our engineering and construction business segment.plancalon january 12, 2012, we acquired privately-held plancal of horgen, switzerland, a 3d cad/cae and erp software provider for the mechanical, electrical, plumbing, eating, ventilation and air conditioning industries in western europe. plancal s performance is reported under our engineering and construction business segment.strucadon january 11, 2012, we acquired the strucad and struengineer business from acecad software based in derby, uk to expand our construction solutions. the addition of the software products is expected to extend tekla s building information modeling solutions for structural steel contractors to automate project estimating and management, modeling and detailing. strucad s performance is reported under our engineering and construction business segment.patents, licenses and intellectual propertywe seek to establish and maintain our proprietary rights in our technology and products through the use of patents, copyrights, trademarks, and trade secret laws. we have a program to file applications for and obtain patents, copyrights, and trademarks in the united states and in selected foreign countries where we believe filing for such protection is appropriate. we hold approximately 1000 u.s. issued and enforceable patents and approximately 300 non-u.s. patents, the majority of which cover gnss technology and other applications such as optical and laser technology. we also own numerous trademarks and service marks that contribute to the identity and recognition of trimble and its products and services globally. we prefer to own the intellectual property used in our products, either directly or through subsidiaries. from time to time we license technology from third parties.sales and marketing13table of contentswe tailor the distribution channel to the needs of our products and regional markets through a number of sales channel solutions around the world. we sell our products worldwide primarily through dealers, distributors, and authorized representatives, occasionally granting exclusive rights to market certain products within specific countries. this channel is supported and supplemented (where third party distribution is not available) by our regional sales offices throughout the world. we also utilize distribution alliances, oem relationships, and joint ventures with other companies as a means to serve selected markets, as well as direct sales to end users.during fiscal 2012, sales to customers in the united states represented 47%, europe represented 22%, asia pacific represented 16%, and other regions represented 15% of our total revenue. during fiscal 2011, sales to customers in the united states represented 45%, europe represented 24%, asia pacific represented 15%, and other regions represented 16% of our total revenue. during fiscal 2010, sales to customers in the united states represented 46%, europe represented 22%, asia pacific represented 18%, and other regions represented 14% of our total revenue. seasonality of business* our individual segment revenue may be affected by seasonal buying patterns. historically, the second fiscal quarter has been the strongest quarter for the company driven by the construction buying season. however, as a result of several acquisitions made in the last two years, we may experience less seasonality in the future.backlogin most of our markets, the time between order placement and shipment is short. orders are generally placed by customers on an as-needed basis. in general, customers may cancel or reschedule orders without penalty. for these reasons, we do not believe that orders are an accurate measure of backlog and, therefore, we believe that backlog is not a meaningful indicator of future revenue or material to understanding our business.manufacturingmanufacturing of many of our gnss products is subcontracted to flextronics international limited in mexico. we utilize flextronics for survey, field solutions and mobile solutions products. we utilize benchmark electronics inc. in china for our component technologies products. we utilize jabil mexico for our construction and mobile solutions products. our contract manufacturing partners are responsible for significant material procurement, assembly and testing. we continue to manage product design through pilot production for the subcontracted products, and we are directly involved in qualifying suppliers and key components used in all our products. our current contract with flextronics continues in effect until either party gives the other ninety days written notice.we manufacture our laser and optics-based products, as well as some of our gnss products, at our plants in dayton, ohio; danderyd, sweden and shanghai, china. some of these products or portions of these products are also subcontracted to third parties for assembly.our design manufacturing and distribution sites in dayton, ohio; sunnyvale, california; danderyd, sweden; eersel, netherlands and shanghai, china are registered to iso9001:2000, covering the design, production, distribution, and servicing of all our products.research and developmentwe believe that our competitive position is maintained through the development and introduction of new products that incorporate improved features, better performance, smaller size and weight, lower cost, or some combination of these factors. we invest substantially in the development of new products. we also make significant investment in the positioning, communication and information technologies that underlie our products and will likely provide competitive advantages.our research and development expenditures, net of reimbursed amounts were $256.5 million for fiscal 2012, $197.0 million for fiscal 2011, and $150.1 million for fiscal 2010.* we expect to continue investing in research and development with the goal of maintaining or improving our competitive position, as well as the goal of entering new markets.employeesat the end of fiscal 2012, we employed 6,561 employees, including 17% in manufacturing, 32% in engineering, 33% in sales and marketing, and 18% in general and administrative positions. approximately 51% of employees are in locations outside the united states.14table of contentssome employees in sweden are represented by unions. some employees in germany and france are represented by works councils. we also employ temporary and contract personnel that are not included in the above headcount numbers. we have not experienced work stoppages or similar labor actions.available informationthe company s annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, and all amendments to those reports are available free of charge on the company s web site through www.trimble.com/investors.html, as soon as reasonably practicable after such material is electronically filed with or furnished to the securities and exchange commission. information contained on our web site is not part of this annual report on form 10-k.in addition, you may request a copy of these filings (excluding exhibits) at no cost by writing or telephoning us at our principal executive offices at the following address or telephone number:trimble navigation limited935 stewart drive, sunnyvale, ca 94085attention: investor relations telephone: 408-481-8000executive officersthe names, ages and positions of the company s executive officers as of february 21, 2013 are as follows: name age positionsteven w. berglund 61 president and chief executive officerrajat bahri 48 chief financial officerbryn a. fosburgh 50 vice presidentchristopher w. gibson 51 vice presidentmark a. harrington 57 vice presidentj rgen d. kliem 55 vice presidentjames a. kirkland 53 vice president and general counseljulie a. shepard 55 vice president, financejames a. veneziano 51 vice presidentsteven w. berglund steven berglund has served as president and chief executive officer of trimble since march 1999. prior to joining trimble, mr. berglund was president of spectra precision, a group within spectra physics ab. mr. berglund s business experience includes a variety of senior leadership positions with spectra physics, and manufacturing and planning roles at varian associates. hebegan his career as a process engineer at eastman kodak. he attended the university of oslo and the university of minnesota where he received a b.s. in chemical engineering. mr. berglund received his m.b.a. from the university of rochester. mr. berglund is the current chair of the board of directors of the silicon valley leadership group and a member of the board of trustees of world educational services. he is also a member of the construction sector board of the association of equipment manufacturers.rajat bahri rajat bahri joined trimble as chief financial officer in january 2005. prior to joining trimble, mr. bahri s business experience includes 15 years within the financial organization of kraft foods, inc. and general foods corporation, including service as the chief financial officer for kraft canada, inc., chief financial officer of kraft pizza company, and operations controller for kraft jacobs suchard europe. mr. bahri received a bachelor of commerce from the university of delhi in 1985 and an m.b.a. from duke university in 1987. in 2005, he was elected to the board of stec, inc., a memory storage manufacturer.bryn a. fosburgh mr.fosburgh currently serves as vice president for trimble's heavy and highway construction business, and trimble's buildings group, which includes the following markets: architecture, owner, structures, mep, and general contractor markets. from 2009 to 2010, mr. fosburgh served as vice president for trimble's construction division, with responsibility for a number of corporate functions and geographical regions. from 2007 to 2009, mr. fosburgh was vice president for trimble's construction and agriculture divisions, and from 2005 to 2007, mr. fosburgh served as vice president and general manager of trimble's engineering and construction division. mr. fosburgh joined trimble in 1994 and has held numerous roles, including vice president and general manager for trimble's geomatics and engineering division, and division vice president of survey and infrastructure. prior to trimble, mr. fosburgh was a civil engineer and also held various positions for the u.s. army corps of engineers and defense mapping agency. mr. fosburgh received a b.s. in geology from the university of wisconsin in green bay in 1985 and an m.s. in civil engineering from purdue university in 1989.15table of contentschristopher w. gibson christopher w. gibson currently serves as vice president for trimble's survey, geospatial, geographic information system (gis), infrastructure, rail, land administration and environmental solutions businesses. mr. gibson joined trimble in 1998 as european finance and operations director. in 2009, he was appointed to serve as vice president responsible for trimble s survey division, and in december 2010, those responsibilities were expanded to include oversight of geographic regions and divisions, including building construction, construction tools, and the hilti joint venture. from 2008 to 2009, mr. gibson served as the general manager for the survey division, and from 2005 to 2008, he was general manager for the global services division. prior to trimble, mr. gibson s business experience includes a number of financial management roles with tandem computers, and financial analyst roles with unilever subsidiaries. mr. gibson received a ba in business studies in 1985 from thames polytechnic, now the university of greenwich, and was admitted as a fellow to the chartered institute of management accountants in 1994.mark a. harrington mark harrington has served as a vice president of trimble since 2004, and currently serves as vice president for trimble's agriculture, forestry, water and energy utilities and public safety divisions, with responsibility for several corporate functions and geographical regions. from 2007 to 2009, mr. harrington served as vice president for trimble's survey and mapping and gis divisions, and from 2004 to 2007, he served as vice president of strategy and business development. prior to trimble, mr. harrington served as vice president of finance at finisar corporation, chief financial officer for cielo communications, inc., and vixel corporation, vice president of finance for spectra-physics lasers, inc. and vice president of finance for spectra-physics analytical, inc. mr. harrington began his career at varian associates, inc. mr. harrington received his b.s. in business administration from the university of nebraska-lincoln.j rgen d. kliem j rgen kliem currently serves as vice president for several businesses within the advanced devices segment, and is also responsible for various corporate functions, including key accounts and government funded projects. mr. kliem previously served as vice president of strategy and business development from 2008 until 2012. from 2002 to 2008, mr. kliem served as general manager of trimble's survey division, and prior to that, mr. kliem was responsible for trimble's engineering and construction division in europe. mr. kliem held various leadership roles at spectra precision, which was acquired by trimble, and at geotronics, a company acquired by spectra precision. before joining geotronics, mr. kliem worked in a privately-held surveying firm addressing cadastral, construction, plant and engineering projects. mr. kliem received a diplom ingenieur degree from the university of essen, germany in 1982.james a. kirkland james a. kirkland joined trimble as vice president and general counsel in july 2008. prior to joining trimble, he worked for spinvox ltd. from october 2007 to january 2008 as senior vice president, corporate development. from october 2003 to september 2007, he served as general counsel and executive vice president, strategic development at covad communications. mr. kirkland also served as senior vice president of spectrum development and general counsel at clearwire technologies, inc. mr. kirkland began his career in 1984 as an associate at mintz levin and in 1992 he was promoted to partner. mr. kirkland received his ba from georgetown university in washington, d.c. in 1981 and his j.d. from harvard law school in 1984.julie a. shepard julie shepard joined trimble in december of 2006 as vice president of finance, and was appointed principal accounting officer in may 2007. prior to joining trimble, ms. shepard served as vice president of finance and corporate controller at quantum corporation, from 2005 to 2006, and prior to that, from 2004 to 2005, as an independent consultant to quantum corporation. ms. shepard brings with her over 20 years of experience in a broad range of finance roles, including vice president of finance at nishan systems. ms. shepard began her career at price waterhouse and is a certified public accountant. she received a b.s in accounting from california state university.james a. veneziano james a. veneziano has served as a vice president of trimble since 2009 and is currently responsible for trimble's mobile solutions, data services and hosting, global services, portions of the advanced devices segment and strategy and business development. mr. veneziano joined trimble in 1990 as a manufacturing engineer in the company's operations group. in 1993, he was appointed director of operations. in 1998, mr. veneziano was appointed director of marketing for agriculture and mapping and gis. from 2000 to 2005, mr. veneziano served as the general manager of trimble's agriculture business. from 2005 to 2009, he was the general manager of trimble's construction business. prior to joining trimble, mr. veneziano worked for hewlett-packard in a variety of manufacturing positions including development engineer and engineering supervisor as well as new product introduction manager. he received a b.s. in electrical engineering from colorado state university in fort collins in 1984.i"
## [4] "item 1. business. harris harris corporation, together with its subsidiaries, is an international communications and information technology company serving government and commercial markets in more than 125 countries. we are dedicated to developing best-in-class assured communications® products, systems and services for global markets, including rf communications, integrated network solutions and government communications systems. harris corporation was incorporated in delaware in 1926 as the successor to three companies founded in the 1890s. our principal executive offices are located at 1025 west nasa boulevard, melbourne, florida 32919, and our telephone number is (321) 727-9100. our common stock is listed on the new york stock exchange under the symbol hrs. on june 28, 2013, we had approximately 14,000 employees. unless the context otherwise requires, the terms we, our, us, company and harris as used in this report refer to harris corporation and its subsidiaries. general we structure our operations primarily around the products and services we sell and the markets we serve, and we report the financial results of our operations in the following three business segments: our rf communications segment, serving (i) u.s. department of defense and international tactical communications and (ii) public safety and professional communications markets; our integrated network solutions segment, serving (i) it services, (ii) managed satellite and terrestrial communications solutions (which we sometimes refer to as harris caprock communications ) and (iii) healthcare solutions markets; and our government communications systems segment, serving (i) civil, (ii) national intelligence and (iii) defense markets. in the third quarter of fiscal 2012, our board of directors approved a plan to exit our cyber integrated solutions operation ( cis ), which provided remote cloud hosting, and to dispose of the related assets, and we reported cis as discontinued operations beginning with our financial results presented in our quarterly report on form 10-q for the third quarter of fiscal 2012. in the fourth quarter of fiscal 2012, our board of directors approved a plan to divest our broadcast communications operation ( broadcast communications ), that provided digital media management solutions in support of broadcast customers, and we reported broadcast communications as discontinued operations 1 table of contents beginning with our financial results presented in our annual report on form 10-k for fiscal 2012 (our fiscal 2012 form 10-k ). on february 4, 2013, we completed the sale of broadcast communications to an affiliate of the gores group, llc pursuant to a definitive asset sale agreement entered into december 5, 2012. both cis and broadcast communications were formerly part of our integrated network solutions segment. our historical financial results for periods prior to fiscal 2012 presented in this report, except for disclosures related to our cash flows, have been restated to account for cis and broadcast communications as discontinued operations. for additional information regarding discontinued operations, see note 3: discontinued operations in the notes to consolidated financial statements in this report (the notes ). except for disclosures related to our cash flows, or unless otherwise specified, disclosures in this report relate solely to our continuing operations. financial information with respect to all of our other activities, including corporate costs not allocated to our business segments or discontinued operations, is reported as part of the unallocated corporate expense or non-operating income (loss) line items in our consolidated financial statements and accompanying notes. subsequent event share repurchase program on august 23, 2013, our board of directors approved a new $1 billion share repurchase program (our new repurchase program ) and increased the quarterly cash dividend rate on our common stock from $.37 per share to $.42 per share. our new repurchase program is in addition to our prior share repurchase program approved in 2011 (our 2011 repurchase program ), which has a remaining, unused authorization of approximately $62 million as of august 23, 2013 (approximately $133 million at june 28, 2013) and does not have a stated expiration date. our new repurchase program also does not have a stated expiration date. our repurchase programs have resulted, and are expected to continue to result, in repurchases in excess of the dilutive effect of shares issued under our share-based incentive plans. however, the level of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our board of directors may deem relevant. repurchases are expected to be funded with available cash and commercial paper and may be made through open market purchases, private transactions, transactions structured through investment banking institutions or any combination thereof. the timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. financial information about our business segments financial information with respect to our business segments, including revenue, operating income or loss and total assets, and with respect to our operations outside the united states, is contained in note 24: business segments in the notes and is incorporated herein by reference. description of business by segment rf communications rf communications is a global supplier of secure tactical radio communications and embedded high-grade encryption solutions for military, government and commercial customers and also of secure communications systems and equipment for public safety, utility and transportation customers. rf communications serves (i) u.s. department of defense and international tactical communications and (ii) public safety and professional communications markets. u.s. department of defense and international tactical communications market: we design, develop and manufacture a comprehensive line of secure radio communications products and systems for manpack, handheld, vehicular, strategic fixed-site and shipboard installations that span the communications architecture from high capacity line of site, backbone radios to small soldier personal radios ( sprs ) and tablet computers. the radios operate in various radio frequency bands, including high-frequency ( hf ), very high-frequency ( vhf ), ultra high-frequency ( uhf ) and l-band, with higher frequencies supported for some of our network backbone products. our radio systems are highly flexible, interoperable and capable of supporting diverse mission requirements. our falcon® families of tactical radios are built on software-defined radio platforms that are reprogrammable to add features or software upgrades. our falcon radios also have the highest grade embedded encryption and provide highly mobile, secure and reliable network communications capability without relying on a fixed infrastructure. this capability allows warfighters, for example, to remain connected with each other and their command structures and support organizations. it also provides them the ability to communicate information and maintain situational awareness of both friendly and opposing forces, which are critical to both the safety and success of their missions. unlike many of our competitors operating on a government-funded programs-driven business model, we operate in this market on a commercial customer-driven business model. this means that we anticipate market needs, invest 2 table of contents our internal research and development resources, build to our internal forecast and provide ready-to-ship, commercial, off-the-shelf ( cots ) products to customers, enabling us to bring products to market faster and adapt to changing customer requirements. our falcon iii® family of radios is the next generation of multiband, multi-mission tactical radios supporting the u.s. military s joint tactical radio system ( jtrs ) requirements as well as network-centric operations worldwide. our falcon iii radios address the full range of current mission and interoperability requirements and are fully upgradeable to address changing technical standards and mission requirements of the future. advances in our falcon iii radios include the support of wideband networking waveforms, extended frequency range and significant reductions in weight and size compared with previous generations. our falcon iii radios are used in a wide variety of ground, vehicular and airborne applications. our falcon iii multiband manpack radio, the an/prc-117g ( 117g ), was the first jtrs software communications architecture-certified and national security agency ( nsa ) type-1 certified manpack radio system providing wideband networking capability, enabling the transition to a networked battlefield communications environment and high-bandwidth application and giving warfighters and field commanders critical real-time information, including intelligence, surveillance and reconnaissance ( isr ). our wideband networking radios provide enhanced situational awareness of the battlefield by connecting warfighters to the tactical internet, enabling applications such as streaming video, simultaneous voice and data feeds, collaborative chat and connectivity to secure networks. our 117g is type-1 certified for narrowband communications, as well as for wideband communications using our harris-developed adaptive networking wideband waveform ( anw2 ) for high bandwidth data operation and the jtrs soldier radio waveform ( srw ). our 2-channel vehicular radio system, the an/vrc-114 ( 114 ), is based on our 117g and is our proposed solution for the u.s. army s mid-tier networking vehicular radio ( mnvr ) program. we successfully deployed our 114 at recent u.s. army network integration evaluation ( nie ) field exercises and exceeded all performance requirements. we also have successfully completed u.s. government tests of our 114 using the u.s. department of defense ( dod )-developed wideband networking waveform ( wnw ) over l-band. our falcon iii multiband handheld radio, the an/prc-152 ( 152 ), is the world s most widely fielded jtrs-approved software-defined handheld radio and was our first falcon iii radio to be fielded. our 152 offers users a wide range of capabilities, such as legacy single channel ground and airborne system interoperability; uhf ground-to-ground line-of-sight communications; close-air support; tactical satellite communications ( satcom ); and the association of public safety communications officials international ( apco ) p25 waveform to provide direct communications with first responders. our 152 also serves as the handheld-based transceiver of our falcon iii an/vrc-110, a high-performance, multiband vehicular system that offers the added feature of easy vehicle dismount a grab-and-go feature that delivers continuous communications when removed from the vehicle, an important capability in urban environments. our an/prc-152a ( 152a ) builds on our 152 by adding wideband, networked communications capability, supporting both our anw2 for high bandwidth data operation and the srw. this is the first radio of its kind to support both a full range of narrowband legacy waveforms and wideband networking waveforms in a handheld platform. our 152a recently received jtrs-certification, making it our second falcon iii wideband radio to receive this important designation. both our handheld and vehicular versions have been integral to the u.s. army s nie field exercises. our cryptographic solutions encompass nsa-certified products and systems that range from single integrated circuits to major communications systems. these solutions include our sierra® and citadel® embedded encryption solutions, kgv-72 blue force tracking programmable encryption devices and our kik-11 tactical key loader. we believe the u.s. market is transitioning from operational tempo to a modernization cycle driven by wideband technology, and our radio systems have been widely deployed throughout all branches of the dod. demand in international markets is being driven not only by the transition to wideband but also by the need for network system solutions. our extensive line of radios is designed to operate and interface well together and support a variety of tactical requirements, which we believe gives us a competitive advantage in international markets that require fully integrated solutions for command, control and communications. our tactical radios have been sold to more than 100 countries through our international distribution channels consisting of regional sales offices and a broad dealer network. our falcon radios are standardized in many countries. examples of significant awards for us in fiscal 2013 included the following: a 5-year, $297 million indefinite delivery indefinite quantity ( idiq ) follow-on contract from the u.s. department of the navy for a broad portfolio of radio solutions to support modernization and standardization on our falcon iii radios; 3 table of contents a 2-year, $397 million consolidated single-channel handheld radio ( cschr ) follow-on idiq contract to provide the dod with falcon iii handheld radios that supply interoperable voice and wideband data communications, with two 1-year options that increase the potential value of the contract to $712 million; a $500 million increase in the ceiling value of our 2011 idiq contract with the u.s. army communications-electronics command ( cecom ), which supports international sales of military and land mobile radio systems under the u.s. government s foreign military sales program; a $79 million order from a country in the middle east for an integrated command, control and communications system utilizing wideband tactical radios and 4g tactical cellular capabilities; $61 million in orders from the republic of poland for anw2-equipped wideband 117g and 152a radios to provide its armed forces with secure wideband combat net radio, tactical satellite and ground-to-air communications, as part of its tactical radio modernization to better communicate with coalition partners; and $39 million in orders from several customers in brazil, including for an end-to-end tactical communications system consisting of a broad range of falcon iii radios and accessories to enable secure real-time voice, situational awareness and video surveillance communications for sisfron, the integrated border monitoring system the brazilian army is developing across brazil s western border. public safety and professional communications market: we supply assured communications® systems and equipment for public safety, federal, utility, commercial and transportation organizations, with products ranging from complete end-to-end wireless network infrastructure solutions, including advanced internet protocol ( ip ) voice and data networks, that support multiple platforms and provide interoperability among disparate systems, to portable and mobile single-band and multiband, multimode radios, to public safety-grade broadband voice, video and data solutions. we have more than 80 years of experience in this market and support over 500 systems around the world. we design, build, distribute, maintain and supply wireless communications systems. our voice, interoperability, data and access ( vida ) network platform is a unified ip-based voice and data communications system that provides network-level interoperable communications among public safety agencies by supporting a full line of communications systems, including opensky®, networkfirst, p25ip, enhanced digital access communication system ( edacs ) and the next-generation 4g long term evolution ( lte ) communications standard for wireless broadband for first responders. our vida® network solutions currently serve as the backbone in some of the largest and most advanced statewide and regional communications networks in north america. we also offer a full range of single-band land mobile radio terminals, as well as our unitytm family of multiband radios, including a handheld radio and a full-spectrum mobile radio for vehicles. our unity multiband radios cover all public safety frequency bands in a single radio; operate on apco p25 conventional and trunked systems; are backwards compatible with analog fm systems; and include advanced capabilities, such as an internal global positioning system ( gps ) receiver for situational awareness, internal secure bluetooth® wireless technology, and background noise suppression features. they also include true software-defined radio architecture that allows flexibility for future growth, including a software-only upgrade to apco p25 phase 2, the next-generation emerging standard for mission-critical communications. our unity radios multiband, multi-mode capabilities enable a single radio to communicate with multiple organizations, jurisdictions and agencies operating on different frequencies and systems, providing a significant improvement over most current radio systems for u.s. public safety, which are not interoperable and thus require users to carry multiple radios or route transmissions through ad-hoc network bridges, often configured at the time of an emergency, and resulting in instances where agencies responding to a common incident cannot talk to each other. other examples of our public safety and professional communications solutions and services include the following: we are designing and building the alberta first responders radio communications system that will provide public safety communications within the 256,000 square-mile province of alberta, canada; we are deploying a communications network for the san francisco municipal transportation authority to increase operational efficiencies, improve safety and provide interoperability with public safety agencies; we provided 700 mhz band lte pilot programs to multiple u.s. cities, enabling them to share streaming video, voice and mapping; we are deploying a p25 simulcast radio system for the regional municipality of durham, ontario that will provide interoperability with adjacent municipalities and utility partners and can be adapted to support lte networks; and we are deploying a p25 system for the u.s. marine corps installations east region that also will provide interoperability with civilian agencies. 4 table of contents revenue, operating income and backlog: revenue for the rf communications segment decreased 13.8 percent to $1,849 million in fiscal 2013 compared with $2,144 million in fiscal 2012, and was $2,289 million in fiscal 2011. segment operating income decreased 18.0 percent to $576.9 million in fiscal 2013 compared with $703.7 million in fiscal 2012, and was $787.0 million in fiscal 2011. the percentage of our revenue contributed by this segment was 36 percent in fiscal 2013 compared with 39 percent in fiscal 2012 and 42 percent in fiscal 2011. the percentage of this segment s revenue that was derived outside of the u.s. was approximately 44 percent in fiscal 2013 compared with approximately 40 percent in fiscal 2012 and 31 percent in fiscal 2011. the percentage of this segment s revenue that was derived from sales to u.s. government customers, including the dod and intelligence and civilian agencies, as well as foreign military sales funded through the u.s. government, whether directly or through prime contractors was approximately 43 percent in fiscal 2013 compared with approximately 46 percent in fiscal 2012 and 63 percent in fiscal 2011. for a general description of our u.s. government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see item 1. business principal customers; government contracts of this report. in general, this segment s domestic products are sold and serviced directly to customers through its sales organization and through established distribution channels. internationally, this segment markets and sells its products and services through regional sales offices and established distribution channels. for a general description of our international business, see item 1. business international business of this report. the funded backlog for this segment was $1,341 million at the end of fiscal 2013 compared with $1,300 million at the end of fiscal 2012 and $1,503 million at the end of fiscal 2011. we expect to fill approximately 60 percent of this funded backlog during fiscal 2014, but we can give no assurance of such fulfillment. additional information regarding funded backlog is provided under item 1. business funded and unfunded backlog of this report. for a discussion of certain risks affecting this segment, including risks relating to our u.s. government contracts and subcontracts, see item 1. business principal customers; government contracts, item 1a. risk factors and item 3. legal proceedings of this report. integrated network solutions integrated network solutions provides integrated communications and information technology ( it ) and services, including a variety of trusted networking capabilities, to support government, energy, maritime and healthcare customers. integrated network solutions serves (i) it services, (ii) managed satellite and terrestrial communications solutions and (iii) healthcare solutions markets. it services market: we are a leading systems and network integrator and prime contractor providing mission-critical end-to-end it services for defense, intelligence, homeland security and civilian government customers. we have positions as a prime contractor on many key idiq contract vehicles related to it services. we deliver scalable, flexible, secure solutions that achieve objectives and advance mission readiness. our it services platform is standards- and process-driven and follows strict methodologies, and we have attained high-level, specialized it services registrations and ratings. we invest in the expertise of our employees to ensure they remain current with evolving technologies and to promote optimal service delivery. in addition, we and our personnel have a mix of security clearances that enable us to support our broad customer base. our it services solutions are built around a firm fixed-price, performance-based contract portfolio, providing the ability to leverage our workforce across multiple engagements to adapt quickly to specific customer requirements. in the u.s., our operational footprint offers a physical presence in all 50 states and provides support to more than 10,000 customer sites in 300 of the largest u.s. cities. examples of our work in designing, integrating, deploying, operating and supporting secure communications systems and information networks for complex, mission-critical applications include the following: we provide operations and maintenance support at locations around the world for the communications functions for the u.s. air force 50th space wing s satellite control network, a global, continuously operational network of ground stations, operational control nodes and communications links that support launch and command and control of various space programs managed by the dod and other national security space organizations, under the network and space operations and maintenance ( nsom ) program; we provide the u.s. department of the navy with comprehensive, end-to-end support for data, video and voice communications for over 700,000 users as a tier one subcontractor under the navy/marine corps intranet ( nmci ) program; however, this work may not continue because in fiscal 2013 we were not awarded the re-compete for the successor program, but we have protested that re-compete award; we provide the government of canada with engineering and logistics services to support the avionics systems on the cf-18 hornet fighter aircraft under the cf-18 avionics optimized weapon system support program; 5 table of contents we provide it integration of installation, training, help desk, passport and configuration management services for the u.s. department of state, bureau of consular affairs in support of more than 240 u.s. embassies and consulates around the world; we provide comprehensive operational and system maintenance support and engineering and technology enhancements for the defense information systems agency crisis management system; we provide enterprise it support services to the north american air defense command ( norad ) and the u.s. northern command ( usnorthcom ); and we maintain networks that enable over 12 million u.s. military members and their families to receive goods and services at 250 locations around the world for the defense commissary agency. managed satellite and terrestrial communications solutions market (which we sometimes refer to as harris caprock communications ): we are a global provider of end-to-end fully-managed hybrid communications network solutions to critical operations in remote and harsh locations for energy, maritime and government customers. we own and operate a robust global infrastructure that includes teleports on six continents; network operations centers running 24 hours per day, seven days per week; local presence in 23 countries; and over 275 global field service personnel supporting customer locations in more than 125 countries across north america, central and south america, europe, africa and asia-pacific. our customers include major land-based and offshore energy, mining and engineering and construction companies; leading transocean shipping and cruise line companies; and government and military customers with defense and intelligence missions. we combine satellite, terrestrial and wireless technologies to provide comprehensive communications solutions that connect customers remote sites with each other and with distant headquarters. our solutions focus on voice, data and networking solutions for remote sites and are supported by the largest global managed satellite network in the world. examples of our end-to-end fully-managed hybrid communications network solutions include the following: we are providing complete turnkey managed satellite communications services, including all shipboard equipment, onboard it system integration and satellite bandwidth, under multi-year agreements covering 150 vessels operating worldwide for one energy customer and over 100 vessels operating worldwide for another energy customer; we are providing data, voice and internet service to drilling ships operating in offshore brazil and satellite communications to drilling ships operating in offshore norway; we are delivering turnkey managed satellite communications to a fleet of 53 offshore supply vessels operating in the north sea, brazil, australia and indian pacific regions and managed communication services on over 300 commercial shipping and service vessels; we are providing end-to-end terrestrial and satellite communications services and solutions to a leading global helicopter transportation company; we are providing global communications services onboard 34 cruise ships to improve overall communications performance and enhance guest and crew experiences; we are operating the offshore communications backbone, a modular system of seafloor communications equipment for deep-ocean observation located in the eastern mediterranean sea, under a 3-year master service agreement; and we are providing managed service networks leveraging 2 ghz of c-, ku-, uhf- and x-band commercial space segment capacity for monitoring and control, teleport services, terrestrial communications, operations and maintenance to dod agency customers operating in asia, europe, the u.s. and all major ocean regions and to classified customers, supporting a range of missions, including airborne isr, tactical field-deployed communications and continuity of operations. healthcare solutions market: we provide systems integration, intelligent infrastructure, information exchange, interoperability, and enterprise business intelligence and analytics solutions and services for government and commercial healthcare customers. we are a leader in u.s. federal healthcare it integration, and we also offer commercial and international healthcare providers a full range of interoperability and business intelligence solutions. our products, systems and services help improve healthcare quality, safety, efficiency, cost and outcomes by seeking to ensure that the right information travels, with security and privacy, to the right person, at the right time, on the right device, at the point of care. examples include the following: we were one of eight companies in the large business category awarded the 5-year transformation twenty-one total technology ( t4 ) idiq contract vehicle from the department of veterans affairs ( va ) designed to upgrade the va s it system and covering services that will streamline and modernize va operations, including patient care delivery at more than 150 va hospitals; under the t4 idiq contract vehicle, we are (i) providing electronic health record interoperability to enhance continuity of care between the dod and the va, (ii) designing and installing a wireless network for va medical centers and (iii) improving electronic data interoperability for claims processing; 6 table of contents we are providing design, development, enhancement, integration, implementation, maintenance and infrastructure support services for the veterans benefits administration s enterprise data warehouse, the primary source for veteran s benefits data and information; and we are implementing statewide health information exchange ( hie ) infrastructures in florida and oregon to connect physicians, hospitals, regional hies and state government agencies. revenue, operating income and backlog: revenue for the integrated network solutions segment decreased 2.1 percent to $1,539 million in fiscal 2013 compared with $1,571 million in fiscal 2012, and was $1,445 million in fiscal 2011. segment operating income increased 10.9 percent to $77.5 million in fiscal 2013 compared with $69.9 million in fiscal 2012, and was $90.7 million in fiscal 2011. the percentage of our revenue contributed by this segment was 30 percent in fiscal 2013 compared with 29 percent in fiscal 2012 and 27 percent in fiscal 2011. the percentages of this segment s revenue under contracts directly with end customers and under contracts with prime contractors were approximately 77 percent and 23 percent, respectively, in fiscal 2013 compared with approximately 70 percent and 30 percent, respectively, in fiscal 2012 and 74 percent and 26 percent, respectively, in fiscal 2011. the percentage of this segment s revenue that was derived outside of the u.s. was approximately 31 percent in fiscal 2013 compared with approximately 28 percent in fiscal 2012 and 16 percent in fiscal 2011. the percentages of this segment s revenue in a particular fiscal year represented by this segment s largest u.s. government program by revenue in such fiscal year and five largest u.s. government programs by revenue in such fiscal year were approximately 9 percent and 29 percent, respectively, in fiscal 2013 compared with approximately 9 percent and 31 percent, respectively, in fiscal 2012 and 10 percent and 38 percent, respectively, in fiscal 2011. the percentage of this segment s revenue that was derived from sales to u.s. government customers, including the dod and intelligence and civilian agencies, as well as foreign military sales funded through the u.s. government, whether directly or through prime contractors, was approximately 61 percent in fiscal 2013 compared with approximately 66 percent in fiscal 2012 and 74 percent in fiscal 2011. for a general description of our u.s. government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see item 1. business principal customers; government contracts of this report. in general, this segment s domestic products are sold and serviced directly to customers through its sales organization and through established distribution channels. internationally, this segment markets and sells its products and services through regional sales offices and established distribution channels. for a general description of our international business, see item 1. business international business of this report. the funded backlog for this segment was $919 million at the end of fiscal 2013 compared with $930 million at the end of fiscal 2012 and $765 million at the end of fiscal 2011. unfunded backlog for this segment was $1,106 million at the end of fiscal 2013 compared with $1,174 million at the end of fiscal 2012 and $1,295 million at the end of fiscal 2011. we expect to fill approximately 65 percent of this funded backlog during fiscal 2014, but we can give no assurance of such fulfillment. additional information regarding funded and unfunded backlog is provided under item 1. business funded and unfunded backlog of this report. for a discussion of certain risks affecting this segment, including risks relating to our u.s. government contracts and subcontracts, see item 1. business principal customers; government contracts, item 1a. risk factors and item 3. legal proceedings of this report. government communications systems government communications systems conducts advanced research and develops, produces, integrates and supports advanced communications and information systems that solve the mission-critical challenges of our civilian, intelligence and defense government customers worldwide, primarily the u.s. government. government communication systems serves (i) civil, (ii) national intelligence and (iii) defense markets. civil market: we provide highly reliable, mission-critical communications and information processing systems that meet the most demanding needs of civilian u.s. government agencies, including the federal aviation administration ( faa ) and the national oceanic and atmospheric administration ( noaa ). we use our ability to implement and manage large, complex programs that integrate secure, advanced communications and information processing technologies in order to improve productivity and to achieve cost savings for our customers. our networks and information systems for large-scale, geographically dispersed enterprises offer advanced capabilities for collecting, processing, analyzing, interpreting, displaying, distributing, storing and retrieving data. we are a leader in satellite ground data processing and mission command-and-control ( c2 ) systems. our ground data processing systems consist of complex suites of hardware and software that receive sensor data from satellites, turning it into useable information. our c2 systems feature cots design and high levels of flexibility, are designed for government and commercial applications, and support single-satellite missions as well as some of the largest and most complex satellite fleets deployed. 7 table of contents for example, we are the prime contractor and system architect under a 20-year contract awarded in july 2002, with a potential value of $5 billion, for the faa telecommunications infrastructure ( fti ) program to integrate, modernize, operate and maintain the communications infrastructure for the u.s. air traffic control system. we designed and deployed, and are currently operating and maintaining, the fti network, which is a fully operational, modern, secure and efficient network providing voice, data and video communications deployed at more than 4,500 faa sites across the u.s. we also have developed a number of other solutions under faa programs, including a voice switching and control system providing the critical air-to-ground communications links between en-route aircraft and air traffic controllers throughout the continental u.s.; an integrated weather briefing and flight planning system for alaska s general aviation community; a meteorological data processing system that generates radar mosaic data for air traffic controller displays and delivers weather data to critical subsystems within the national airspace system ( nas ); and a satellite-based alaskan nas interfacility communications system linking the alaskan air route traffic control center in anchorage with faa facilities throughout the region. in fiscal 2013, we were awarded three contracts that provide essential elements of the faa s multi-billion dollar next generation air transportation system ( nextgen ) initiative to transform the u.s. air traffic control system to meet future requirements: a 7-year, $331 million data communications integrated services ( dcis ) contract to transform voice-based air traffic control to automated air traffic management (and in the first quarter of fiscal 2014, we were awarded a 7-year, $150 million contract to provide the data communications network service ( dcns ) component of the dcis program, bringing total contract value for the program to $481 million); a 15-year, $291 million nextgen nas voice system ( nvs ) contract to create a modern voice over internet protocol ( voip ) network for communications among air traffic controllers, pilots and ground personnel; and a 5-year, $63 million nas enterprise messaging service ( nems ) idiq contract that provides the systems wide information management ( swim ) program with enterprise-wide data sharing for a variety of critical information such as flight planning, traffic flow, surface radar and weather. in fiscal 2012, we were awarded a 5-year contract to supply aireon, llc with 81 automatic dependent surveillance-broadcast ( ads-b ) receiver payloads that will be part of a satellite-based aircraft tracking system to enhance global air traffic control and that will be hosted on the iridium next satellite constellation. another example of our capabilities relates to noaa s geostationary operational environmental satellite series r ( goes-r ) ground and antenna segment weather programs. under two 10-year contracts, with an aggregate potential value of approximately $1 billion (including change orders), we are providing a complete, end-to-end solution in which we will design, develop, deploy and operate the ground segment system that will receive and process satellite data and generate and distribute weather data to more than 10,000 direct users, as well as providing the command and control of operational satellites. we also are supplying antennas and control systems that will provide communications links for command, telemetry and sensor data, as well as the communications link to direct data users. the new antennas will operate with next-generation goes-r satellites and will be compatible with existing goes-n through goes-p satellites. in fiscal 2013, the goes-r weather program transitioned from the design and development phase to the integration, test and deployment phase. we also are modernizing the ground segment of the tracking and data relay satellite system ( tdrss ) network under a 5-year contract, potentially worth $140 million, for the space network ground segment sustainment ( sgss ) program for the national aeronautics and space administration ( nasa ). the tdrss network is used by satellites and spacecraft in low-earth orbit to relay data continuously to ground stations in white sands, new mexico and in guam. the modernization will improve situational awareness for tdrss network operators, upgrade computing and signal processing equipment, enhance reliability and maintainability, improve efficiency and reduce operations and sustainment costs. the sgss program builds on our 30-year incumbency with the tdrss. we were a primary developer of the original tdrss ground system in white sands in the early 1980s, and we also provided the large deployable antennas on the original tdrss satellites for the space segment of the original program. national intelligence market: a significant portion of this market involves classified programs. although classified programs generally are not discussed in this report, the operating results relating to classified programs are included in our consolidated financial statements. we believe that the business risks associated with those programs do not differ materially from the business risks of other u.s. government programs. we are a major developer, supplier and integrator of communications and information processing products, systems and networks for a diverse base of u.s. intelligence community programs, and we support the ongoing transformation of the intelligence community into a more collaborative enterprise. serving primarily national 8 table of contents intelligence and security agency customers, including nsa, the national reconnaissance office ( nro ) and the national geospatial-intelligence agency ( nga ), we provide integrated isr solutions that improve situational awareness, data collection accuracy and product analysis by correlating near real-time mission data and intelligence reference data for display and analysis by strategic and tactical planners and decision makers. our isr systems help to integrate information across the analyst workflow, accelerating the movement of information that has been collected and processed. for example, our image processing capabilities extend from algorithm development through delivery of operations systems, and we are providing advanced image exploitation and dissemination solutions for isr applications by advancing image processing, image data fusion, display technologies and digital product generation techniques. applicable technologies range from new techniques for merging and displaying imagery to automated techniques for image screening, cueing and remote visualization. also, our mapping and visualization capabilities provide complete, accurate and timely knowledge about the threat, the terrain, the status and the location of single or multiple opposing and friendly forces and their support by utilizing data, pictures, voice and video drawn from vast storage banks or from real-time input which can be transmitted around the world in fractions of a second. in addition, we have industry-leading capabilities in the architecture, design and development of highly specialized satellite antennas, structures, phased arrays and on-board processors, which are used to enable next-generation satellite systems to provide the u.s. military and intelligence communities with strategic and tactical advantages. we are also a leader in the design and development of antenna and reflector technologies for commercial space telecommunications applications. with more than 50 reflectors in orbit, we are the leading supplier of large reflector apertures and deployable mesh antenna systems for government and commercial applications. in fiscal 2013, we were awarded a number of new contracts and follow-on contracts under classified programs. in addition, our harris atlas systems joint venture was awarded an $8 million contract to supply a geospatial data sharing system to a government in the middle east that will enable users to rapidly find, share and access critical geospatial information. defense market: we develop, supply and integrate communications and information processing products, systems and networks for a diverse base of aerospace, terrestrial and maritime applications supporting dod missions, and we are committed to delivering leading-edge technologies that support the ongoing transformations of military communications for u.s. and international customers. our technologies are providing advanced mobile wideband networking capabilities to assure timely and secure network-centric capabilities across strategic, operational and tactical boundaries in support of the dod s full spectrum of warfighting, intelligence and logistics missions. our major technology capabilities include advanced ground control systems and satcom terminals for transportable ground, fixed-site and shipboard applications; flat-panel, phased-array and single-mission antennas; advanced aviation electronics for military jets, including digital maps, processors, sensors, data buses, fiber optics and microelectronics; and high-speed data links and data networks for wireless communications. we also develop and supply state-of-the-art wireless voice and data products and solutions. for example, our mobile ad hoc networking capability allows the military to take its communications infrastructure with it, creating mobile, robust, self-forming and self-healing networks across the battlefield. our highband networking radiotm ( hnr ) provides secure, wireless, high-bandwidth, on-the-move communications among users of widely dispersed local area networks by establishing line-of-sight connectivity using directive beam antenna technology and a harris-developed waveform that automatically selects the best communications path available, allowing seamless communication of voice, video and data to all levels of command. our hnr system was deployed to the u.s. army 101st airborne division (air assault) 2nd brigade combat team in iraq, which was the first combat deployment of the hnr system, and also was selected by the u.s. army for rapid deployment into afghanistan. our hnrs form the communications backbone of the u.s. army s new integrated air and missile defense battle command system, and we are currently producing and delivering hnrs under the u.s. army s warfighter information network-tactical ( win-t ) program. examples of ongoing programs for us include the following: the u.s. army modernization of enterprise terminals ( met ) program, for which we are developing, under a ten-year contract awarded in fiscal 2009 with a potential value of $600 million, next-generation large satellite earth stations to provide the worldwide backbone for high-priority military communications and missile defense systems and to support ip and dedicated circuit connectivity within the global information grid, providing critical reach-back capability for the warfighter; the f-35 joint strike fighter ( f-35 ) and f/a-18e/f super hornet ( f/a-18e/f ) aircraft platform programs, for which we provide high-performance, advanced avionics such as high-speed fiber optic networking and switching, intra-flight data links, image processing, digital map software and other electronic components, 9 table of contents including multifunction advanced data link communications subsystems primarily intended for stealth platform air-to-air communications and which allow f-35s to communicate in a stealth fashion with other network nodes without revealing their positions; and the win-t program for the u.s. army, for which we are designing and testing the wireless transmission system architecture, applying our proven enabling technologies for wireless on-the-move communications, including phased arrays and high-speed secure wireless network solutions such as our hnr system. in fiscal 2013, we were awarded a $51 million follow-on contract for the met program and were one of twenty prime contractors selected to compete for work under the 5-year, $10 billion global tactical advanced communication systems idiq contract. revenue, operating income and backlog: revenue for the government communications systems segment decreased 0.3 percent to $1,828 million in fiscal 2013 compared with $1,834 million in fiscal 2012, and was $1,777 million in fiscal 2011. segment operating income decreased 0.6 percent to $254.7 million in fiscal 2013 compared with $256.2 million in fiscal 2012, and was $227.0 million in fiscal 2011. the percentage of our revenue contributed by this segment was 36 percent in fiscal 2013 compared with 34 percent in fiscal 2012 and 33 percent in fiscal 2011. the percentages of this segment s revenue under contracts directly with end customers and under contracts with prime contractors were approximately 74 percent and 26 percent, respectively, in fiscal 2013 compared with approximately 70 percent and 30 percent, respectively, in both fiscal 2012 and fiscal 2011. in fiscal 2013, this segment had a diverse portfolio of over 200 programs. some of this segment s more significant programs in fiscal 2013 included fti, goes-r, sgss, f-35, f/a-18e/f, met, global geospatial intelligence ( ggi ) and various classified and space communications systems programs. the percentages of this segment s revenue in a particular fiscal year represented by this segment s largest program by revenue in such fiscal year and ten largest programs by revenue in such fiscal year were approximately 13 percent and 47 percent, respectively, in both fiscal 2013 and 2012 and 14 percent and 47 percent, respectively, in fiscal 2011. the percentage of this segment s revenue that was derived from sales to u.s. government customers, including the dod and intelligence and civilian agencies, as well as foreign military sales funded through the u.s. government, whether directly or through prime contractors, was approximately 94 percent in fiscal 2013 compared with approximately 97 percent in both fiscal 2012 and 2011. for a general description of our u.s. government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see item 1. business principal customers; government contracts of this report. the funded backlog for this segment was $964 million at the end of fiscal 2013 compared with $875 million at the end of fiscal 2012 and $775 million at the end of fiscal 2011. unfunded backlog for this segment was $2,504 million at the end of fiscal 2013 compared with $2,763 million at the end of fiscal 2012 and $3,193 million at the end of fiscal 2011. we expect to fill approximately 76 percent of this funded backlog during fiscal 2014, but we can give no assurance of such fulfillment. additional information regarding funded and unfunded backlog is provided under item 1. business funded and unfunded backlog of this report. for a discussion of certain risks affecting this segment, including risks relating to our u.s. government contracts and subcontracts, see item 1. business principal customers; government contracts, item 1a. risk factors and item 3. legal proceedings of this report. international business revenue from products and services exported from the u.s. (including foreign military sales) or manufactured or rendered abroad was $1,312.5 million (26 percent of our revenue) in fiscal 2013 compared with $1,330.1 million (24 percent of our revenue) in fiscal 2012 and $1,003.4 million (19 percent of our revenue) in fiscal 2011. essentially all of our international sales are derived from our rf communications and integrated network solutions segments. direct export sales are primarily denominated in u.s. dollars, whereas sales from foreign subsidiaries are generally denominated in the local currency of the subsidiary. financial information regarding our domestic and international operations is contained in note 24: business segments in the notes and is incorporated herein by reference. the majority of our international marketing activities are conducted through subsidiaries which operate in canada, europe, the middle east, central and south america, africa and asia. we have also established international marketing organizations and several regional sales offices. for further information regarding our international subsidiaries, see exhibit 21 subsidiaries of the registrant of this report. we utilize indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some lines of products and equipment, both domestically and internationally. these independent representatives may buy for resale or, in some cases, solicit orders from commercial or governmental customers for direct sales by us. 10 table of contents prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices. our dealers and distributors generally receive a discount from our list prices and may mark up those prices in setting the final sales prices paid by the customer. the percentages of our total revenue and of our international revenue represented by revenue from indirect sales channels were approximately 10 percent and 33 percent, respectively, in fiscal 2013 compared with approximately 12 percent and 48 percent, respectively, in fiscal 2012 and 10 percent and 49 percent, respectively, in fiscal 2011. fiscal 2013 international revenue came from a large number of countries, and no such single country accounted for more than 3 percent of our total revenue. some of our exports are paid for by letters of credit, with the balance carried either on an open account or installment note basis. advance payments, progress payments or other similar payments received prior to or upon shipment often cover most of the related costs incurred. significant foreign government contracts generally require us to provide performance guarantees. in order to stay competitive in international markets, we also sometimes enter into offset agreements or recourse or vendor financing arrangements to facilitate sales to certain customers. the particular economic, social and political conditions for business conducted outside the u.s. differ from those encountered by domestic businesses. our management believes that the overall business risk for our international business as a whole is somewhat greater than that faced by our domestic businesses as a whole. a description of the types of risks to which we are subject in our international business is contained in item 1a. risk factors of this report. nevertheless, in the opinion of our management, these risks are partially mitigated by the diversification of our international business and the protection provided by letters of credit and advance payments. competition we operate in highly competitive markets that are sensitive to technological advances. many of our competitors in each of our markets are larger than we are and can maintain higher levels of expenditures for research and development. in each of our markets we concentrate on the opportunities that our management believes are compatible with our resources, overall technological capabilities and objectives. principal competitive factors in these markets are product quality and reliability; technological capabilities; service; past performance; ability to develop and implement complex, integrated solutions; ability to meet delivery schedules; the effectiveness of third-party sales channels in international markets; and cost-effectiveness. within the it services market, there is intense competition among many companies. the ability to compete in the it services market depends on a number of factors, including the capability to deploy skilled professionals at competitive prices across the diverse spectrum of the it services market. in the rf communications segment, principal competitors include european aeronautic defence and space company n.v. ( eads ), general dynamics, exelis inc., motorola solutions, raytheon, rohde & schwarz, tadiran and thales. in the integrated network solutions segment, principal competitors include astrium, caci, computer sciences corporation, general dynamics, globecomm, hewlett-packard, ibm, inmarsat, lockheed martin, mantech, nci information systems, northrop grumman, raytheon, rignet, saic and the advisory board company, as well as other smaller companies and divisions of large companies. in the government communications systems segment, principal competitors include bae systems, boeing, general dynamics, l-3 communications, lockheed martin, northrop grumman, raytheon, exelis inc. and rockwell collins. we frequently partner or are involved in subcontracting and teaming relationships with companies that are, from time to time, competitors on other programs. principal customers; government contracts the percentage of our revenue that was derived from sales to u.s. government customers, including the dod and intelligence and civilian agencies, as well as foreign military sales funded through the u.s. government, whether directly or through prime contractors, was approximately 67 percent in fiscal 2013 compared with approximately 70 percent in fiscal 2012 and 78 percent in fiscal 2011. no other customer accounted for more than 4 percent of our revenue in fiscal 2013. additional information regarding customers for each of our segments is provided under item 1. business description of business by segment of this report. our u.s. government sales are predominantly derived from contracts with agencies of, and prime contractors to, the u.s. government. most of the sales in our government communications systems segment and with respect to u.s. government programs in our integrated network solutions segment are made directly or indirectly to the u.s. government under contracts or subcontracts containing standard government contract clauses providing for redetermination of profits, if applicable, and for termination for the convenience of the u.s. government or for default based on performance. 11 table of contents our u.s. government contracts and subcontracts include both cost-reimbursable and fixed-price contracts. governmentwide acquisition contracts ( gwacs ) and idiq contracts, which can include task orders for each contract type, require us to compete both for the initial contract and then for individual task or delivery orders under such contracts. our u.s. government cost-reimbursable contracts provide for the reimbursement of allowable costs plus payment of a fee and fall into three basic types: (i) cost-plus fixed-fee contracts, which provide for payment of a fixed fee irrespective of the final cost of performance; (ii) cost-plus incentive-fee contracts, which provide for payment of a fee that may increase or decrease, within specified limits, based on actual results compared with contractual targets relating to factors such as cost, performance and delivery schedule; and (iii) cost-plus award-fee contracts, which provide for payment of an award fee determined at the customer s discretion based on the contractor s performance against pre-established performance criteria. under our u.s. government cost-reimbursable contracts, we are reimbursed periodically for allowable costs and are paid a portion of the fee based on contract progress. some overhead costs have been made partially or wholly unallowable for reimbursement by statute or regulation. examples are certain merger and acquisition costs, lobbying costs, charitable contributions and certain litigation defense costs. our u.s. government fixed-price contracts are either firm fixed-price contracts or fixed-price incentive contracts. under our u.s. government firm fixed-price contracts, we agree to perform a specific scope of work for a fixed price and, as a result, benefit from cost savings and carry the burden of cost overruns. under our u.s. government fixed-price incentive contracts, we share with the u.s. government both savings accrued for performance at less than target cost as well as costs incurred in excess of target cost up to a negotiated ceiling price (which is higher than the target cost), but carry the entire burden of costs exceeding the negotiated ceiling price. accordingly, under such incentive contracts, profit may also be adjusted up or down depending on whether specified performance objectives are met. under our u.s. government firm fixed-price and fixed-price incentive contracts, we usually receive either milestone payments equaling 100 percent of the contract price or monthly progress payments from the u.s. government in amounts equaling 80 percent of costs incurred under the contract. the remaining amounts, including profits or incentive fees, are billed upon delivery and final acceptance of end items and deliverables under the contract. our u.s. government fixed-price contracts generally have higher profit margins than our u.s. government cost-reimbursable contracts. our production contracts are mainly fixed-price contracts, and development contracts are generally cost-reimbursable contracts. as stated above, u.s. government contracts are terminable for the convenience of the u.s. government, as well as for default based on performance. companies supplying goods and services to the u.s. government are dependent on congressional appropriations and administrative allotment of funds and may be affected by changes in u.s. government policies resulting from various military, political, economic and international developments. long-term u.s. government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods become unavailable. under contracts terminable for the convenience of the u.s. government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. contracts that are terminable for default generally provide that the u.s. government pays only for the work it has accepted and may require the contractor to pay for the incremental cost of reprocurement and may hold the contractor liable for damages. in many cases, there is also uncertainty relating to the complexity of designs, necessity for design improvements and difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work. under many u.s. government contracts, we are required to maintain facility and personnel security clearances complying with dod and other federal agency requirements. for further discussion of risks relating to u.s. government contracts, see item 1a. risk factors and item 3. legal proceedings of this report. funded and unfunded backlog our total company-wide funded and unfunded backlog was approximately $6,789 million at the end of fiscal 2013 compared with approximately $6,993 million at the end of fiscal 2012 and $7,523 million at the end of fiscal 2011. the funded portion of this backlog was approximately $3,179 million at the end of fiscal 2013 compared with approximately $3,056 million at the end of fiscal 2012 and $3,035 million at the end of fiscal 2011. the determination of backlog involves substantial estimating, particularly with respect to customer requirements contracts and development and production contracts of a cost-reimbursable or incentive nature. we define funded backlog as unfilled firm orders for products and services for which funding has been authorized and, in the case of u.s. government agencies, appropriated. we define unfunded backlog as primarily unfilled firm contract value for which funding has not yet been authorized or, in the case of u.s. government agencies, appropriated, including the value of contract options in cases of material contracts that have options we believe are probable of being exercised. we do not include potential task or delivery orders under idiq contracts in our backlog. 12 table of contents in fiscal 2014, we expect to fill approximately 66 percent of our total funded backlog as of june 28, 2013. however, we can give no assurance of such fulfillment or that our funded backlog will become revenue in any particular period, if at all. backlog is subject to delivery delays and program cancellations, which are beyond our control. additional information with regard to the backlog of each of our segments is provided under item 1. business description of business by segment of this report. research and development research and development expenditures totaled approximately $979 million in fiscal 2013, $914 million in fiscal 2012 and $887 million in fiscal 2011. company-sponsored research and development costs, which included research and development for commercial products and services and independent research and development related to government products and services, as well as concept formulation studies and bid and proposal efforts, were approximately $254 million in fiscal 2013 (including an approximately $18 million write-off of capitalized software in our integrated network solutions segment), $219 million in fiscal 2012 and $240 million in fiscal 2011. a portion of our independent research and development costs are allocated among contracts and programs in process under u.s. government contractual arrangements. company-sponsored research and development costs not otherwise allocable are charged to expense when incurred. the portion of total research and development expenditures that was not company-sponsored principally funded by the u.s. government and included in our revenue and cost of product sales and services was $725 million in fiscal 2013, $695 million in fiscal 2012 and $647 million in fiscal 2011. company-sponsored research is directed to the development of new products and services and to building technological capability in selected communications and electronic systems markets. u.s. government-funded research helps strengthen and broaden our technical capabilities. all of our segments maintain their own engineering and new product development departments, with scientific assistance provided by advanced-technology departments. as of june 28, 2013, we employed approximately 6,000 engineers and scientists and are continuing efforts to make the technologies developed in any of our business segments available for all other business segments. patents and other intellectual property we consider our patents and other intellectual property, in the aggregate, to constitute an important asset. we own a large and valuable portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property, and we routinely apply for new patents, trademarks and copyrights. we also license intellectual property to and from third parties. as of june 28, 2013, we held approximately 1,090 u.s. patents and 830 foreign patents, and had approximately 396 u.s. patent applications pending (and 747 foreign patent applications pending). unpatented research, development and engineering skills also make an important contribution to our business. while our intellectual property rights in the aggregate are important to our business and the operations of our business segments, we do not consider our business or any business segment to be materially dependent upon any single patent, license or other intellectual property right, or any group of related patents, licenses or other intellectual property rights. we are engaged in a proactive patent licensing program and have entered into a number of licenses and cross-license agreements, some of which generate royalty income. although existing license agreements have generated income in past years and may do so in the future, there can be no assurances we will enter into additional income-producing license agreements. from time to time we engage in litigation to protect our patents and other intellectual property. any of our patents, trade secrets, trademarks, copyrights and other proprietary rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. for further discussion of risks relating to intellectual property, see item 1a. risk factors of this report. with regard to certain patents relating to our government communications systems and rf communications segments, the u.s. government has an irrevocable, non-exclusive, royalty-free license, pursuant to which the u.s. government may use or authorize others to use the inventions covered by such patents. pursuant to similar arrangements, the u.s. government may consent to our use of inventions covered by patents owned by other persons. numerous trademarks used on or in connection with our products are also considered to be a valuable asset. environmental and other regulations our facilities and operations are subject to numerous domestic and international laws and regulations designed to protect the environment, particularly with regard to wastes and emissions. the applicable environmental laws and regulations are common within the industries and markets in which we operate and serve. we believe that we have complied with these requirements and that such compliance has not had a material adverse effect on our financial condition, results of operations or cash flows. based on currently available information, we do not expect expenditures over the next several years to protect the environment and to comply with current environmental laws and regulations, as well as to comply with current and pending climate control legislation, regulation, treaties and accords, to have a material impact on our competitive position or financial condition, but we can give no assurance that such expenditures will not exceed current expectations. if future treaties, laws and regulations contain more stringent requirements than 13 table of contents presently anticipated, actual expenditures may be higher than our present estimates of those expenditures. we have installed waste treatment facilities and pollution control equipment to satisfy legal requirements and to achieve our waste minimization and prevention goals. we did not spend material amounts on environmental capital projects in fiscal 2013, fiscal 2012 or fiscal 2011. a portion of our environmental expenditures relates to historic discontinued operations (other than cis and broadcast communications) for which we have retained certain environmental liabilities. we currently expect that amounts to be spent for environmental-related capital projects will not be material in fiscal 2014. these amounts may increase in future years. additional information regarding environmental and regulatory matters is set forth in item 3. legal proceedings of this report and in note 1: significant accounting policies in the notes. electronic products are subject to governmental environmental regulation in a number of jurisdictions, such as domestic and international requirements requiring end-of-life management and/or restricting materials in products delivered to customers, including the european union s directive 2002/96/ec on waste electrical and electronic equipment and directive 2002/95/ec on the restriction of the use of certain hazardous substances in electrical and electronic equipment ( rohs ), as amended. other jurisdictions have adopted similar legislation. such requirements typically are not applicable to most equipment produced by our government communications systems and rf communications segments. we believe that we have complied with such rules and regulations, where applicable, with respect to our existing products sold into such jurisdictions. we intend to comply with such rules and regulations with respect to our future products. wireless communications (whether radio, satellite or telecommunications) are also subject to governmental regulation. equipment produced in our integrated network solutions and rf communications segments, in particular, is subject to domestic and international requirements to avoid interference among users of radio and television frequencies and to permit interconnection of telecommunications equipment. additionally, we hold licenses for our managed satellite and terrestrial communications solutions market for very small aperture terminals and satellite earth stations, which authorize operation of networks and teleports. we are also required to comply with technical operating and licensing requirements that pertain to our wireless licenses and operations. we believe that we have complied with such rules and regulations and licenses with respect to our existing products and services, and we intend to comply with such rules and regulations and licenses with respect to our future products and services. governmental reallocation of the frequency spectrum also could impact our business, financial condition and results of operations. raw materials and supplies because of the diversity of our products and services, as well as the wide geographic dispersion of our facilities, we use numerous sources for the wide array of raw materials (such as electronic components, printed circuit boards, metals and plastics) needed for our operations and for our products. we are dependent upon suppliers and subcontractors for a large number of components and subsystems and the ability of our suppliers and subcontractors to adhere to customer or regulatory materials restrictions and to meet performance and quality specifications and delivery schedules. in some instances, we are dependent upon one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. while we have been affected by financial and performance issues of some of our suppliers and subcontractors, we have not been materially adversely affected by the inability to obtain raw materials or products. on occasion, we have experienced component shortages from vendors as a result of natural disasters, or the rohs environmental regulations in the european union or similar regulations in other jurisdictions. these events or regulations may cause a spike in demand for certain electronic components (such as lead-free components), resulting in industry-wide supply chain shortages. to date, these component shortages have not had a material adverse effect on our business. for further discussion of risks relating to subcontractors and suppliers, see item 1a. risk factors of this report. seasonality we do not consider any material portion of our business to be seasonal. various factors can affect the distribution of our revenue between accounting periods, including the timing of contract awards and the timing and availability of u.s. government funding, as well as the timing of product deliveries and customer acceptance. employees we had approximately 14,000 employees at the end of fiscal 2013. approximately 91 percent of our employees as of the end of fiscal 2013 were located in the u.s. a significant number of our employees possess a u.s. government security clearance. we also utilize a number of independent contractors. none of our employees in the u.s. is represented by a labor union. in certain international subsidiaries, our employees are represented by workers councils or statutory labor unions. in general, we believe that our relations with our employees are good. 14 table of contents website access to harris reports; available information general. we maintain an internet website at http://harris.com. our annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k and amendments to such reports, filed or furnished pursuant to section 13(a) or 15(d) of the exchange act, are available free of charge on our website as soon as reasonably practicable after these reports are electronically filed with or furnished to the securities and exchange commission (the sec ). we also will provide the reports in electronic or paper form free of charge upon request. we also make available free of charge on our website our annual report to shareholders and proxy statement. our website and the information posted thereon are not incorporated into this report or any current or other periodic report that we file with or furnish to the sec. all reports we file with or furnish to the sec also are available free of charge via the sec s electronic data gathering and retrieval, or edgar, system available through the sec s website at http://www.sec.gov. additional information relating to our business, including our business segments, is set forth in item 7. management s discussion and analysis of financial condition and results of operations of this report. corporate governance principles and committee charters. we previously adopted corporate governance principles, which are available on the corporate governance section of our website at http://harris.com/corporate_governance/. in addition, the charters of each of the standing committees of our board, namely, the audit committee, business conduct and corporate responsibility committee, corporate governance committee, finance committee and management development and compensation committee, are also available on the corporate governance section of our website. a copy of the charters is also available free of charge upon written request to our secretary at harris corporation, 1025 west nasa boulevard, melbourne, florida 32919. certifications. we have filed with the sec the certifications required by section 302 of the sarbanes-oxley act of 2002 as exhibits to this report. in addition, an annual ceo certification was submitted by our chief executive officer to the new york stock exchange ( nyse ) in november 2012 in accordance with the nyse s listing standards, which included a certification that he was not aware of any violation by harris of the nyse s corporate governance listing standards. item 1a. risk"
## [5] "item 1. business overview echostar corporation (together with its subsidiaries is referred to as echostar, the company, we, us and/or our ) is a holding company that was organized in october 2007 as a corporation under the laws of the state of nevada. our class a common stock is publicly traded on the nasdaq global select market under the symbol sats. we are a global provider of satellite operations, video delivery solutions, and broadband satellite technologies and services for home and office, delivering innovative network technologies, managed services, and solutions for enterprises and governments. we currently operate in three business segments: echostar technologies which designs, develops, and distributes digital set-top boxes and related products and technology, primarily for satellite tv service providers, telecommunication and international cable companies and, with respect to slingboxes, directly to consumers via retail outlets. our echostar technologies segment also provides digital broadcast operations including satellite uplinking/downlinking, transmission services, signal processing, conditional access management, and other services primarily to dish network. hughes which provides satellite broadband internet access to north american consumers and broadband network services and systems to the domestic and international enterprise markets. our hughes segment also provides managed services to large enterprises and networking systems solutions to customers for mobile satellite and wireless backhaul systems. hughes became a new segment as a result of our acquisition of hughes communications, inc. and its subsidiaries ( hughes communications ) in june 2011. see note 15 in the notes to our consolidated financial statements in item 15 of this report for further discussion of our acquisition of hughes communications (the hughes acquisition ). echostar satellite services ( ess ) which uses certain of our owned and leased in-orbit satellites and related licenses to lease capacity on a full-time and occasional-use basis primarily to dish network, and secondarily to dish mexico, s. de r.l. de c.v. ( dish mexico ), a joint venture that we entered into in 2008, united states government service providers, state agencies, internet service providers, broadcast news organizations, programmers, and private enterprise customers. effective january 1, 2008, dish network completed its distribution to us (the spin-off ) of its digital set-top box business and certain infrastructure and other assets, including certain of its satellites, uplink and satellite transmission assets, real estate and other assets and related liabilities. since the spin-off, we and dish network have operated as separate publicly-traded companies, and neither entity has any ownership interest in the other. however, a substantial majority of the voting power of the shares of both companies is owned beneficially by charles w. ergen, our chairman, or by certain trusts established by mr. ergen for the benefit of his family. business strategies capitalize on demand for broadband services. we intend to capitalize on the demand for satellite-delivered broadband services and enterprise solutions by utilizing, among other things, our industry expertise, technology leadership, satellite capacity, and high-quality, reliable service to continue subscriber growth in the consumer and enterprise markets. exploit international opportunities. we believe that direct-to-home ( dth ) satellite and broadband services are particularly well-suited for countries without extensive telecommunications and cable infrastructure. we intend to selectively pursue partnerships, joint ventures and strategic acquisition opportunities that allow us to capitalize on our extensive experience in delivering end-to- end broadband and pay tv consumer services. our available satellite capacity provides us, in certain cases, with the ability to initiate new services relatively quickly, which could give us a competitive advantage. 2 table of contents expand our set-top box and customers premise equipment. we believe opportunities exist to expand our business by selling equipment and services in both the north american and international markets. therefore, we continue to explore opportunities, including partnerships, joint ventures and strategic acquisitions, to expand our existing markets or enter new markets. with our extensive experience in designing, developing, manufacturing and distributing digital set-top boxes and related products, we believe we can leverage the broader adoption of advanced technologies such as whole home dvr, placeshifting for tvanywhere, and over-the-top internet hybrid solutions within set-top boxes to create opportunities for us. in addition, we intend to seek opportunities to license our technology to other original equipment manufacturer or paytv providers. leverage satellite capacity and related infrastructure. we currently have available satellite capacity. we believe market opportunities exist to lease our capacity to a broader customer base, including providers of pay-tv services, satellite-delivered broadband, corporate communications, and government services. we will continue to assess the ability to cross sell services, bundle satellite broadband and video services, and explore opportunities in new markets. develop improved technologies. the combined engineering power of our business units will allow us to develop and deploy cutting edge technology, license our technologies to others and maintain a leading technological position in our industry. business segments echostar technologies segment our products digital set-top boxes. our echostar technologies segment offers a wide range of digital set-top boxes that allow consumers to watch and control their television programming and contain a variety of other capabilities and functionality. our current digital set-top boxes include: high-definition ( hd ) digital set-top boxes. these devices allow consumers who subscribe to television services from multi-channel video distributors to access the enhanced picture quality and sound of high-definition content, in addition to the sd functionality of our sd digital set-top boxes. standard-definition ( sd ) digital set-top boxes. these devices allow consumers who subscribe to television service from multi-channel video distributors to access encrypted digital video and audio content. certain models of our hd digital set-top boxes and sd digital set-top boxes also contain certain of the following advanced capabilities and functionalities: interactive applications. these applications include an on-screen program guide, pay-per-view offerings, video content/meta-data enhancing user applications, social media, games, and shopping. digital video recording ( dvr ). enables subscribers to pause, stop, reverse, fast forward, record, and replay digital television content using a built-in and/or external hard drive capable of storing content. during the first quarter of 2012, we introduced a new whole-home hd dvr receiver, which provides subscribers a variety of options to control or view their recording. broadband internet connectivity. provides iptv functionality, which supports on-demand services that allow consumers to download television programming, movies, music applications, and other content. slingbox placeshifting technology. allows consumers to watch and control their digital television content anywhere in the world via a broadband internet connection. in addition to digital set-top boxes, we also design and develop related products such as satellite dishes, remote controls, and broadband internet connectivity devices. 3 table of contents digital broadcast operations. we operate a number of digital broadcast centers in the united states. our principal digital broadcast centers are located in cheyenne, wyoming and gilbert, arizona. we also have multiple regional and micro digital broadcast centers that allow us to maximize the use of the spot beam capabilities of our satellites and our customers satellites. programming and other data are received at these centers by fiber optic cable or satellite. the data is then processed, compressed, and encrypted and then uplinked to our satellites and our customers satellites for transmission to end users. our customers historically, the primary customer of our echostar technologies segment has been dish network. dish network accounted for 76.9%, 79.4%, and 82.8% of our total echostar technologies segment revenue for the years ended december 31, 2012, 2011 and 2010, respectively. bell tv, a dth satellite service provider in canada, accounted for 13.4%, 12.3% and 9.8% of our total echostar technologies segment revenue for the years ended december 31, 2012, 2011 and 2010, respectively. we also currently sell our digital set-top boxes to other international dth satellite and cable providers such as dish mexico and unitymedia gmbh, although these customers do not account for a significant amount of our total echostar technologies segment revenue. we expect dish network will continue to be the primary customer and the key revenue contributor for our echostar technologies segment. effective january 1, 2012, we entered into a receiver agreement, expiring on december 31, 2014, with dish network pursuant to which dish network has the right, but not the obligation, to purchase digital set-top boxes, related accessories, and other equipment from us either: (i) at cost (decreasing as we reduce costs and increasing as our costs increase) plus a dollar mark-up which will depend upon the cost of the product subject to a collar on our mark-up; or (ii) at cost plus a fixed margin, which will depend on the nature of the equipment purchased. under the receiver agreement, our margins will be increased if we are able to reduce the costs of our digital set-top boxes and our margins will be decreased if these costs increase. a majority of our echostar technologies segment international revenue during each of the years ended december 31, 2012, 2011 and 2010 was attributable to sales of digital set-top boxes to bell tv. in 2011, we extended our two-year contract with bell tv until december 2013. among other things, the agreement entitles us to be bell tv s exclusive provider of digital set-top boxes, subject to certain limited exceptions, and provides fixed pricing over the term of the agreement as well as providing future engineering development for enhanced bell tv service offerings. our competition the set-top box industry is highly competitive, and market leadership changes frequently as a result of new products, designs and pricing. as we seek to grow our revenue and market share in the digital set-top box industry as an independent business, we face substantial competition. many of our primary competitors, such as arris, cisco, pace and technicolor, have established longstanding relationships with their customers. in addition, a number of rapidly growing mainly asian companies have recently entered the market with set-top box offerings similar to our existing satellite set-top box products. the entry of these new competitors may result in increased pricing pressure in the market. we may also face competition from international developers of digital set-top box systems that may be able to develop and manufacture products and services at costs that are substantially lower than ours. furthermore, we depend heavily on our ability to successfully bring advanced technologies, including internet delivery of video content and our slingbox placeshifting technology, to market to keep pace with our competitors. our use of proprietary technology, together with our in-house engineering expertise, enables us to innovate and bring new features and enhancements quickly to our primary customers.. in addition, our end-to-end video solution allows us to provide a more cost-effective solution for a paytv operator who may have to negotiate hardware, middleware and a conditional access system separately. we have a long-standing relationship with dish network and provide technologically advanced set-top boxes, now including advanced hybrid satellite and ip over-the-top delivery solutions, slingbox placeshifting technology, and whole-home dvr functionality. 4 table of contents our manufacturers although we design, engineer and distribute digital set-top boxes and related products, we are not directly engaged in the manufacturing process. rather, we outsource the manufacturing of our digital set-top boxes and related products to third parties who manufacture our products according to specifications supplied by us. we depend on a few manufacturers, and in some cases a single manufacturer, for the production of digital set-top boxes and related products. although there can be no assurance, we do not believe that the loss of any single manufacturer would materially impact our business. sanmina-sci corporation, shanghai dd&tt electronic enterprise co., ltd and jabil circuit, inc. currently manufacture the majority of our digital set-top boxes. hughes segment our products and services our hughes segment uses its two owned satellites, spaceway 3 and echostar xvii, and additional satellite capacity acquired from multiple third-party providers to provide satellite broadband internet access to north american consumers, which we refer to as the consumer market, and broadband network services and systems to the domestic and international enterprise markets. our hughes segment also provides managed services to large enterprises and networking systems solutions to customers for mobile satellite and wireless backhaul systems. we incorporate advances in technology to reduce costs and to increase the functionality and reliability of our products and services. through the usage of advanced spectrally efficient modulation and coding methodologies, such as dvb-s2 and proprietary software web acceleration and compression techniques, we continue to improve the efficiency of our networks. we invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises. we also continue to invest in next generation technologies that can be applied to our future products and services. beginning in october 2012, we introduced hughesnet gen4 broadband internet services to our customers in north america on echostar xvii, which was launched in july 2012. in october 2012, we entered into a distribution agreement (the distribution agreement ) with dishnet satellite broadband l.l.c ( dishnet ), a wholly-owned subsidiary of dish network, pursuant to which dishnet has the right, but not the obligation, to market, sell and distribute the hughes satellite internet service (the hughes service ) under the dishnet brand. the distribution agreement provides that dishnet pays us a monthly per subscriber wholesale service fee for the hughes service based upon a subscriber s service level and beginning january 1, 2014, certain volume subscription thresholds. the distribution agreement also provides that dishnet has the right, but not the obligation, to purchase certain broadband equipment from us to support its services. the distribution agreement has a five year term with automatic renewal for successive one year terms unless terminated by either party with a written notice at least 180 days before the expiration of the then-current term. upon expiration or termination of the distribution agreement, the parties will continue to provide the hughes service to the then-current dishnet subscribers pursuant to the terms and conditions of the distribution agreement. our customers our hughes segment delivers broadband internet service to north american consumers. it also provides satellite, wireline and wireless communication network products and services to enterprises in north america and managed network services and equipment to enterprises and broadband service providers worldwide. in addition, our hughes segment provides turnkey satellite ground segment systems to mobile system operators and point-to-multipoint microwave radio network systems that are used for cellular backhaul and broadband wireless access. as of december 31, 2012 and 2011, our hughes segment had approximately 659,000 and 626,000 customers, respectively, that subscribed to our consumer and small/medium enterprise service, hughesnet and dishnet services, and other reseller arrangements. as of december 31, 2012 and 2011, we had $1.063 billion and $1.036 billion, respectively, of contracted revenue backlog. our revenue backlog as of december 31, 2011 included $252 million related to echostar xvii, which was under construction in 2011. we define hughes revenue backlog as our expected future revenue under customer contracts that are non-cancelable, excluding agreements with customers in our consumer market. of the $1.063 billion of contracted backlog as of december 31, 2012, we expect to recognize approximately $391 million of revenue in 2013. 5 table of contents our competition the network communications industry is highly competitive. as a global provider of data network products and services, our hughes segment competes with a large number of telecommunications service providers. this increasingly competitive environment has put pressure on prices and margins. to compete effectively, we emphasize, among other things, our network quality, our customization capability, our offering of networks as a turnkey managed service (rather than as an equipment sale), our position as a single point of contact for products and services and our competitive prices. in our consumer market, we compete against traditional telecommunications and wireless carriers, as well as digital subscriber line and cable internet service providers offering competitive services in many communities we seek to serve. cost, speed and accessibility are key determining factors in the election of a service provider by the consumer. our primary satellite competitor in our north american consumer market is viasat communications, inc. ( viasat communications ), which is owned by viasat, inc. ( viasat ). to a lesser extent, we also compete with smaller satellite operators such as spacenet, inc., which is a subsidiary of gilat satellite networks ltd. ( gilat ). in addition, we face competition against established domestic carriers such as at&t corp., verizon communications inc., and sprint corporation. we seek to differentiate ourselves based on our service quality, proprietary technology, and distribution channels. in our enterprise market, our principal competitors for the supply of very-small-aperture terminals ( vsats ) satellite networks are gilat, viasat, newtec and idirect technologies ( idirect ). gilat and newtec offer a full line of broadband products and services for enterprise customers, while viasat and idirect offer only broadband products. to differentiate ourselves from our competitors, among other things, we emphasize particular technological features of our products and services, our ability to customize networks and perform desired development work, the quality of our customer service and our willingness to be flexible in structuring arrangements for the customer. we also face competition from resellers and numerous local companies who purchase equipment and sell services to local customers, including domestic and international telecom operators, cable companies and other major carriers. our broadband networks generally have an advantage over terrestrial networks where the network must reach many locations over large distances, where the customer has a last mile or a congestion problem that cannot be solved easily with terrestrial facilities and where there is a need for transmission to remote locations or emerging markets. by comparison, ground-based facilities (e.g., fiber optic cables) often have an advantage for carrying large amounts of bulk traffic between a small number of fixed locations. with spaceway 3 and echostar xvii and additional satellite capacity acquired from multiple third-party providers, we believe that we will have sufficient capacity to grow our consumer broadband business. however, faster subscriber growth rates than anticipated or increases in subscriber consumption of capacity beyond our current expectations could force us to modify our marketing and business plans in some of our coverage regions. our relative competitive position is constantly changing as we and our competitors strive to improve our respective positions. while our current competitive position provides us the opportunity to grow our business, we cannot be certain of its continuing effects on our business as our competitors modify or adapt their strategies and service offerings. manufacturing certain products in our hughes segment are assembled at our facilities in maryland and we outsource a significant portion of the manufacturing of our products to third parties. we believe that the manufacturing facilities used by our hughes segment have sufficient capacity to handle current demand. we adjust our capacity based on our production requirements. we also work with third-party vendors for the development and manufacture of components that are integrated into our products. we develop dual sourcing capabilities for critical parts when practical and we evaluate outsourced subcontract vendors on a periodic basis. our operations group, together with our research and development group, works with our vendors and subcontractors to reduce development costs and to increase production efficiency in order to obtain components at lower prices. 6 table of contents echostar satellite services segment our services our echostar satellite services segment operates its business using ten of its owned and leased in-orbit satellites, including echostar xvi satellite launched in november 2012. we lease capacity on a full-time and occasional-use basis primarily to dish network, and secondarily to dish mexico, united states government service providers, state agencies, internet service providers, broadcast news organizations, programmers and private enterprise customers. echostar xvi is fully leased to dish network for the delivery of dth broadcast services to dish customers in the united states. we expect to provide service to dish network on echostar xvi in the first quarter of 2013. our satellite capacity is currently used by our customers for a variety of applications: dth services. we provide satellite capacity to satellite tv providers, broadcasters and programmers who use our satellites to deliver programming. our satellites are also used for the transmission of live sporting events, internet access, disaster recovery, and satellite news gathering services. government services. we provide satellite services and technical services to u.s. government service providers and directly to some state agencies. we believe the u.s. government may increase its use of commercial satellites for homeland security, emergency response, continuing education, distance learning, and training. network services. we provide satellite capacity and provide terrestrial network services to companies. these networks are dedicated private networks that allow delivery of video and data services for corporate communications. our satellites can be used for point-to-point or point to multi-point communications. our customers we provide satellite capacity on our satellite fleet primarily to dish network, but also to a small number of u.s. government service providers, state agencies, internet service providers, broadcast news organizations, programmers and private enterprise customers. currently, due to our limited customer base, we have unused satellite capacity. for the years ended december 31, 2012, 2011 and 2010, dish network accounted for approximately 72.4%, 77.6% and 79.5% of our total echostar satellite services segment revenue. we have entered into certain commercial agreements with dish network pursuant to which we are obligated to provide dish network with satellite services at fixed prices for varying lengths of time depending on the satellite. see note 19 in the notes to our consolidated financial statements in item 15 of this report for further discussion. while we expect to continue to provide satellite services to dish network, its satellite capacity requirements may change for a variety of reasons, including its ability to construct and launch its own satellites. any termination or reduction in the services we provide to dish network may cause us to have excess capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this business. our other satellite service sales generally are characterized by shorter-term contracts or spot market sales. as of december 31, 2012 and 2011, our echostar satellite services segment had contracted revenue backlog attributable to satellites currently in orbit of approximately $1.440 billion and $1.285 billion, respectively, and contracted backlog attributable to satellites under construction of zero and $621 million, respectively. of the $1.440 billion of contracted backlog as of december 31, 2012, we expect to recognize approximately $251 million of revenue in 2013. our competition our echostar satellite services segment competes against larger, well-established satellite service companies, such as intelsat, ses s.a. ( ses ), telesat, and satmex, in an industry that is characterized by long-term contracts and high costs for customers to change service providers. therefore, it will be difficult to displace customers from their current relationships with our competitors. intelsat and ses maintain key north american orbital slots that may further limit competition and competitive pricing. in addition, our echostar satellite services segment could face significant competition from suppliers of terrestrial communications capacity, such as ses, telesat and starone. 7 table of contents while we believe that there may be opportunities to capture new business as a result of market trends such as the increased communications demands of homeland security initiatives, there can be no assurance that we will be able to effectively compete against our competitors due to their significant resources and operating history. other business opportunities we are exploring opportunities to selectively pursue partnerships, joint ventures and strategic development/acquisition opportunities, domestically and internationally. we believe that investments in these types of opportunities, such as the brazil dth market, may allow us to increase our existing market share, expand into new markets, support the development of new satellite-delivered services, such as broadband internet connectivity and mobile video services, broaden our portfolio of products and intellectual property, and strengthen our relationships with our customers. with our extensive experience in designing, developing, and distributing digital set-top boxes and related products, we can leverage the broader adoption of advanced technologies within set-top boxes to create opportunities for us. we believe that dth satellite and broadband services are particularly well-suited for countries without extensive telecommunications and cable infrastructure, and we intend to continue to seek new investments and customer relationships with international dth satellite service and broadband service providers. our available satellite capacity provides us, in certain cases, with the ability to initiate new services quickly. in july 2012, we and dish network formed dish digital l.l.c. ( dish digital ), which is owned two-thirds by dish network and one-third by us. dish digital was formed to develop and commercialize certain advanced technologies. we, dish network and dish digital entered into the following agreements with respect to dish digital: (i) a contribution agreement pursuant to which we and dish network contributed certain assets in exchange for our respective ownership interests in dish digital; (ii) a limited liability company operating agreement, which provides for the governance of dish digital; and (iii) a commercial agreement pursuant to which, among other things, dish digital has: (a) certain rights and corresponding obligations with respect to dish digital s business and (b) the right, but not the obligation, to receive certain services from us and dish network, respectively. our satellite fleet our satellite fleet consists of both owned and leased satellites detailed in the table below. nominal degree depreciable launch orbital location life satellites segment date (west longitude) (in years) owned: spaceway 3 (4) hughes august 2007 95 12 echostar xvii hughes july 2012 107 15 echostar iii (1) (2) ess october 1997 61.5 12 echostar vi (1) ess july 2000 77 12 echostar viii (1) ess august 2002 77 12 echostar ix (1) ess august 2003 121 12 echostar xii (1)(5) ess july 2003 61.5 10 echostar xvi (1) ess november 2012 61.5 15 leased from other third parties (3): amc-15 ess january 2005 105 10 amc-16 ess february 2005 85 10 nimiq 5 (1) ess october 2009 72.7 15 quetzsat-1 (1) ess november 2011 77 10 under construction (owned) : cmbstar other construction suspended (1) see note 19 in the notes to our consolidated financial statements in item 15 of this report for further discussion of our related party transactions with dish network. (2) fully depreciated and currently an in-orbit spare. 8 table of contents (3) these satellites are accounted for as capital leases and their launch dates represent dates that the satellites were placed into service. (4) depreciable life represents the remaining useful life as of the date of the hughes acquisition. (5) depreciable life represents the remaining useful life as of the date echostar xii was acquired from a third-party in 2005. recent developments in july 2012, we successfully launched echostar xvii, our next-generation, geostationary high throughput satellite that employs a multi-spot beam and bent pipe ka-band architecture. we introduced hughesnet gen4 broadband internet services to our customers in north america in october 2012 utilizing echostar xvii. in november 2012, we successfully launched our echostar xvi satellite, a direct broadcast satellite ( dbs ). echostar xvi is fully leased to dish network for the delivery of dth broadcast services to dish customers in the united states. we expect to provide service to dish network on echostar xvi in the first quarter of 2013. in november 2012, we entered into an agreement with arianespace, sa to launch multiple new satellites over a multi-year period, which will provide us with launch capacity and flexibility for our satellite program. in 2008, we entered into a transponder service agreement with ses to lease all of the capacity on quetzsat-1. concurrently, in 2008, we entered into a transponder service agreement with dish network, pursuant to which, dish network agreed to lease 24 of the dbs transponders on quetzsat-1 when it is placed into commercial operation at the 77 degree west longitude orbital location. in january 2013, quetzsat-1 was moved to the 77 degree west longitude orbital location and commenced commercial operations in february 2013. see note 19 in the notes to our consolidated financial statements in item 15 of this report for further discussion of our agreement with dish network relating to quetzsat-1. satellite anomalies certain of our satellites have experienced anomalies, some of which have had a significant adverse impact on their remaining useful life and/or commercial operation. there can be no assurance that future anomalies will not further impact the remaining useful life and commercial operation of any of the satellites in our fleet. in addition, there can be no assurance that we can recover critical transmission capacity in the event one or more of our in-orbit satellites were to fail. we generally do not carry in-orbit insurance on our satellites; and therefore, we generally bear the risk of any uninsured in-orbit failures. pursuant to the terms of the agreements governing certain portions of our indebtedness, we are required, subject to certain limitations on coverage, to maintain launch and in-orbit insurance for spaceway 3, echostar xvi, and echostar xvii. satellite anomalies with respect to certain of our satellites are discussed below. owned satellites echostar iii. echostar iii was originally designed to operate a maximum of 32 dbs transponders in a mode that provides service to the entire continental united states ( conus ) at approximately 120 watts per channel, switchable to 16 transponders operating at over 230 watts per channel, and was equipped with a total of 44 traveling wave tube amplifiers ( twtas ) to provide redundancy. as a result of twta failures in previous years, including the most recent failures in february 2013, only 8 transponders are currently available for use. although these failures have impacted the commercial operation of the satellite, echostar iii was fully depreciated in 2009. it is likely that additional twta failures will occur from time to time in the future and such failures could further impact commercial operation of the satellite. echostar vi. echostar vi was designed to meet a minimum 12-year useful life. prior to 2012, echostar vi experienced solar array anomalies and the loss of twtas that did not reduce its useful life; however, the solar array anomalies in 2010 impacted the commercial operation of the satellite. echostar vi lost (i) two additional twtas in march 2012, increasing the total number of twtas lost on the satellite to five out of 48 twtas and (ii) an additional solar array string during the second quarter of 2012, reducing the total power available for use by the spacecraft. none of the anomalies in 2012 has further impacted the commercial operation or the estimated useful life of the satellite. however, there can be no assurance that these anomalies or any future anomalies will not reduce its useful life or impact its commercial operation. echostar vi was fully depreciated in august 2012. echostar viii. echostar viii was designed to operate 32 dbs transponders in the continental u.s. at approximately 120 watts per channel, switchable to 16 dbs transponders operating at approximately 240 watts per channel. echostar viii was also designed with spot-beam technology. prior to 2012, echostar viii experienced several anomalies. in january 2011, echostar viii experienced an anomaly which temporarily disrupted electrical power to some components, causing an interruption of broadcast service and one of the two on-board computers 9 table of contents used to control the satellite to fail. none of these anomalies has impacted the commercial operation or estimated useful life of the satellite. however, if the remaining on-board computer fails, the commercial operation of the satellite would cease and result in a complete loss of the satellite. echostar xii. echostar xii was designed to operate 13 dbs transponders at 270 watts per channel in conus mode, or 22 spot beams using a combination of 135 and 65 watt twtas. we currently operate echostar xii in spot beam mode. prior to 2010, echostar xii experienced anomalies resulting in the loss of electrical power available from its solar arrays. in september 2012, november 2012, and january 2013, echostar xii experienced additional solar array anomalies, which further reduced the electrical power available to operate echostar xii. an investigation of the anomalies is continuing. additional solar array anomalies are likely and, if they occur, they will continue to degrade the operational capability of echostar xii. leased satellites echostar i. prior to 2012, we leased echostar i from dish network. during the first quarter of 2012, echostar i experienced a communications receiver anomaly, which had no impact on the commercial operation of the satellite. effective july 1, 2012, we and dish network mutually agreed to terminate this satellite capacity agreement. amc-15. amc-15, a fixed satellite services ( fss ) satellite, commenced commercial operation during january 2005. amc-15 is equipped with 24 ku fss transponders that operate at approximately 120 watts per channel and a ka fss payload consisting of 12 spot beams. pursuant to the satellite services agreement, we are entitled to a reduction of our monthly recurring payment in the event of a partial loss of satellite capacity, which results in corresponding reductions in the related capital lease obligation and the carrying amount of the satellite. during 2011, amc-15 experienced solar-power anomalies, which caused a partial power loss that reduced its capacity. as a result, the monthly recurring payment was reduced and the capital lease obligation and carrying amount of the satellite were each decreased by $20 million. there can be no assurance that these anomalies or any future anomalies will not reduce amc-15 s useful life or further impact its commercial operations. amc-16. amc-16, an fss satellite, commenced commercial operation during february 2005. amc-16 is equipped with 24 ku-band fss transponders that operate at approximately 120 watts per channel and a ka-band payload consisting of 12 spot beams. pursuant to the satellite services agreement, we are entitled to a reduction of our monthly recurring payment in the event of a partial loss of satellite capacity. during 2010, amc-16 experienced a solar-power anomaly, which caused a partial power loss that reduced its capacity. as a result, the capital lease obligation and the carrying amount of the satellite were each decreased by $39 million. as a result of prior period adjustments associated with satellite anomalies and depreciation expense recognized on the satellite, the net carrying amount of amc-16 had been reduced to zero as of december 31, 2010. in 2011 and in 2012, the monthly recurring payment for amc-16 was further reduced due to the 2010 anomaly and additional solar power anomalies in 2012, resulting in reductions in the capital lease obligation of $7 million and $13 million, respectively. because the carrying amount of amc-16 had been reduced to zero in 2010, these 2011 and 2012 adjustments to the capital lease obligation were recognized as gains in other, net on our consolidated statements of operations and comprehensive income (loss). there can be no assurance that these anomalies or any future anomalies will not reduce amc-16 s useful life or further impact its commercial operations. satellite impairments we evaluate our satellites for impairment and test for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. certain of the anomalies discussed above, and previously disclosed, may be considered to represent a significant adverse change in the physical condition of a particular satellite. however, based on the redundancy designed within each satellite, these anomalies are not necessarily considered to be significant events that would require a test of recoverability. in 2008, we suspended construction of the cmbstar satellite. in 2011, we determined that the carrying amount of the satellite was not recoverable and recognized a $33 million impairment to reduce the carrying amount of the satellite to its estimated fair value of $19 million. we estimated fair value by evaluating the probable cash flows that 10 table of contents we may receive from potential uses including what other purchasers in the market may have paid for a reasonably similar asset and the amount we could realize should we deploy the satellite in a manner different from its original intended use. we continue to explore alternative uses for this satellite, including potentially reconfiguring the satellite and changing its proposed orbital location in a manner that would be more cost-effective than designing and constructing a new satellite. there can be no assurance that this satellite will not be further impaired in the future. government regulations we are subject to comprehensive regulation by the fcc for our domestic, as well as some international, satellite and telecommunications operations and equipment businesses. we are also regulated by other federal agencies, state and local authorities, the international telecommunication union ( itu ), and certain foreign governments. in addition, we are also subject to the export control laws and regulations and trade and economic sanctions laws and regulations of the united states with respect to the export of telecommunications equipment and services. depending upon the circumstances, noncompliance with applicable legislation or regulations could result in suspension or revocation of our licenses or authorizations, the termination or loss of contracts or the imposition of contractual damages, civil fines or criminal penalties. the following summary of regulatory developments and legislation is not intended to describe all present and proposed government regulation and legislation affecting the satellite and digital set-top box equipment markets. government regulations that are currently the subject of judicial or administrative proceedings, legislative hearings or administrative proposals could adversely affect us and our industries to varying degrees. we cannot predict either the outcome of these proceedings or any potential impact they might have on the industry or on our operations. regulations applicable to our communications operations fcc jurisdiction over satellite operations the communications act of 1934, as amended (the communications act ) gives the fcc broad authority to regulate our satellite operations. all commercial entities that use radio frequencies to provide communications services to, from or within the united states are subject to the jurisdiction of the fcc under the communications act. specifically, the communications act gives the fcc regulatory jurisdiction over the following areas relating to communications satellite operations: the assignment of satellite radio frequencies and orbital locations to specific services and companies, the licensing of satellites and earth stations, the granting of related authorizations, and the evaluation of the fitness of a company to be a licensee; approval for the relocation of satellites to different orbital locations, the replacement of an existing satellite with a new satellite, and the authorization of specific earth stations to communicate with such newly relocated satellites; ensuring compliance with the terms and conditions of assignments, licenses, authorizations, and approvals including required timetables for construction and operation of satellites; avoiding harmful interference with other radio frequency emitters; and ensuring compliance with other applicable provisions of the communications act, and fcc rules and regulations. to obtain fcc licenses and authorizations for satellites and earth stations, satellite operators must satisfy enumerated legal, technical, and financial qualification requirements. once issued, these licenses and authorizations may be subject to a number of conditions including, among other things, satisfaction of certain technical and ongoing due diligence obligations, implementation bonds, construction milestones, annual regulatory fees, and various reporting requirements. applications for new or modified satellites and earth stations are necessary for further development and expansion of satellites services and generally must be approved by the fcc in advance. necessary federal approval of these applications may not be granted, may not be granted in a timely manner, or may be granted subject 11 table of contents to conditions which may be cumbersome. the regulatory requirements are subject to periodic change in accordance with the provisions of the administrative procedures act. fcc jurisdiction over set-top box operations. our digital set-top boxes and similar devices must also comply with fcc technical standards and requirements. the fcc has specific part 15 regulations for television broadcast receivers and television interface devices. separate security plug and play. u.s. cable companies are required by law to separate the security from the other functionality of their set-top boxes. set-top boxes used by dbs providers are not currently subject to this separate security requirement. however, the fcc is currently considering a possible expansion of the requirement to set-top boxes. the development of a retail market for cable set-top boxes could provide us with an opportunity to expand sales of set-top boxes and related equipment for use in non-dbs households. the cable industry and consumer electronics companies have reached a tru2way commercial arrangement to resolve many of the outstanding issues related to this requirement. we have licensed tru2way technology for use with cable set-top boxes. we cannot predict whether the fcc will impose rules on dbs providers that are based on cable plug and play rules or the concepts from the private tru2way commercial arrangement. complying with the separate security and other plug and play requirements would require potentially costly modifications to our set-top boxes and operations. we cannot predict the timing or outcome of this fcc proceeding. if the fcc were to extend or expand its separate security rules or the tru2way commercial arrangement to include dbs providers, sales of our set-top boxes to dbs providers may be negatively impacted. foreign administrations jurisdiction over satellite operations some of our satellites and earth stations are licensed in foreign jurisdictions. in addition, to provide service to a foreign location from a u.s. satellite we may be required to obtain approvals from foreign administrative agencies. the laws and regulations addressing access to satellite systems vary from country to country. in certain countries, a license is required to provide our services and to operate satellite earth stations. the application procedure can be time-consuming and costly in some countries, and the terms of licenses vary for different countries. in some countries, there may be restrictions on our ability to interconnect with the local switched telephone network. in addition, in certain countries, there are limitations on the fees that can be charged for the services we provide. many countries permit competition in the provision of voice, data, or video services, the ownership of the equipment needed to provide telecommunications services and the provision of transponder capacity to that country. in other countries, however, a single entity, often the government-owned telecommunications authority, may hold a monopoly on the ownership and operation of telecommunications facilities or on the provision of telecommunications to, from or within the country. in those cases, we may be required to negotiate for access to service or equipment provided by that monopoly entity, and we may not be able to obtain favorable rates or other terms. licenses, authorizations and contractual rights for satellite capacity our spacecraft operations are subject to the licensing jurisdiction of, and conditions imposed by, among others, the fcc and any other government whose itu filing we use for our satellites. such conditions may include, for example, implementation and operation of the satellite system in a manner consistent with certain milestones (such as for contracting, satellite design, construction, and launch and implementation of service), that the satellite or its launch be procured through a national entity, that the satellite control center be located in national territory, that a license be obtained prior to launching or operating the satellite, or that a license be obtained before interconnecting with the local switched telephone network. duration of satellite licenses. generally speaking, all satellite licenses granted by the fcc and most foreign countries are subject to expiration unless extended by the relevant regulatory authority. the term of each of our u.s. dbs licenses is 10 years, and our u.s. fss licenses generally have 15-year terms. our licenses are currently set to expire at various times. in addition, we occasionally receive special temporary authorizations that are granted for limited periods of time (e.g., 180 days or less) and subject to possible extension. generally, our satellite licenses and special temporary authorizations have been renewed on a routine basis, but there can be no assurance that this will continue. the earth station licenses we hold are granted for terms that vary significantly depending upon the jurisdiction in which they were obtained. some regulators also have granted periodic requests by us for special temporary authorizations to operate new or modified facilities on a temporary basis, or experimental authorizations that allow us to test and develop new equipment or new service capabilities on a limited basis. there can be no assurance that the fcc or other regulators will continue granting applications for new earth stations or for the renewal of existing ones. interference from other services sharing satellite spectrum. the fcc has adopted rules that allow non-geostationary orbit satellite services to operate on a co-primary basis in the same frequency band as dbs and fss. the fcc has also authorized the use of multichannel video and data distribution service ( mvdds ) in the dbs band. several mvdds systems are now being commercially deployed. despite regulatory provisions designed to protect dbs and fss operations from harmful interference, there can be no assurance that operations by other 12 table of contents satellites or terrestrial communication services in the dbs and fss bands will not interfere with our dbs and fss operations and adversely affect our business. international satellite competition and interference for our dth video satellites. we have received authority to provide dbs service to the united states from a mexican orbital slot at 77 degrees, and a canadian orbital slot at 72.7 degrees. directv, spectrum five, and dish network have received similar authorizations to provide service to the united states from foreign orbital slots. the possibility that the fcc will allow service to the united states from additional foreign slots may permit additional competition against us from other satellite providers. in addition, a number of administrations, such as the united kingdom and the netherlands, have requested to allow satellite systems to have access to orbital locations serving the united states close to our licensed slots. such operations could cause harmful interference to our satellites and constrain our future operations at those slots if such tweener operations are approved by the fcc. telecommunications regulation we are required to contribute a percentage of our revenues from telecommunications services to the universal service fund to support mechanisms that subsidize the provision of services to low-income consumers, high-cost areas, schools, libraries, and rural health care providers. this percentage is set each calendar quarter by the fcc. current fcc rules permit us to pass this universal service fund contribution through to our customers. the fcc also requires broadband internet access and internet telephony service providers to comply with the requirements of the federal communications assistance for law enforcement act ( calea ). calea generally requires telecommunications carriers, including satellite-based carriers, to ensure that law enforcement agencies are able to conduct lawfully-authorized surveillance of users of their services. in addition, as a provider of interconnected voip services, we are required to abide by a number of rules related to telephony service, including rules dealing with the protection of customer information and the processing of emergency calls. state and local regulation we are also regulated by state and local authorities. while the fcc has preempted many state and local regulations that impair the installation and use of vsats and other consumer satellite dishes, our businesses nonetheless may be subject to state and local regulation, including, among others, zoning regulations that affect the ability to install these consumer satellite earth station antennas. international regulation we are subject to regulation by the itu and our satellites must be registered in the united nations ( un ) registry of space objects. the international telecommunication union frequency registration. the orbital location and frequencies for certain of our satellites are subject to the frequency registration and coordination process of the itu. the itu radio regulations define the international rules, regulations, and rights for a satellite and associated earth stations to use specific radio frequencies at a specific orbital location. these rules, which include deadlines for the bringing of satellite networks into use, differ depending on the type of service to be provided and the frequencies to be used by the satellite. on our behalf, various countries have made and may in the future make additional filings for the frequency assignments at particular orbital locations that are used or to be used by our current satellite networks and potential future satellites networks we may build or acquire. the fcc and anatel, the brazilian regulatory authority have also filed, or may soon file, requests on our behalf for modification of the itu region 2 bss and bss feeder link plans relating to certain of our dbs satellites. in the event the international coordination process that is triggered by itu filings under applicable rules is not successfully completed, or that the requests for modification of the bss plan are not granted by the itu, we will have to operate the applicable satellite(s) on a non-interference basis. if we cannot do so, we may have to cease operating such satellite(s) at the affected orbital locations. we cannot be sure of the successful outcome of these itu processes. we have cooperated, and will continue to cooperate, with the filing nation in the preparation of itu filings, coordination of our operations in accordance with the relevant itu obligations, and responses to relevant itu inquiries. 13 table of contents registration in the un registry of space objects. the united states and other jurisdictions in which we license satellites are parties to the un convention on the registration of objects launched into outer space. the un convention requires a satellite s launching state to register the satellite as a space object. the act of registration carries liability for the registering country in the event that the satellite causes third party damage. administrations may place certain requirements on satellite licensees in order to procure the necessary launch or operational authorizations that accompany registration of the satellite. in some jurisdictions, these authorizations are separate and distinct, with unique requirements, from the authorization to use a set of frequencies to provide satellite services. there is no guarantee that we will be able to procure such authorizations even if we already possess a frequency authorization. export control regulation in the operation of our business, we must comply with all applicable export control and economic sanctions laws and regulations of the u.s. and other countries. applicable u.s. laws and regulations include the arms export control act, the international traffic in arms regulations ( itar ), the export administration regulations ( ear ), and the trade sanctions laws and regulations administered by the u.s. department of the treasury s office of foreign assets control ( ofac ). the export of certain hardware, technical data, and services relating to satellites and the supply of certain ground control equipment, technical services and data, and satellite communication/control services to non-u.s. persons or to destinations outside the u.s. is regulated by the u.s. department of state s directorate of defense trade controls, under the itar and is subject to strict export control and prior approval requirements. other items are controlled for export by the u.s. department of commerce s bureau of industry and security ( bis ) under the ear. for example, bis regulates our export of equipment for earth stations in ground networks located outside of the u.s. in addition, we cannot provide certain equipment or services to certain countries subject to u.s. trade sanctions unless we first obtain the necessary authorizations from ofac. we are also subject to the foreign corrupt practices act, which generally prohibits companies and their intermediaries from making improper payments or giving or promising to give anything of value to foreign government officials and other individuals for the purpose of obtaining or retaining business or gaining a competitive advantage. environmental regulation we are subject to the requirements of federal, state, local, and foreign environmental and occupational safety and health laws and regulations. these include laws regulating air emissions, water discharge, waste management, hazardous chemicals and product disposal, most significantly the resource conservation and recovery act ( rcra ) and the emergency planning and community right-to-know act ( epcra ). under the rcra, our hughes segment is considered a small quantity generator. as required by the epcra, we file periodic reports with regulators covering four areas: emergency planning, emergency release, hazardous chemical storage, and toxic chemical release. we maintain small quantities of hazardous materials on our premises and, therefore, have relatively modest reporting requirements under the epcra. we are also subject to the requirements of other environmental and occupational safety and health laws and regulations. our environmental compliance costs to date have not been material, and we currently have no reason to believe that such costs will become material in the foreseeable future. we do not expect capital or other expenditures for environmental compliance to be material in 2013. however, environmental requirements are complex, change frequently, and have become more stringent over time. accordingly, we cannot provide assurance that these requirements will not change or become more stringent in the future in a manner that could have a material adverse effect on our business. 14 table of contents patents and trademarks we currently rely on a combination of patent, trade secret, copyright and trademark law, together with licenses, non-disclosure and confidentiality agreements and technical measures, to establish and protect proprietary rights in our products. we hold u.s. patents covering various aspects of our products and services, including patents covering technologies that we believe will enable the production of lower cost satellite terminals and provide for significant acceleration of communication speeds and enhancement of throughput. the duration of each of our u.s. patents is generally 20 years from the earliest filing date to which the patent has priority. we have granted licenses to use our trademarks and service-marks to resellers worldwide, and we typically retain the right to monitor the use of those marks and impose significant restrictions on their use in efforts to ensure a consistent brand identity. we protect our proprietary rights in our software through software licenses that, among other things, require that the software source code be maintained as confidential information and that prohibit any reverse-engineering of that code. we believe that our patents are important to our business. we also believe that, in some areas, the improvement of existing products and the development of new products, as well as reliance upon trade secrets and unpatented proprietary know-how, are important in establishing and maintaining a competitive advantage. we believe, to a certain extent, that the value of our products and services are dependent upon our proprietary software, hardware, and other technology remaining trade secrets and/or subject to copyright protection. generally, we enter into non-disclosure and invention assignment agreements with our employees, subcontractors and certain customers and other business partners. in general, if a court determines that one or more of our products infringes valid intellectual property rights held by others, we may be required to cease developing or marketing those products, obtain licenses from the holders of the intellectual property at a material cost, or redesign those products in such a way as to avoid infringement. if those intellectual property rights are held by a competitor, we may be unable to obtain a license to such intellectual property at any price, which could adversely affect our competitive position. we may not be aware of all patents and other intellectual property rights that our products and services may potentially infringe. in addition, patent applications in the u.s. are confidential until the patent and trademark office either publishes the application or issues a patent (whichever arises first) and, accordingly, our products may infringe claims contained in pending patent applications of which we are not aware. further, the process of determining definitively whether a patent claim is valid and whether a particular product infringes a valid patent claim often involves expensive and protracted litigation, even if we are ultimately successful on the merits. we cannot estimate the extent to which we may be required in the future to obtain licenses with respect to intellectual property rights held by others and the availability and cost of any such licenses. those costs, and their impact on our results of operations, could be material. damages in patent infringement can be substantial, and in certain circumstances, can be trebled. to the extent that we are required to pay unanticipated royalties to third parties, these increased costs of doing business could negatively affect our liquidity and operating results. we are currently defending multiple patent infringement actions and may assert our own actions against parties we suspect of infringing our patents and trademarks. we cannot be certain the courts will conclude these companies do not own the rights they claim, that these rights are not valid, or that our products and services do not infringe on these rights. we also cannot be certain that we will be able to obtain licenses from these persons on commercially reasonable terms or, if we were unable to obtain such licenses, that we would be able to redesign our products and services to avoid infringement. see item 3 legal proceedings. research and development and engineering we have a skilled and multi-disciplined engineering organization that develops our products and services. our in-house technological capability includes a wide range of skills required to develop the system, hardware, software, and firmware used in our products and services. in addition, over the past 30 years, we have pioneered numerous advances in the area of wireless communication systems, techniques and methodologies, television broadcasting, video placeshifting, video copy protection, and digital video recording. 15 table of contents with respect to hardware development, we have skill sets that include complex digital designs, radio frequency and intermediate frequency analog designs, advanced application-specific integrated circuit designs, and sophisticated consumer and system level packaging designs. we also have extensive experience in developing products for high-volume, low-cost manufacturing for the consumer industry, including satellite tv set-top receivers and dual mode satellite and wireless handsets. as a complement to our hardware development, we have extensive experience in designing reliable, real time, embedded software systems as part of our communication systems and services offerings. for example, our broadband product line for the enterprise market supports an extensive range of protocols for data communications. our engineers have also developed many large turnkey systems for our customers by designing the overall solution, implementing the various subsystems, deploying the entire network and user terminals, integrating and verifying the operational system, and ultimately training the customers technicians and operators. geographic area data and transactions with major customers for principal geographic area data and transactions with major customers for 2012, 2011 and 2010, see note 17 in the notes to our consolidated financial statements in item 15 of this report. see item 1a risk factors for information regarding risks attendant to our foreign operations. employees as of december 31, 2012, we had approximately 4,000 employees and generally consider relations with them to be good. in addition, dish network provides us with certain management and administrative services, which include the services of certain employees of dish network. see certain intercompany agreements management services agreement and professional services agreement set forth in our proxy statement for the 2013 annual meeting of shareholders under the caption certain relationships and related transactions. other than 72 of our employees located in italy and brazil, none are represented by a union. where you can find more information we are subject to the informational requirements of the exchange act and accordingly file an annual report on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, proxy statements, and other information with the securities and exchange commission ( sec ). the public may read and copy any materials filed with the sec at the sec s public reference room at 100 f street, ne, washington, d.c. 20549. please call the sec at (800) sec-0330 for further information on the operation of the public reference room. as an electronic filer, our public filings are also maintained on the sec s internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the sec. the address of that website is http://www.sec.gov. website access our annual report on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the exchange act also may be accessed free of charge through our website as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the sec. the address of that website is http://www.echostar.com. we have adopted a written code of ethics that applies to all of our directors, officers, and employees, including our principal executive officer and senior financial officers, in accordance with the sarbanes-oxley act of 2002 and the rules of the sec promulgated thereunder. our code of ethics is available on our corporate website at http://www.echostar.com. in the event that we make changes in, or provide waivers of, the provisions of this code of ethics that the sec requires us to disclose, we intend to disclose these events on our website. 16 table of contents executive officers of the registrant (furnished in accordance with item 401 (b) of regulation s-k, pursuant to general instruction g(3) of form 10-k) the following table and information below sets forth the name, age and position with echostar of each of our executive officers, the period during which each executive officer has served as such, and each executive officer s business experience during at least the past five years: name age position charles w. ergen 59 chairman michael t. dugan 64 chief executive officer, president and director david j. rayner 55 executive vice president and chief financial officer mark w. jackson 52 president, echostar technologies l.l.c. anders n. johnson 55 president, echostar satellite services l.l.c. pradman p. kaul 66 president, hughes communications, inc. and director steven b. schaver 58 president, echostar international corporation kenneth g. carroll 57 executive vice president, corporate and business development sandi l. kerentoff 59 executive vice president, global human resources roger j. lynch 50 executive vice president, advanced technologies dean a. manson 46 executive vice president, general counsel and secretary charles w. ergen. mr. ergen has served as our executive chairman since november 2009 and chairman of the board of directors since our formation in 2007. mr. ergen served as our chief executive officer from our formation in 2007 until november 2009. mr. ergen serves as executive chairman and has been chairman of the board of directors of dish network since its formation and, during the past five years, has held executive officer and director positions with dish network and its subsidiaries. michael t. dugan. mr. dugan has served as our chief executive officer and president since november 2009. mr. dugan has also served as a member of our board of directors since our formation in 2007. mr. dugan served as a senior advisor to echostar from january 1, 2008 until november 2009. from may 2004 to december 2007, he was a director of dish network, and served dish network alternately as chief technical officer and senior advisor from time to time. mr. dugan served as a director of frontier corporation from october 2006 until november 2009. david j. rayner. mr. rayner has served as our executive vice president and chief financial officer since december 2012. from november 2011 to november 2012, mr. rayner served as chief financial officer of tendril networks, inc., a boulder, colorado software company. mr. rayner served as our chief financial officer from june 2010 to november 2011 and served as our chief administrative officer from january 2008 to june 2010. prior to that, mr. rayner served as executive vice president of installation and service networks of dish network and had previously held the position of chief financial officer of dish network from december 2004 to september 2006. before joining dish network in december 2004, mr. rayner served as senior vice president and chief financial officer of time warner telecom in denver, beginning in june 1998. mark w. jackson. mr. jackson has served as president of echostar technologies l.l.c. since 2004 and oversees all day to day operations of our echostar technologies segment. mr. jackson served as president of echostar technologies corporation from june 2004 through december 2007. anders n. johnson. mr. johnson has served as president of echostar satellite services l.l.c. since june 2011. mr. johnson was most recently at ses world skies where he served as senior vice president of strategic satellite development. mr. johnson joined ses global after the combination of ge americom and ses global in 2001. prior to ses global, mr. johnson worked at ge capital beginning in 1985 in a variety of executive level roles in satellite services, aviation services, and transportation & industrial financing. pradman p. kaul. mr. kaul has served as president of hughes communications, inc. ( hughes communications ) since its formation in february 2006. mr. kaul has also served as a member of our board of directors since august 2011. mr. kaul also served as a member of the board of directors of hughes communications from february 2006 until june 2011. previously, mr. kaul also served as the chief operating officer, executive vice president and 17 table of contents director of engineering of hughes network systems, llc ( hns and, together with hughes communications, hughes ), a wholly owned subsidiary of hughes communications. mr. kaul received a bachelor of science degree in electrical engineering from the george washington university and a master of science degree in electrical engineering from the university of california at berkeley. mr. kaul has been inducted as a member of the national academy of engineering. steven b. schaver. mr. schaver has served as president of echostar international corporation since april 2000. mr. schaver served as dish network s chief financial officer and chief operating officer from 1996 to 2000. kenneth g. carroll. mr. carroll has served as our executive vice president, corporate and business development since december 2012. mr. carroll served as our executive vice president and chief financial officer from november 2011 to november 2012. mr. carroll, a 20-year veteran in the satellite tv and satellite broadband industry, served as chief operating officer of echostar satellite services from august 2010 to june 2011, and as executive vice president, business development and international, of echostar corporation from june 2011 to november 2011. prior to joining echostar, from 2003 to 2010, mr. carroll served as president and chief operating officer of wildblue communications, inc., a nationwide satellite broadband company. in addition, mr. carroll previously served as chief financial officer for liberty satellite & technology and dth satellite tv provider primestar. sandi l. kerentoff. ms. kerentoff has served as our executive vice president, global human resources since february 2012, following her appointment as head of global human resources in october 2011. ms. kerentoff also has served as senior vice president, administration and human resources of hughes network systems, llc since april 2000. ms. kerentoff joined hughes network systems, llc in 1977 and, from 1977 to 2000, held various positions of increasing responsibility. she received her bachelor of science degree in finance from michigan state university. roger j. lynch. mr. lynch has served as our executive vice president, advanced technologies l.l.c. since november 2009. mr. lynch has also served as executive vice president, advanced technologies at dish network since november 2009. he has also served as chief executive officer of dish digital holding l.l.c. since july 2012. prior to joining echostar, mr. lynch served as chairman and chief executive officer of video networks international, ltd., an iptv technology company in the united kingdom from 2002 through 2009. dean a. manson. mr. manson has served as our executive vice president, general counsel and secretary since november 2011, and is responsible for all legal and government affairs of echostar corporation and its subsidiaries. mr. manson joined hughes network systems, llc in 2000 from the law firm of milbank, tweed, hadley & mccloy, where he focused on international project finance and corporate transactions, and was appointed general counsel of hughes communications in 2004. mr. manson received a bachelor of science in engineering from princeton university and a juris doctorate from columbia university school of law. there are no arrangements or understandings between any executive officer and any other person pursuant to which any executive officer was selected as such. pursuant to the bylaws of echostar, executive officers serve at the discretion of the board of directors. 18 table of contents item 1a. risk"
## [1] "--------------------------"
## [1] "Documents loading heavily on topic 3 are"
## [1] "item 1. business founded in 1982, adobe systems incorporated is one of the largest and most diversified software companies in the world. we offer a line of software and services used by creative professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences across multiple operating systems, devices and media. we market and license our software directly to enterprise customers through our sales force and to end users through app stores and our own website at www.adobe.com. we also distribute our products through a network of distributors, value-added resellers (<U+0093>vars<U+0094>), systems integrators, independent software vendors (<U+0093>isvs<U+0094>), retailers and original equipment manufacturers (<U+0093>oems<U+0094>). in addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and solutions. we offer some of our products via a software-as-a-service (<U+0093>saas<U+0094>) model (also known as a hosted or <U+0093>cloud-based<U+0094> model) as well as through term subscription and pay-per-use models. our software runs on personal computers (<U+0093>pcs<U+0094>) and server-based computers, as well as on smartphones, tablets and other devices, depending on the product. we have operations in the americas, europe, middle east and africa (<U+0093>emea<U+0094>) and asia-pacific (<U+0093>apac<U+0094>). see note 18 of our notes to consolidated financial statements for further geographical information. adobe was originally incorporated in california in october 1983 and was reincorporated in delaware in may 1997. we maintain executive offices and principal facilities at 345 park avenue, san jose, california 95110-2704. our telephone number is 408-536-6000. we maintain a website at www.adobe.com. investors can obtain copies of our sec filings from this site free of charge, as well as from the sec website at www.sec.gov. the information posted to our website is not incorporated into this annual report on form 10-k. business overview for 30 years, innovation in adobe software and technologies has transformed how individuals, businesses and governments communicate and interact with their constituents. across the markets we serve, adobe helps its customers create and deliver the most compelling content and interactive experiences in a streamlined workflow, and optimize those experiences and marketing activities for greater return on investment. our solutions turn ordinary interactions into compelling and valuable digital experiences, across media and devices, anywhere, anytime. while we continue to market and license a broad portfolio of products and solutions, we focus our greatest business investment in two strategic growth areas: digital media<U+0097>providing tools, services and solutions that enable individuals, small businesses and enterprises to create, publish, promote and monetize their content anywhere. our customers include traditional content creators, web designers, app developers and digital media professionals, as well as their management in marketing departments and agencies, companies and publishers. this is the core of what we have delivered for over 20 years, but we are evolving rapidly to provide these customers with a more complete and integrated workflow across the variety of new devices, formats and business models that continue to emerge. digital marketing<U+0097>providing solutions and services for how digital advertising and marketing campaigns are created, managed, executed, measured and optimized. our customers include digital marketers, advertisers, publishers, merchandisers, web analysts, chief marketing officers and chief revenue officers. we process over a trillion web transactions a quarter via saas, providing our customers with analytics, social, targeting, media optimization and experience management solutions this 3 table of contents complements our digital media franchise, bringing together the art of creating content with monetization and the science of measuring and optimizing it, enabling our customers to achieve optimal business outcomes. to capitalize on the potential in these two market areas, we made several significant changes in key areas of our business during the past two years. we have made investments to increase the deployment of some of our products through new saas models, and to offer a new subscription model for our creative products. we believe these business model changes allow us to target new users, as well as increase the amount of recurring revenue we generate as a percent of our total revenue, thus creating the potential for our business to be more predictable. we have also invested in the development of new products that address emerging customer needs in these two market areas and represent new revenue sources. in addition, we made several acquisitions during the past two years to broaden the scope of our solutions. we believe the new products we are bringing to market, combined with products and technologies we have acquired, will make our digital media and digital marketing solutions more compelling to our customers. while we have increased our investments in certain products areas, we have also reduced our focus on certain products. the cost savings resulting from the reduced focus on certain product areas has been redeployed as we continue to invest into research and development and sales and marketing to drive higher growth potential in our two focus areas. because of this transformation we have undertaken, as we enter fiscal year 2013 we believe we are uniquely positioned to be a leader in both the digital media and digital marketing categories where our mission to change the world through digital experiences resonates well with customers. products and services overview this overview is organized by our three reportable segments: digital media, digital marketing, and print and publishing. for each segment, we provide an explanation of our market opportunities, a review of our segment results, and a discussion of our strategies to address our market opportunities in fiscal 2013 and beyond. see note 18 of our notes to consolidated financial statements for further segment information. digital media segment digital media opportunity we believe we are at a key inflection point in the history of digital communications. a convergence of major trends is occurring, which in turn is driving changes in consumer behavior and expectations. these trends include the rise in use of smartphones and tablets, increased internet access speeds, new business models driven by online commerce and app stores, the increase in media and entertainment made available online, the impact of online social communities, and software delivery transitioning from prior pc delivery models to cloud-based services. these trends and changes are having a profound impact on our customers, who are interacting with content on a daily basis and want to regularly share and collaborate with colleagues and clients. adobe customers, large and small, are rethinking their online presence, addressing concerns such as how to make a site more dynamic, how to manage visitors from both pcs and mobile devices, whether to invest in web browser-based applications or create individual mobile apps, and how to transition from legacy content delivery methods to new models which offer new revenue streams. for our customers, these challenges create a great deal of complexity in their workflows and cost structures. for adobe, these challenges and complexities our customers face are expanding the size of the markets we can target. we realigned our company entering fiscal 2012 and created our digital media business unit to address these opportunities as we believed these market conditions presented significant opportunities for adobe to rapidly deliver product innovation, access new market segments, increase engagement with our customers, transition our business to promote a recurring revenue model, and accelerate our revenue growth. our goal is to be the leading provider of tools and services that allow individuals, small businesses and enterprises to create, publish, promote and monetize their content anywhere. the flagship of our digital media business is adobe creative cloud, which is an ongoing membership service that lets our customers download and install the latest version of any of our adobe creative suite desktop products, and other creative software like adobe photoshop lightroom and new html version 5 (<U+0093>html5<U+0094>) based products and services. creative cloud members also get online services to sync, store, and share files, participate in creative communities, receive product training, as well as publish digital magazines to the ipad, develop mobile applications, and create and manage websites. we believe creative cloud is redefining the creative process and becoming a destination place where our creative customers can obtain everything they need to create, collaborate on and deliver engaging digital content. 4 table of contents the cornerstone of creative cloud is our creative suite family of products. consisting of sixteen individual products and four suites that contain different combinations of these products, we focus on the needs of creative professional customers, which include graphic designers, production artists, web designers and developers, user interface designers, writers, videographers, motion graphic artists, prepress professionals, video game developers, mobile application developers, students and administrators. they use and rely on our solutions for publishing, web design and development, video and animation production, mobile app and gaming development and document creation and collaboration. they work in businesses ranging from large publishers, media companies and global enterprises, to smaller design agencies, small and medium-sized businesses and individual freelancers. our creative products are used by creative professionals to create much of the printed and on-line information people see, read and interact with every day, including newspapers, magazines, websites, mobile apps, catalogs, advertisements, brochures, product documentation, books, memos, reports and banners. our tools are also used to create and enhance visually rich content, including video, animation and mobile content, that is created by multimedia, film, television, audio and video producers who work in advertising, web design, music, entertainment, corporate and marketing communications, product design, user interface design, sales training, printing, architecture and fine arts. knowledge workers, educators, hobbyists and high end consumers also use our creative products to create and deliver content that is of professional level quality. we believe the innovation we deliver in the tools and solutions our customers use enables the future of digital media. our creative solutions are mission-critical to customers such as publishers, advertisers and media companies; they rely on adobe tools and technologies to create highly compelling content, deliver it across diverse media and devices, and then optimize it through systematic targeting and measurement. for example: <U+0095> publishers around the world are striving to embrace the digital age to build distinctive brands, develop sustainable business strategies, achieve greater profitability, and deliver optimized content to fragmented audiences on an expanding array of smartphones, tablets, e-readers, and other devices. their audiences seek compelling, media-rich experiences, wherever they go, using their preferred devices. the advent of app stores is enabling publishers to reach these audiences in easy, more effective and affordable ways, through the delivery of apps and content via online subscription services to their readers and customers. <U+0095> advertisers face an ever-shifting media landscape. traditional media are giving way to the emergence of new digital channels such as mobile devices and social networks. customers have greater choice in where they go for their preferred brands, making it harder for marketers to keep audiences engaged. successful advertising increasingly requires compelling content and greater focus on data and analytics than ever before in order to optimize advertising for improved targeting and higher returns. the challenges facing customers such as these not only exist in how they create and deliver their content, but also in how they manage, measure and optimize their content. adobe's value proposition extends beyond our historical focus on content creation to other critical aspects of our customers' workflow, with how we can integrate the capabilities of our analytics and web optimization solutions, as well as our other digital marketing solutions. these are discussed later in the <U+0093>digital marketing opportunity<U+0094> section. in the second quarter of fiscal 2011, we released cs5.5. at that time we also introduced a monthly subscription offering. this lower upfront fee, as opposed to the higher upfront perpetual license fee, provides cost-sensitive new users access to our products, as well as enabled users of older versions of our products to migrate to the latest versions at a lower upfront cost. the subscription offering also enabled users to have immediate access to software updates and new innovations that we implemented in our creative products in between release dates of the products. given our success in attracting new and existing customers to our initial subscription offering, combined with our offering of cloud-based services as a means to deliver more value to our users, we announced creative cloud in october 2011 and in the second quarter of fiscal 2012, we delivered the initial release of our new creative cloud subscription offering. as part of creative cloud, we also delivered creative suite 6 (<U+0093>cs6<U+0094>), which is the newest release of our creative toolset. cs6 provides numerous feature enhancements, particularly in the areas of mobile device content creation, website development with new html5 capabilities, digital imaging, digital publishing for tablets and product performance. customers obtained cs6 capabilities through both our historical perpetual licensing model as well as through our new subscription-based model. a key benefit of our creative cloud offering is the rapid delivery of additional products and product updates to subscribers as soon as these products and updates become available. examples of additional value provided to customers through creative cloud since its initial release included the delivery of new features for adobe illustrator users, new enhancements for web designers and an updated version of adobe acrobat. in addition, new products and capabilities were made available to creative cloud subscribers that were not made available to licensees of the perpetual products. adobe lightroom, our popular image editing and photo management tool, was delivered as an additional enhancement to creative cloud subscribers in the summer of 2012, and new html5 content creation capabilities were delivered through the release of our new adobe edge animate product and related 5 table of contents edge tools & services to subscribers in september. these additional capabilities demonstrate our commitment to deliver ongoing value and capabilities as they become available and are needed by our customers. we believe our creative cloud offering, marketed as a subscription model with attractive monthly pricing, will be a catalyst for revenue growth in the coming years. by increasing the value we provide to our core creative customers with creative cloud services, we anticipate we can grow our revenue per customer over time as they begin to use additional features available to them in the offering. we also believe the monthly pricing model will be attractive to users of older versions of our products who desire to use our latest releases and services, but who have not been willing to upgrade to newer versions due to their price sensitivity, and, therefore, will increase our revenue potential with them. similarly, we anticipate we can drive significant new user adoption of our creative tools business over the next several years outside of our core creative professional targeted market because of the attractive monthly subscription pricing combined with the strong brand of our creative tools and the broad value proposition provided by our creative cloud offering. in addition to a monthly subscription price that provides access to use of all of our latest creative tools and services, we also offer subscription pricing for creative cloud for some of our key point products, as well as for users in the education market. similarly, we offer creative cloud for team and enterprise users. we believe the mix of these offerings will drive new user acquisition and increase our revenue over time. the impact of this business model shift based on the product offering and the subscription pricing will affect the revenue and cash flow to adobe. as customers make a shift from paying upfront for the use of our software in the perpetual model to the new subscription model where they pay over time, reported revenue and cash flow will be lower in the short term when compared to the historical perpetual model. however, over time we expect this business model transition will significantly increase our long-term revenue growth rate by (1) attracting new users, (2) keeping our user base current and (3) thereby driving higher average revenue per user. additionally, our shift to a subscription model will increase the amount of our recurring revenue that is ratably reported, driven by broader creative cloud adoption over the next several years. in addition to the shifts in how we develop, market and license our creative tools to our customers, we have also implemented several initiatives to create and drive new revenue streams in our digital media business. these initiatives include delivering advanced publishing services, enhancing the capabilities of our solutions to utilize new innovations in html5, delivering new touch-based apps to expand our content creation user base to mobile device owners, enhancing our video solutions and addressing the needs of the knowledge worker. adobe digital publishing suite (<U+0093>dps<U+0094>) is an online, hosted publishing solution that enables magazine and newspaper publishers to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices. our digital publishing solution utilizes flexible e-commerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces and app stores. our customers can create and enhance content through integration with our cs6 tools to enable a complete workflow for the creation and delivery of content via our content viewer technology, which is utilized by users on tablets and smartphones. analytics capabilities are built into these apps and are based on our digital marketing products. the analytics features enable publishers to measure and understand the use of the digital editions they deliver with our solutions, and more effectively monetize their digital edition apps with more relevant advertising. in addition to the enterprise version that publishers and large media companies use, we also offer digital publishing single edition, which can be used by other customers who want to publish their content as apps in app stores on an individual and ad hoc basis. single edition can be used by individuals to publish any type of publication to app stores, including research reports, catalogs, marketing materials and even more specific consumer-related content such as wedding photo albums. the combination of our different dps offerings significantly increases our market opportunity to target anyone wanting to deliver a digital publication via app stores. adobe has long been an innovator in helping drive the html standards process and then delivering the best tools in the market to create content based on web standards. the ongoing evolution of new standards, including html5, and their adoption in popular browsers, become significant catalysts for revenue growth in our solutions. to address this opportunity, we are innovating across the spectrum of content creation, content delivery, and content display in browsers and mobile apps. our innovation includes adding new capabilities to web standards such as html and css, contributing technology to open source projects such as jquery (an html and javascript library to assist with creating websites) and webkit (the open source foundation for many popular web browsers such as apple safari and google chrome), and adding new features to products such as adobe indesign, adobe dreamweaver and the new edge tools & services to enable our customers to utilize these innovations occurring in web browsers. our innovation with web standards also includes the creation and delivery of brand new products built on top of web standards to help our customers create engaging content leveraging the latest innovations in web browsers on pc and non-pc devices. in the fall of 2012 we announced the availability of adobe edge tools & services, including adobe edge animate, adobe 6 table of contents edge inspect (formerly codenamed <U+0093>shadow<U+0094>), adobe phonegap build and adobe edge web fonts. we also previewed adobe edge code and adobe edge reflow. these powerful tools enable web designers and developers to build cutting-edge websites, digital content and mobile apps. for website development, we also provide adobe muse, which allows designers to design and publish websites without having to learn and write html5 code. muse integrates with other adobe tools and enables designers to easily publish their websites using our business catalyst web hosting service or any other hosting provider. while we increase our investments in our solutions utilizing web standards, we also continue to innovate in our adobe flash technologies, including the adobe flash player for pc-based browsers and adobe air for packaging standalone applications for pcs and mobile devices. the broad reach and adoption of the newest versions of our flash technologies on personal computers and for use with mobile devices allow our customers to deliver new and more engaging experiences using our tools and services. going forward, we are primarily focused on enhancing the gaming and premium video delivery aspects of our flash technology-based solutions. just as air and our flash tools enable flash technology-based applications to be packaged for mobile devices, phonegap and phonegap build provide similar capabilities for applications built using web standards. based on the open source phonegap framework, phonegap build enables users to build cross-platform mobile applications using html5, css and javascript that run on popular mobile operating systems such as android, ios and blackberry os. as millions of web developers and website designers look to build mobile apps to increase engagement with their constituents, we believe our air and phonegap solutions enable them to build cross-platform apps as well as reuse their existing browser-based content to deliver standalone apps on popular smartphones and tablets. in 2011 we began delivering a series of content creation tools which run on tablets such as the apple ipad. these apps and their features are discussed later in the <U+0093>digital media<U+0097>touch app products<U+0094> section. the adobe touch apps integrate with creative cloud enabling subscribers to move between the apps and creative suite software, and to view, access, share, and present creative work from anywhere. over the past several years, as consumers and advertisers demand more professional video online and on devices, media companies have an unprecedented opportunity to monetize their content and expand the reach of broadcast advertising. because of this trend and the general explosion of video being created and delivered over the web, new opportunities have emerged for adobe to significantly expand its market opportunity in areas such as video content creation, delivery, authentication and monetization. our products addressing these opportunities span across our digital media and digital marketing business segments. in digital media, our video content creation solutions are centered around our adobe premiere pro and adobe after effects products, and the creative suite production premium that contains these products plus other capabilities. with our increased focus on these solutions over the past several years, we believe we are the leader in the market for providing video and special effects editing for creative professionals and professional videographers. we have invested resources to improve the performance and capabilities of our video authoring solutions, and as a result, have significantly grown our market share over the past several years in the professional video editing market. with our growing leadership position in video authoring, we have worked closely with our customers to build a more complete workflow to meet their additional needs for delivering, measuring and monetizing their video assets. to enable collaborative video authoring environments, we also offer adobe anywhere for video. adobe anywhere allows customers to bring teams together, enabling them to better collaborate and create productions from virtually any location where there is network connectivity. with adobe anywhere, editors, visual effects artists, and other video professionals can use local or remote networks to simultaneously access, stream, and work with remotely stored media. its collaborative capabilities are embedded directly in adobe premiere pro, after effects, and adobe prelude software, eliminating the need for team members to learn additional video software tools. our video content delivery, authentication and monetization opportunities, and our solutions which address them, are centered around an initiative we announced in 2012 called project primetime, and are discussed later in in the section titled <U+0093>digital marketing opportunity.<U+0094> as part of our digital media focus, we also address the needs of knowledge worker customers: people working in document intensive industries, focused on creating and disseminating high-value information as part of their job on a regular basis. knowledge workers include a wide variety of job functions such as accountants, attorneys, architects, educators, engineers, graphic designers, insurance underwriters and stock analysts. these jobs typically require the sharing of information either as a static, published document or as a collaborative, interactive document. 7 table of contents knowledge workers must create information and content from a variety of sources and software applications, and be able to exchange this information within a reliable format that ensures coworkers and constituents can reliably and securely access the information. when appropriate, this information often needs to be protected, authenticated, or securely managed and controlled. document-based collaboration among knowledge workers can occur through face-to-face meetings, via phone calls, through e-mail or through web conferencing technologies. knowledge workers who participate in collaborations with their colleagues may be located in offices next door to each other, or in different parts of the world. these team members may change with every project and either be part of an organization's employee base, or be an external consultant or third-party partner. we believe there is a significant opportunity to provide solutions which enable knowledge workers to communicate and collaborate across technical, geographical and social boundaries, both inside and outside of their companies. we believe that with such solutions, users can collaborate and efficiently manage feedback from their colleagues in both real time and on-demand, and control how, when and by whom information is accessed. since the early 1990s, our acrobat family of products has provided for the reliable creation and exchange of electronic documents, regardless of platform or application source type. users can collaborate on documents with electronic comments and tailor the security of a file in order to distribute reliable adobe pdf documents that can be viewed, printed or interacted with utilizing the free adobe reader. available in different versions which target a variety of user needs, acrobat provides essential electronic document capabilities and services to help knowledge workers accomplish a wide range of ad hoc tasks involving digital documents ranging from simple publications to forms to mission critical engineering and architectural plans. although acrobat has achieved strong market adoption in document-intensive industries such as government, financial services, pharmaceutical, legal, aerospace, insurance and technical publishing, we believe there are tens of millions of users who need capabilities such as those provided by acrobat who have not yet licensed an acrobat solution. for several years, we have offered additional cloud-based acrobat services to supplement the features of acrobat and provide knowledge workers with centralized online file sharing and storage capabilities, as well as simple pdf creation and converting pdf to other file formats. with our new acrobat xi software and its innovative cloud services that were released in the fourth quarter of fiscal 2012, we've significantly extended the capabilities of our solution. with acrobat cloud services, users can take advantage of electronic document signing with adobe echosign, complete form management with adobe formscentral, and utilize other features such as adobe sendnow and acrobat.com. with adobe echosign, companies can expedite document and web contract approvals. users of echosign can send an electronic document to others for signing, keep track of who's signed it, and store their signed contracts online. this enables faster, more efficient and cost-effective customer interaction. our formscentral cloud service enables companies to create, distribute, and analyze forms without writing code. templates can be used to build new forms, or users can design forms from scratch. our formscentral solution collects all responses and helps customers share real-time results with their colleagues. sendnow enables customers to share large files more easily rather than using email attachments. acrobat.com provides services to customers so they can store their documents online and have access to them from virtually anywhere using a computer or mobile device. combined, acrobat and acrobat cloud services increasingly provide more value to knowledge workers. the cloud services serve as additional value to acrobat customers, thereby further entrenching the use of acrobat and pdf as part of our customers' day-to-day businesses. digital media business summary in the second quarter of fiscal 2012, we delivered cs6, the newest release of our creative toolset. cs6 provided numerous feature enhancements, particularly in the areas of mobile device content creation, website development with new html5 capabilities, digital imaging, digital publishing for tablets and product performance. the launch of cs6 was also the cornerstone of our new creative cloud subscription offering, which was also delivered in the second quarter of fiscal 2012. adoption of creative cloud subscriptions in the launch quarter exceeded our expectation as we believe the value of the new offering was attractive to both existing and new users of our creative tools. we also believe the low monthly payment options with creative cloud, as opposed to paying for perpetual licenses up front, has attracted more price-sensitive customers to license our creative products, as well as migrate existing users to the newest release. in the subsequent third and fourth quarters of fiscal 2012, we achieved accelerated adoption of creative cloud. in each of these three quarters, the success of creative cloud subscription adoption adversely affected reported revenue as we recognize revenue associated with our subscription offerings ratably whereas revenue associated with our perpetual licenses is generally recognized at the time of initially licensing the products. our dps solution achieved strong growth in fiscal 2012 based on broad adoption by magazine and newspaper publishers to deliver engaging, branded reading experiences of their publications to mobile and tablet devices. during the year, we continued 8 table of contents to innovate with dps, leveraging new innovations in cs6 products such as adobe indesign, to help customers accelerate app delivery to their readers through app stores. in the fall of 2012, we delivered an update to our digital publishing single edition solution and made it generally available to all creative cloud subscribers. this significantly broadened the use of our solution beyond mainstream publishers. we drive our dps revenue through the licensing of software that customers use to create and publish their apps. in addition, with our enterprise version, we obtain revenue for each digital edition that is downloaded and delivered through our content delivery infrastructure. as of the end of fiscal 2012, we have over 1,450 dps customers, reflecting the success and strong adoption of our solution. in addition, on average we deliver approximately 163,000 digital issues every day to users of ipads, kindles and android tablets, with more than 53 million digital editions delivered since march of 2011. in the professional digital imaging market, we released new versions of adobe photoshop cs6, adobe photoshop cs6 extended and adobe lightroom 4 during fiscal 2012. ground-breaking features in photoshop included new content-aware technologies, enhancements in image effects such as blur gallery and performance improvements based on updates to the adobe mercury graphics engine. lightroom enhancements included refined technology for superior shadow and highlight processing, expanded management capabilities including enhanced dslr video support and the ability to create photo books. to drive increased adoption of lightroom, we also lowered the price of the product, which resulted in substantial unit and revenue growth during the year when compared to fiscal 2011. with our professional digital video authoring and content creation solutions, including adobe premiere pro and after effects, we continued to achieve strong market share and revenue growth during the year due to new cs6 product versions and strong execution by our sales and marketing teams to position adobe as a leader in the overall digital video solutions category. during the fourth quarter of fiscal 2012, we released version 11 of our adobe photoshop elements software which is our digital imaging application targeted for amateur photographers and digital imaging hobbyists. in the same quarter, we released version 11 of adobe premiere elements software, which is our video editing software that can be used by hobbyists to enhance and share their digital video memories on dvds. we also released a software bundle that includes the new versions of photoshop elements and premiere elements to target hobbyists who desire both applications in one affordable package. adoption of these new releases helped to drive year-over-year revenue growth in this category. to help our customers create new content leveraging advancements in web standards, we deliver the edge tools & services, which included edge animate, in the fall of 2012. edge animate is our new web motion and interaction design tool that allows designers to bring animated content to websites, using web standards like html5, javascript, and css3. we also delivered adobe muse, which enables designers to design and publish html websites without writing html code. combined, we believe the customer adoption of these new tools as well as positive customer reactions to innovations we added to our existing web content creation tools such as adobe dreamweaver cs6, has caused the web community to embrace adobe as a leading provider of html solutions for web content creation. during fiscal 2012, we advanced the capabilities of our adobe flash player with several new releases. flash player is a cross-platform, browser-based application runtime that provides viewing of expressive applications, content, and videos across most browsers and pc operating systems. key features that are driving adoption of flash in markets such as gaming and premium video delivery include 3d accelerated graphics support, native 64-bit operating system support, improved software encoding for cameras and protected http dynamic streaming. adoption of flash player remained strong on pc platforms during fiscal 2012. due to the frequent downloads of our client technologies such as flash player, we generate revenue through oem relationships with companies where we include their technologies as part of the download offerings of our client technologies on pcs. in fiscal 2012, this download revenue grew when compared to fiscal 2011. in fiscal 2012, we also broadened the reach of adobe air, our cross-platform client technology. the air runtime enables developers to deploy standalone applications built with html, javascript, actionscript, flex, flash professional, and adobe flash builder across platforms and devices<U+0097>including android, ios devices, personal computers and televisions. to capitalize on the increased use of smartphones and tablets, we released updates of our tablet applications which run on mobile devices, including photoshop touch, which is a popular application and available on devices running google android os and apple ios. in addition, adobe revel provides users access to their entire photo library from their apple devices, along with photo-processing features based on lightroom. both photoshop touch and revel received positive reviews and achieved strong revenue growth during the year. in the document services market, we achieved solid year-over-year growth during fiscal 2012. this performance was driven by continued, solid adoption of our acrobat x release that initially launched in the fourth quarter of fiscal 2010. in the fourth quarter of fiscal 2012, we released acrobat xi, the eleventh major version of our acrobat family of products. acrobat xi, the industry standard for pdf software, contains new and improved capabilities that feature complete pdf editing and export to 9 table of contents microsoft powerpoint; touch-friendly capabilities on tablets; and newly integrated cloud services, including sophisticated web contracting with adobe echosign and forms creation, data collection and analysis with adobe formscentral. acrobat xi additionally supports it departments with seamless microsoft office and sharepoint integration, easy deployment, applications virtualization and robust application security. our free adobe reader, used by hundreds of millions of people to view and interact with pdf documents, was also updated to deliver more features to users, and includes full support for non-pc devices such as iphones, ipads and android devices. our echosign service, with its simplistic model that doesn't require scanning software, signature pads or digital certificates, is used to sign nearly one million contracts per month. in addition to making this service available to acrobat xi users, we also integrated it with our adobe reader in fiscal 2012. during the year, continued adoption of our creative suite and creative cloud products also contributed to broader adoption of acrobat in the creative professional market. utilization of acrobat prepress, printing and collaboration functionality is a critical component of creative customer workflows. acrobat pro is included in several creative suite editions and in creative cloud membership, and these offerings were updated to include acrobat xi when it was released in the fourth quarter of fiscal 2012. digital media strategy in fiscal 2013, we intend to implement strategies which will accelerate the adoption of our creative cloud subscription offering. this includes migrating existing users from their current perpetual licenses, as well as driving new customer adoption. aspects of this strategy include increasing the value of creative cloud by delivering frequent product updates and enhancements to subscribers; using promotions to attract customers to the offering; expanding our go-to-market reach through referral affiliate models to reach new customers particularly in the small and medium business (<U+0093>smb<U+0094>) space; and utilizing creative cloud for teams and creative cloud for enterprise offerings to drive broad adoption with customers who license our software in volume. as part of our creative cloud strategy, we also intend to streamline how customers learn about our offering, sign up to use it, and pay for it. we expect to accomplish these goals by utilizing our digital marketing solutions to drive awareness and customer conversion on our website. we believe adobe.com will increasingly be the destination site where we engage individual and small business customers to sign up for and renew creative cloud subscriptions. we also will utilize channel partners such as corporate resellers to target mid-size creative customers with our creative cloud for teams offering, and our direct sales force to build relationships and drive adoption of our creative cloud for enterprise offering with our largest customers. in digital imaging, we plan to broaden the adoption of our photoshop lightroom and photoshop elements products, and use our revel product for tablets to increase awareness of our image editing and sharing solutions. in interactive development we will continue to advance the capabilities of our tools to deliver cutting-edge html5 capabilities with products such as edge, while also investing in improving the capabilities of adobe flash in the pc-based gaming market. in the coming year we also plan to continue to market the benefits of our document services solutions to small-and medium-sized businesses, large enterprises and government institutions around the world. with our acrobat family of products, we intend to continue to increase our seat penetration in these markets through the utilization of our corporate and volume licensing programs. we also intend to increase our focus on marketing and licensing acrobat in targeted vertical markets such as education, financial services, telecommunications and government, as well as expanding into emerging markets. we also intend to enhance and build out the delivery of cloud-based document services to our acrobat and adobe reader users. the release of acrobat xi included newly integrated cloud services, including sophisticated web contracting with echosign and forms creation, data creation and analysis with formscentral. it also includes our sendnow feature which enables users to deliver large electronic files over the web with security and fidelity. with the integration of our cloud-based echosign solution with our acrobat family of products, we intend to continue to promote its capabilities to millions of acrobat users and hundreds of millions of adobe reader users. we believe that by substantially growing the awareness of adobe echosign in the broader contract delivery and signing market, we can help our customers migrate away from paper-based overnight express mailing and adopt our solution, substantially growing our revenue with this business in the process. digital marketing segment digital marketing opportunity consumers today can interact with businesses across multiple channels and devices, and it is up to businesses to figure out how to best attract, engage, acquire and retain customers in a world where the reach and quality of experiences directly impact success. marketing executives need to know that their investment is optimizing consumers' experiences and delivering the greatest return on our customers' marketing spend. online marketing goals must map clearly to overarching business objectives, and 10 table of contents marketing executives are expected to demonstrate the success of their programs using solid metrics. in this environment, gleaning insight in real time across channels is essential. we believe there is a significant opportunity to address these challenges and help customers transform their businesses. this market opportunity is accelerating as chief marketing officers (<U+0093>cmos<U+0094>), digital marketers, heads of digital, advertisers and publishers are managing spending budgets to migrate their marketing and advertising spend to digital media. these users are faced with several major market trends, and their choices for how they address these challenges are creating broad opportunities for our digital marketing business: <U+0095> broad commercial utilization of the internet the internet has fundamentally altered the way businesses and consumers purchase and consume goods and services. it has also redefined many business processes and has created opportunities for new online businesses, as well as for existing offline businesses seeking to capitalize on online initiatives. because of this, businesses are investing in innovative online initiatives to increase sales, improve customer service, enhance brand awareness, decrease time-to-market for their offerings, reduce fulfillment costs and increase operational efficiency. we expect that the scope and scale of commercial internet usage will continue to increase. the roll-out of broadband and mobile networks, particularly in emerging geographic markets, will contribute to the growth of internet usage. internet commerce should also continue to grow. proliferation of online marketing and customer response channels, such as mobile, digital video and social networks, will continue to generate interactions that need to be measured, analyzed and optimized across channels. <U+0095> need to measure online business in order to make informed decisions about priorities and investments in online marketing and other commercial initiatives, we believe businesses require timely and accurate measurement of customer behavior. the proliferation of internet usage and the fact that nearly every user interaction on a website (or other digital medium such as mobile apps, set-top boxes, kiosks, point of sale systems or any ip connected device) can be captured by the owner of the website, or other digital medium, has resulted in the creation of an unprecedented amount of data about how a business' customers interact and transact business with it. businesses are increasingly realizing the benefit of using information gained from online and other digital customer interactions to improve functional areas, such as sales, customer service, product development, marketing, pricing, manufacturing and inventory management. the interactive and measurable nature of internet activity also enables businesses to determine how customers arrived at their online destinations, such as through paid search, a display ad or a social media website. it also enables businesses to determine which advertising mediums are yielding the greatest roi, including whether visitors convert to customers once they have reached their destination site. <U+0095> opportunity to optimize and automate online business measuring online activity and automating the capture and analysis of data are important for making informed business decisions. businesses also need to leverage data to optimize the results of their online business activities. for example, businesses have historically measured the success of their online marketing programs by simple click-through rates or conversion rates, the latter being the percentage of click-through users who make a purchase or otherwise engage in the desired customer action during the online session. however, the effectiveness of online marketing can be optimized by analyzing and acting on deeper information, such as repeat visits, transactions generated, registrations, traffic pathways (various paths of online visitor traffic flow), time spent and quality of interaction (engagement), eventual conversion (desired customer action taken in subsequent visits) or success over time (lifetime value of customer) as well as comparing the relative effectiveness of different marketing channels (attribution). business success metrics can also vary based on the industry or vertical market<U+0097>for example, media companies drive engagement to optimize subscriptions and online advertising revenue, whereas retailers and e-commerce companies focus on promotions and maximizing online purchases. online businesses utilize a large and growing number of complex and diverse advertising and communication channels to market to customers, including display advertising, paid and natural search advertising, e-mail, social media marketing, affiliate marketing, blogs, podcasts, video, games, rich internet applications (<U+0093>rias<U+0094>) and comparison shopping engines, as well as traditional offline initiatives. the emergence of multi-channel marketing initiatives, which combine traditional offline marketing initiatives such as television, print, magazine, newspapers, radio and catalog with online marketing initiatives, makes the measurement and analysis of online activity more challenging, but presents additional opportunities to optimize results. 11 table of contents for example, businesses want to measure and understand the impact of their advertising initiatives across all these channels, not only to determine how much credit should be given to a particular channel and to understand cross-promotional effectiveness, but more importantly to optimize their advertising spending and make adjustments in the way channels are utilized and align the amount of resources that are allocated to each of them. <U+0095> delivery of premium video through online channels media companies face a shifting landscape as traditional media delivery evolves into multiple channels for media companies to deliver and monetize their content. as more premium video content and entertainment is delivered over the internet to pc, smartphone and tablet screens, as well as internet-connected tvs, media companies are looking to create new revenue streams through subscription services and ad-based revenue models to supplement their historical forms of revenue. this trend and the general explosion of video being created and delivered over the web is expanding the online video market opportunity to include fast growing areas such as video delivery, authentication and monetization. to address the challenges and capitalize on the opportunities presented in the market trends above, cmos, digital marketers, advertisers and publishers require new content architectures, new analytic systems, new media buying systems and optimization systems to increase the effectiveness of their engagement with customers. driving visitor traffic to websites, broadly defined as a customer's digital presence, including its traditional site, mobile site, pages and apps on social networks, and all other content that is distributed throughout the internet, was an early goal of digital marketing spend. this goal has broadened to include the need to measure and understand customer web traffic patterns and the effectiveness of their visitor acquisition efforts. web analytics solutions have provided insight for digital marketers and web analysts that helps them optimize their online ad spending. moving forward, the goals of digital marketers have evolved to include how websites and marketing campaigns can convert visitors to customers, and how these websites and marketing campaigns can be more personalized to drive better engagement and higher revenue. our digital marketing business unit targets this large and growing opportunity by providing comprehensive solutions that include analytics, social, targeting, media optimization and experience management solutions, and premium video delivery and monetization products, solutions and services. we deliver these capabilities through our adobe marketing cloud, which is our umbrella digital marketing offering and was formerly branded as the adobe digital marketing suite. adobe marketing cloud is a collection of analytics, social, targeting, media optimization and experience management solutions and a real-time dashboard providing insight into the performance of online marketing initiatives. these capabilities empower organizations to make informed decisions and ensure the success of online marketing programs for both advertisers and publishers. our digital marketing customers accomplish these goals with adobe marketing cloud solutions which help them manage and optimize online, offline, digital and multi-channel business initiatives. other key features of our adobe marketing cloud include: <U+0095> enabling digital marketers to align online marketing initiatives with overarching business objectives and demonstrate the success of online marketing programs using metrics; <U+0095> managing, collecting, and bringing data together from multiple systems into a flexible, integrated platform; <U+0095> providing real-time business intelligence through segmentation, dashboards and reports that managers can use to gain a complete picture of how consumers are interacting with the business; <U+0095> creating the ability to monetize and share data through audience optimization capabilities, publishers can quickly identify audiences that match the profiles that advertisers are demanding-and maximize the value of their digital assets; <U+0095> optimizing ad spend by maximizing the impact of a company's advertising spend across and within channels, including search, display, video, mobile, social media and other digitally connected forms of media, to yield the greatest returns; <U+0095> delivering relevant and engaging digital content across channels that boosts key performance metrics, whether it is a customer purchase, engagement, a download, form completion, or other desired outcome; and <U+0095> empowering organizations to re-platform their websites by enabling them to create, manage, distribute, and monetize content while optimizing the web, mobile, and social collaboration experience for their customers. more specifically, organizations can enable the delivery of customer-facing web and mobile solutions by extending enterprise services beyond interactive applications, documents, and workflows to include personalization of content, rich media delivery 12 table of contents capabilities, mobile application delivery, social collaboration and deep integration into back-office systems such as e-commerce platforms. in addition to cmos and digital marketers, users of our adobe marketing cloud solutions include marketing professionals such as search engine marketers, media managers, media buyers and marketing research analysts. customers also include web content editors, web analysts and web marketing managers. these customers often are involved in workflows that utilize other adobe products, such as our digital media tools and our video workflow and delivery technologies. given the market trends described above, we believe the combination of our adobe creative cloud and adobe marketing cloud solutions helps customers to more efficiently and effectively create, measure, analyze and optimize those experiences, creating an end-to-end workflow and feedback loop. with our growing leadership position in video authoring, which is discussed in the <U+0093>digital media opportunity<U+0094> section above, we have worked closely with our customers to build out a more complete workflow to meet their additional needs for delivering, measuring and monetizing their video assets. during fiscal 2012 we moved the management of our video content delivery, authentication and monetization solutions to our digital marketing business unit based on our goal of aligning these teams with our overall digital marketing focus. for content delivery, we provide adobe media server software, which helps premium content publishers deliver their hd quality video to the largest audience possible across any internet-connected device, with a streamlined workflow. the adobe media server family has revolutionized media delivery with support for consistent, protected streaming on the widest array of devices<U+0097>tablets, mobile devices, connected tvs, and desktops. our adobe pass solution enables the industry goal known as <U+0093>tv everywhere<U+0094> and allows pay tv customers to enjoy content on their connected devices. adobe pass is licensed by media companies and verifies a user's entitlement to content simply and securely, allowing quick time to market, a more secure environment, and more readily accessible content. similarly, our adobe access (formerly adobe flash access) software provides a scalable, efficient workflow to help customers deliver and protect premium video across desktops, mobile devices, and platforms, including ios and android. adobe access is also an ultraviolet approved digital rights management (<U+0093>drm<U+0094>) technology. it extends audience reach and enables a variety of business models for media companies, including rental, subscription, and electronic sell-through. our adobe auditude solution is a video advertising platform that powers the video advertising experience for adobe customers such as major media companies. with auditude, advertisers can leverage professional tv-like video ad inventory for advertising in on-demand video delivery, live digital events and full episode video content. the solution is further enhanced with rich analytics, enabling our customers with robust ad serving and optimization capabilities that maximize the value of video content on any device. in january of 2012 we introduced project primetime, which is a unified, end-to-end video platform that helps media companies achieve broadcast audience reach, lower their operating costs, and boost revenue from ad sales. project primetime links adobe streaming, drm, ad serving, audience management, analytics, and optimization technologies that are available in our media server, adobe access, auditude and other digital marketing offerings. our success in these areas has enabled our entry into the video advertising market. our adobe video advertising solution has become a central source for broadcast and professional video inventory. with a focus on premium television-quality video, we help customers deliver high quality ad placements in their online video delivery. adobe video advertising offers a tv-like experience with true commercial breaks during live sports, music, and news programs as well as during full episode viewing from our premium content partners. our solution leverages our digital marketing products such as adobe audiencemanager, and enables the use of premium ads with innovative ad executions and tv-like ad insertion within live, simulcast, and on-demand video. digital marketing business summary our digital marketing segment contains revenue from multiple product families, including our digital marketing products and solutions, as well as legacy enterprise software offerings. as we exited fiscal 2012 we rebranded our digital marketing suite to be called adobe marketing cloud, and organized our product portfolio into five key solutions<U+0097>analytics, target, social, media optimizer, experience manager<U+0097>containing multiple products to address specific marketing opportunities. in addition, we consider video to be an emerging solution in our adobe marketing cloud. in fiscal 2012, we achieved strong year-over-year revenue growth with our adobe marketing cloud products and solutions. our acquisition of efficient frontier in the first quarter of fiscal 2012 helped to drive revenue growth during the year. in the fall of 2012 we rebranded efficient frontier as adobe adlens. 13 table of contents driving the growth with our adobe marketing cloud product family was continued adoption of adobe sitecatalyst and our adobe cq5 web experience management (<U+0093>wem<U+0094>) solution now known as experience manager. with sitecatalyst we help our customers track more than six trillion transactions per year in a hosted environment around the world. an increasing percentage of these transactions are from non-pc devices including tablets and smartphones. our market-leading experience manager solution combines web content management, digital asset management (<U+0093>dam<U+0094>) and social collaboration offerings, and enabled our sales force to target organizations that need to transform their websites by enabling them to create, manage, distribute, and monetize content while optimizing the web, mobile, and social collaboration experience for their customers. in the online video and rich media delivery market, we continued our momentum in the industry by achieving strong customer adoption and revenue growth with our video solutions. in the first quarter of fiscal 2012, we unveiled project primetime, the industry's first fully integrated video technology platform. project primetime enables smooth, tv-like experiences for ad-supported videos across web-connected devices. this new platform delivers premium video and ad content consistently across all major platforms, including apple ios, google android, desktop operating systems and connected tvs. our solution creates a single, end-to-end workflow that interconnects our streaming technologies and content protection based on adobe media server, authentication capabilities using adobe pass, analytics based on our digital marketing web analytics capabilities, and ad delivery and optimization with our auditude video advertising platform. this solution enables premium video providers to give customers a superior viewing experience through seamless dynamic ad insertion into any content type, whether linear, live or on-demand across web-connected devices, and was integral in many global media companies making the 2012 olympic games available to mobile and tablet users. in late fiscal 2011 we announced we would narrow the focus of our adobe livecycle and adobe connect product families towards the government and financial services markets. at that time we also announced we expected revenue in these product areas to decline, and in fiscal 2012 combined revenue for livecycle and adobe connect did decline. however, the extent of the revenue decline was less than we targeted for the year, due to continued solid demand for these products. digital marketing strategy in fiscal 2013, we plan to build upon the momentum we achieved in fiscal 2012 by aligning our digital marketing focus with adobe marketing cloud around five key solutions: <U+0095> adobe analytics<U+0097>combines the power of actionable analytics and audience segmentation with the distributed value of reporting and sharing of key business analysis and connects it for data driven marketing. this solution includes our datawarehouse, adobe discover, adobe genesis, adobe insight, adobe reportbuilder, sitecatalyst and adobe tagmanager products. <U+0095> adobe experience manager<U+0097>a web content management platform that enables organizations to deliver carefully tailored customer experiences across web and mobile channels. this solution is based on our wem offering. <U+0095> adobe media optimizer<U+0097>combines best of breed portfolio and rules based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. this solution includes our adlens and adobe audiencemanager products, and analytics capabilities from sitecatalyst. <U+0095> adobe social<U+0097>helps organizations measure and manage marketing activities across owned, earned, and paid media, ensuring the impact of social is properly attributed. this solution includes our context optional and adobe socialanalytics products. <U+0095> adobe target<U+0097>helps organizations dynamically test and present highly customized experiences to a digital property in order to drive significantly higher conversion rates. this solution includes our adobe recommendations, adobe search&promote, adobe test&target and adobe test&target 1:1 products. with adobe analytics, we will focus on helping our customers understand the performance of their business across all digital channels and support their needs for integrating offline channels. customers want to know how their campaigns are performing across video, social, mobile and email, and look at that performance holistically. to do this, they require an analytics platform that can assemble data across all those channels to gain better insight and drive informed decision making. personalized engagement is a priority for digital marketers; once they attract visitors to their websites, they desire to create the best possible experience. with our adobe experience manager solution we provide an integrated suite of tools that include analytics data, content management and web optimization solutions. our solution enables digital marketing customers to personalize the experiences of visitors to their websites in ways that are dynamic and relevant to each visitor. experience manager helps marketers author, manage and deliver personalized experiences based on many criteria, including analytics data related to a visitor's prior visits to a site, or based on their purchasing history, or what keyword they clicked on in a web search that brought them to 14 table of contents a site or in many cases, to a distributed part of its site such as a social network page or app for that customer. with personalized engagement made possible through experience manager, marketers can also build a better brand presence, drive demand by quickly creating, launching, and optimizing compelling online marketing campaigns, and extending their reach with their customers through multiple online channels. the more digital marketers can know about their customers, the more effectively they can reach them with targeted advertising and offers to increase visitor acquisition and conversion through their websites. we provide adobe media optimizer, which combines portfolio and rules-based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. our media optimizer solution includes our adobe adlens (formerly efficient frontier), adobe audiencemanager and adobe sitecatalyst products to give marketers a complete view of their online marketing campaign performance across search, display and social channels. this enables deeper and more relevant insights into how their customers are interacting with their brand. it also gives them the data they need to segment those who are still browsing on their sites, and the data on those who are ready to buy<U+0097>allowing marketers to deliver the appropriate messages or marketing offers at the appropriate time. our adobe social solution enables marketers to simplify and measure their social marketing efforts. our offering is an integrated suite of products including context optional and socialanalytics, and the ability to perform ad buying via adlens. combined, our solution enables marketers to create content once and push it out to social media channels such as facebook, twitter, google+, and others quickly and easily. we extend these capabilities to include the ability to find out what content is resonating with marketers' customers or constituents, and help them migrate visitors into destinations such as high-profile facebook sponsored stories. adobe social helps marketers determine if their paid media is pushing traffic to their social networks. it also provides them insights into their customers' audience, using real-time data to find out what gets their social communities talking. with this information, marketers can keep their social audiences engaged by creating more targeted content and experiences to drive positive impact on their business. from messaging and offers to media buys and influencers, adobe social gives marketers key information about what's driving results. adobe target helps organizations drive higher conversion rates on their websites. our solution enables digital marketers to create, dynamically serve, and continually optimize personalized messages through the use of integrated products such as adobe test&target, adobe recommendations and adobe search&promote. with adobe target, marketers can learn more about their customers so they can evolve from marketing messages for broader segments to those relevant to individual visitors. our offering also uses a robust data-driven approach that unifies internal and third-party data to create highly detailed customer profiles that help marketers deliver the appropriate marketing messages in front of the right people. with these capabilities, customers can optimize their website and digital marketing efforts to maximize their revenue by controlling, monitoring and altering their personalization strategies through built-in testing. through these features, marketers can also drive higher levels of customer engagement, conversion, and loyalty. as part of our digital marketing initiatives, we intend to streamline how customers learn about, acquire and deploy adobe marketing cloud solutions. we also believe we can accelerate the growth of our business by expanding our go-to-market strategy to include new geographies and vertical markets where adobe has a strong presence. in fiscal 2012 we began to build out more sales capacity and resources to support them in our field organization. we believe these investments will drive higher international revenue in our digital marketing segment in fiscal 2013 and beyond. with our project primetime initiative and set of products to help media and entertainment companies monetize their premium video assets, we will continue to invest in the build out and licensing of our solution. as part of this effort, we intend to expand our focus into new geographic markets in the coming year. in the fall of 2011, we announced we would narrow our focus with our adobe livecycle and adobe connect offerings on two key vertical industries: financial services and government. for these customers, we offer comprehensive, scalable, secure and reliable server products, saas offerings and tools to develop applications tailored to their specific information and business process requirements. in fiscal 2013 we will continue to target these vertical markets. with our livecycle offerings, we enable our customers to eliminate paper and move to automated forms-based workflows, which continue to be key challenges in enterprises and governments around the world. paper remains prevalent throughout industries and governments, and many organizations are seeking to drive down operational costs related to paper use and workflows involving paper-based documents. during the past decade, there has been considerable progress made towards moving away from paper-based workflows. however, we believe there still remains a significant opportunity to deliver solutions that focus on this opportunity, particularly in the government and financial services categories. adobe connect provides capabilities for live web conferencing, as well as delivering on-demand rich presentations through an on-premise server or as a hosted service and for recording and delivering such content later. web conferencing services are 15 table of contents provided via the ubiquitous adobe flash player client on pcs, as well as through smartphone and tablet device applications running natively on operating systems such as apple ios and android. print and publishing segment print and publishing opportunity our print and publishing business segment contains several of our products and services that address diverse market opportunities including elearning solutions, technical document publishing, web application development and high-end printing. these opportunities and the key products we offer to address them in fiscal 2013 are reviewed below. graphics professionals and professional publishers continue to require quality, reliability and efficiency in production printing, and we believe our adobe postscript and adobe pdf printing technologies provide advanced functionality to meet the sophisticated requirements of this marketplace. as high-end printing systems evolve and transition to fully digital, composite workflows, we believe we are uniquely positioned to be a supplier of software and technology based on the postscript and adobe pdf standards for use by this industry. we generate revenue by licensing our technology to oems that manufacture workflow software, printers and other output devices, and in fiscal 2012, we maintained our oem postscript revenue through continued innovation with postscript technologies. elearning solutions are becoming more prevalent as a means to create and deliver online and electronic learning experiences. these experiences range from online assessments, surveys and quizzes<U+0096>to online reference and instruction manuals<U+0096>to real time learning and web-based collaboration experiences. we believe we have a rich legacy in the development and delivery of elearning tools, and can innovate by providing new features and platform reach for elearning content delivery with our set of offerings. our coldfusion offering provides fast and easy ways to build and deploy powerful internet applications. developers can extend or integrate coldfusion with java or .net applications, connect to enterprise data and applications, create and interact via web services, or interface with sms on mobile devices or instant messaging clients. coldfusion can also be used for business reporting, rich-forms generation, printable document generation, full-text search and graphing and charting, enabling customers to more fully engage their constituents with better web experiences. we generate revenue by licensing our technology to oems that manufacture workflow software, printers and other output devices. in fiscal 2013, we plan to continue to enhance postscript as well as utilize pdf enhancements to maintain these formats as standards in publishing and printing work flows. print and publishing business summary in fiscal 2012, we maintained a consistent quarterly revenue run-rate with the mature products we market and license in our print and publishing business. during the year we delivered version 4 of our adobe technical communication suite, which is a set of tools for technical publishing. we also released version 6 of our adobe elearning suite, which is a set of tools for creating professional elearning courseware and includes adobe captivate version 6 and adobe presenter version 8. in fiscal 2012, we maintained our oem postscript revenue through continued innovation with postscript technologies. print and publishing strategy in fiscal 2013 we will continue our focus on addressing the needs of our print and publishing customers. more specifically, in the elearning market we will innovate around our broad set of tools to help authors of elearning materials deliver their content in new and more engaging ways, leveraging the adoption of tablet devices in schools and educational institutions. we will also update several of our legacy products to keep customers current with solutions and features they need based on the print and publishing products they use. fiscal 2013 business segment products and services digital media<U+0097>creative products adobe after effects<U+0097>software used to create sophisticated animation, motion graphics and visual effects found in television broadcast, film, dvd authoring and the web; provides 2d and 3d compositing, animation and visual effects tools, as well as advanced features such as motion tracking and stabilization, advanced keying and warping tools, and more than 250 additional visual and additional audio effects. adobe anywhere<U+0097>hosted software which enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity. 16 table of contents adobe audition<U+0097>a professional audio editing environment designed for demanding audio and video professionals; provides high-performance, intuitive tools for audio editing, mixing, restoration, and effects. adobe business catalyst<U+0097>an online business solution that provides an all-in-one capability to develop and maintain dynamic websites and powerful online stores with an integrated customer database, email marketing, e-commerce and analytics; integrates with dreamweaver and adobe muse for seamless website creation and publishing; a business catalyst webbasics offering is included as part of creative cloud membership. adobe creative cloud<U+0097>a new, comprehensive offering of creative services, creative suite desktop applications, and collaboration and sharing features that is offered on a subscription basis; membership to creative cloud enables users to download and install any of the creative suite desktop applications, plus other applications such as acrobat and photoshop lightroom; subscribers also receive the latest apps and newest features as soon as they're released; creative cloud membership includes 20gb of cloud-based storage and device syncing capabilities, enabling members to easily access and share their work; it also includes the ability to publish websites using our business catalyst hosting service, and the ability to publish mobile apps using our dps, single edition and phonegap build services. adobe creative suite design & web premium<U+0097>an integrated software solution that creative professionals can use as a platform for print, web and mobile content publishing; combines acrobat pro, dreamweaver, flash professional, adobe fireworks, illustrator, indesign and photoshop extended technologies with a file management and control center called adobe bridge; integrates with adobe digital publishing suite. adobe creative suite design standard<U+0097>an integrated software solution that creative professionals can utilize for professional design and print production, page layout, image editing, illustration and adobe pdf workflows; combines acrobat pro, illustrator, indesign and photoshop technologies with a file management and control center called adobe bridge; integrates with adobe digital publishing suite. adobe creative suite master collection<U+0097>an integrated software solution which provides all the tools creative professionals require to create content for every design discipline in one offering; provides capabilities for professional page layout, image editing, vector illustration, print production, website design/development, rich interactive content creation, visual effects and motion graphics, video capture/editing/production, dvd titling and digital audio production; includes acrobat pro, after effects, audition, dreamweaver, adobe encore, fireworks, flash builder, flash professional, illustrator, indesign, photoshop extended, prelude, adobe premiere pro and adobe speedgrade technologies, with a file management and control center called adobe bridge; integrates with adobe digital publishing suite. adobe creative suite production premium<U+0097>an integrated software solution that provides creative professionals a complete post-production solution consisting of video, audio and design tools that can be utilized to create and deliver content to film, video, dvd, blu-ray disc, television broadcast, and web and mobile devices; combines adobe premiere pro, after effects, adobe audition, encore, photoshop extended, flash professional, illustrator and adobe media encoder technologies with a file management and control center called adobe bridge; integrates with adobe story. adobe digital publishing suite<U+0097>an integrated, online, hosted publishing solution for individual designers, traditional media publishers, ad agencies, and companies of all sizes that want to create, distribute, monetize, and optimize engaging content and publications for tablet devices; enables magazine and newspaper publishers, as well as individuals, to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices; combines hosted services, flexible e-commerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces, and analytics capabilities based on adobe marketing cloud; content is created and enhanced through integration with creative suite to enable a complete workflow for the creation and delivery of content to mobile device users via our new content viewer technology. adobe dreamweaver<U+0097>a professional software development application used by designers and developers to create and edit html websites and mobile apps; provides a broad range of capabilities for web publishing, enabling online commerce, and providing online customer service and educational content; includes capabilities for visually designing html5 pages, coding html5 and application logic. adobe edge tools & services<U+0097>new web tools and services which include: edge animate, a web motion and interaction design tool that allows designers to create animated content for websites, using web standards like html5, javascript and css3; edge inspect, an inspection and preview tool that allows front-end web developers and designers to efficiently preview and debug html content on mobile devices; edge code, a code editor, built on the brackets open source project, optimized for web designers and developers working with html, css and javascript; edge reflow, a web design tool to help users create responsive layouts and visual designs with css; edge web fonts, a free web font service for using a growing library of open source fonts on websites and in apps; typekit, a service that gives designers and developers access to a library of hosted, high-quality fonts to use on their 17 table of contents websites; and phonegap build, a service for packaging mobile apps built with html, css and javascript for popular mobile platforms. adobe encore<U+0097>professional dvd authoring and creation software that is included as part of adobe premiere pro; provides a comprehensive set of design tools and integration with other adobe software to create a streamlined dvd creation workflow; provides ability to output projects to recordable dvd formats including blu-ray, ensuring a wide degree of playback compatibility. adobe fireworks<U+0097>a professional graphics design tool that allows users to create designs for websites and mobile apps quickly, without coding; enables the development and delivery of vector and bitmap images, mockups, 3d graphics, and interactive content for popular tablets and smartphones; integrates with dreamweaver, flash and photoshop, and supports air application development. adobe flash professional<U+0097>provides an advanced development environment for creating internet applications which integrate animations, motion graphics, sound, text and additional video functionality; solutions built with flash professional are deployed via the web to browsers that run adobe flash player, and to devices as installable applications using adobe air. the toolkit for createjs, which was included in flash professional cs6, introduces the ability to use flash professional to create and publish interactive content for the standards-based web using html and javascript without any need for the flash player or air. adobe illustrator<U+0097>a vector-based illustration design tool used to create compelling graphic artwork for print publications, websites and video production. adobe incopy<U+0097>a professional writing and editing solution that tightly integrates with adobe indesign software to enable an efficient collaborative workflow between design and editorial staff. adobe indesign<U+0097>a page layout application for publishing professionals; based on an open, object-oriented architecture that enables adobe and its industry partners to deliver powerful publishing solutions for printed and digital magazine, newspaper and other publishing applications. adobe indesign server<U+0097>delivers a robust and scalable engine that leverages the design, layout, and typographical capabilities of adobe indesign software to enable third-party systems integrators and developers to programmatically create engaging automated documents; enables adobe partners to provide new levels of automation and efficiency in high-end editorial workflows, collateral creation, variable data publishing and web-based design solutions. adobe muse<U+0097>new offering available through subscription and creative cloud which enables designers to create html websites like they would design print layouts, without having to write code; websites can be published with adobe business catalyst service or any hosting provider. adobe photoshop<U+0097>provides photo design, enhancement and editing capabilities for print, the web and multimedia; used by graphic designers, professional photographers, web designers, professional publishers and video professionals, as well as amateur photographers and digital imaging hobbyists. adobe photoshop elements<U+0097>offers powerful yet easy-to-use photo editing functionality plus intuitive organizing, printing and sharing capabilities for amateur photographers and hobbyists who want to create professional-quality images for print and the web. adobe photoshop extended<U+0097>provides the capabilities of photoshop, plus additional tools for editing 3d and motion-based content and performing image analysis; targeted for: film, video and multimedia professionals; graphic and web designers using 3d and motion; manufacturing professionals; medical professionals; architects and engineers; and scientific researchers. adobe photoshop lightroom<U+0097>software designed for professional photographers and photo hobbyists, it addresses their unique photography workflow needs by providing more efficient and powerful ways to import, select, develop and showcase large volumes of digital images. adobe prelude<U+0097>software used by video professionals to streamline post-production tasks; integrates with other adobe video software including adobe premiere pro, and is included in several configurations of creative suite. adobe premiere elements<U+0097>a powerful yet easy-to-use video-editing software for home video editing; provides tools for hobbyists to quickly edit and enhance video footage with fun effects and transitions and create custom dvds for sharing video with friends and family. 18 table of contents adobe premiere express<U+0097>hosted software service based on adobe premiere technology that provides video editing and video remix capabilities; licensed by customers such as those running media portals to provide consumers with embedded access to industry leading adobe video editing and enhancement technologies. adobe premiere pro<U+0097>professional digital video editing software used to create broadcast quality content for video, film, dvd, multimedia and streaming over the web; includes adobe encore for professional dvd authoring and creation. adobe speedgrade<U+0097>new software used by video professionals to color grade their video within video production workflows; integrates with other adobe video software including adobe premiere pro, and is included in several configurations of creative suite. adobe story<U+0097>an online collaborative script development tool made available as a hosted service; enables writers to author scripts quickly with automatic formatting, and collaborate online. used to begin the planning and preproduction phase of video workflows to be integrated with other adobe products; developed to create more efficient video production workflows while reducing production costs; automatically turns content in scripts into relevant metadata that can be used throughout the adobe digital video workflow; offered in two versions: adobe story free and adobe story plus. adobe typekit<U+0097>subscription-based cloud service that provides the delivery of hosted, high-quality fonts for use on websites; enables designers and developers to deliver beautiful type that enhances the web experience; typekit fonts are offered as a standalone service, as part of edge tools and services, and as part of adobe's creative cloud service. adobe visual communicator<U+0097>software used to create newscast-style video presentations that can be delivered digitally; provides a teleprompter, video creation capabilities, and an entire library of customizable graphics, effects, titles, music, and templates; can be used to convert a microsoft powerpoint presentation into a narrated video that can be posted online; can also be used to self-produce video broadcasts, conferences, distance learning courses, campus-wide newscasts, and more. digital media<U+0097>touch app products adobe revel<U+0097>touch-based photo app and service for mac, ipad, and iphone users; gives users access to their photo libraries from multiple devices no matter which one they are using; allows users to utilize powerful photo-processing technology based on adobe photoshop lightroom software to enhance their images. adobe ideas<U+0097>a vector-based sketching app designed to enable creative professionals to capture their ideas and be a companion tool for other professional design applications from adobe, including illustrator and photoshop; available for the iphone and ipad. adobe photoshop touch<U+0097>touch-based ipad and android tablet app; enables users to edit images and apply professional effects using core photoshop features, and then digitally share the results through social networking sites like facebook. digital media<U+0097>developer and platform products adobe air<U+0097>client software and packaging technology that allows developers to use existing web development skills (e.g. html, ajax, flash and flex) to build and deploy standalone applications (rias) on pcs and mobile devices. adobe flash builder<U+0097>a cross-platform development environment based on eclipse for building games and applications in actionscript and using the open-source flex framework; enables developers to develop apps and games for browsers, pcs and mobile devices. adobe flash player<U+0097>the most widely distributed rich client software on pcs and consumer electronic devices; provides a runtime environment for text, graphics, animations, sound, video, application forms and two-way communications. adobe flash platform services<U+0097>services that enable developers and publishers to distribute and monetize applications across multiple distribution channels. adobe flex<U+0097>a free, open source framework for building applications that deploy consistently on major browsers, desktops, and computer operating systems by leveraging the adobe flash player and adobe air runtimes. adobe flex 4.6 was the final release by adobe. all subsequent versions are released by the apache software foundation following adobe's contribution of flex to apache. adobe phonegap<U+0097>phonegap is a free, open source framework for building cross-platform mobile applications using html, css and javascript that run on popular mobile operating systems such as android, ios and blackberry; phonegap build is our solution to assist developers with creating mobile applications which leverage the open source framework; it is offered as a standalone solution and as part of our adobe edge tools & services. 19 table of contents digital media<U+0097>acrobat and document services products adobe acrobat standard<U+0097>software that creates secure, reliable and compact adobe pdf documents from desktop authoring applications such as microsoft office software, graphics applications and more; supports automated collaborative workflows with a rich set of commenting tools and review tracking features; includes everything needed to create and distribute rich electronic documents that can be viewed easily within leading web browsers or on computer desktops via the free adobe reader. adobe acrobat pro<U+0097>in addition to all the capabilities of acrobat standard, acrobat pro delivers specialized capabilities for creative professional and engineering users, such as pre-flighting, color separation and measuring tools; also allows users to insert flash video or h.264 video for direct playback in the most recent versions of adobe acrobat and adobe reader software, create dynamic html and pdf forms with adobe formscentral that is included with acrobat pro, ad hoc form distribution and data collection, and create adobe pdf documents that enable adobe reader users to digitally sign adobe pdf documents, participate in a shared review and fill and save in forms. adobe acrobat.com<U+0097>an online collaboration service which provides simple web conferencing, centralized online file sharing and storage capabilities, and online collaborative applications like a word processor and a spreadsheet authoring tool. adobe createpdf<U+0097>an online pdf file creation service that provides easy conversion of almost all document files to adobe pdf for the secure and reliable sharing of rich electronic documents that can be viewed easily within leading web browsers or on computers via the free adobe reader. adobe echosign<U+0097>offered as part of adobe's online document exchange services platform, echosign enables customers to electronically sign documents via a simple cloud-based service. adobe sendnow<U+0097>an online file sharing service that lets users send, share, and track files online, even large ones, without the complications of email size restrictions, multiple email attachments, ftp sites, and overnight shipping services. adobe reader<U+0097>software for reliable viewing, searching, reviewing and printing of adobe pdf documents on a variety of hardware and operating system platforms; when used with certain adobe pdf documents created with adobe livecycle reader extensions server software, acrobat pro or acrobat pro extended, adobe reader also can be used to enable collaborative workflows through the addition of collaboration features built into the adobe pdf document; these features include review and markup tools that normally are not present in the standard adobe reader product. adobe marketing cloud solutions we offer the adobe marketing cloud, our set of digital marketing solutions and services used to manage and enhance online, offline and multi-channel business initiatives, which we host and deliver to our customers on-demand and also provide as an on-premise solution for some products. our adobe marketing cloud solutions include a complete set of analytics, social, advertising, targeting and web experience management solutions and a real-time dashboard that brings together everything marketers and advertisers need to know about their marketing campaigns. it helps users of the solutions obtain data to gain insights and act upon their data more quickly. our solutions utilize data from online channels such as mobile, social and digital video; data from enterprise systems such as customer relationship management (<U+0093>crm<U+0094>) applications; content that can be assembled to create personalized experiences; and common services that allow the ability to access the data and content. these solutions and services are accessed primarily by a web browser, and are built on a scalable and flexible computing architecture. as such, these components and services reduce the need for our customers to make upfront investments in technology, implementation services or additional it personnel, thereby increasing customers' flexibility in allocating their it capital investments. adobe marketing cloud is comprised of several components listed below, organized around key solutions which address the broad needs of digital marketers. adobe analytics adobe analytics combines the power of actionable analytics and audience segmentation with the distributed value of reporting and sharing of key business analysis and connects it for data driven marketing. it includes the following key product components: adobe sitecatalyst<U+0097>hosted software that provides users the ability to capture, store and analyze information generated by their websites and other sources and to gain real-time business insights via charts, graphs and dashboards into the performance and efficiency of marketing and sales initiatives and other business processes; built on a scalable and flexible computing architecture. 20 table of contents adobe discover<U+0097>hosted software that provides web analysts and digital marketers with insight and concise web analytics marketing segmentation as revealed by real-time visitor information; enables businesses to understand a comprehensive, multi-dimensional view of their customers through accurate and timely information such that they can make informed decisions to improve the performance of their business. adobe datawarehouse<U+0097>contains information captured by sitecatalyst, our core analytics product offering, and other digital marketing applications. adobe reportbuilder<U+0097>a plugin that enables marketers to perform specialized analysis and easily create customized reports inside of microsoft excel; provides users with an intuitive, easy-to-use wizard that guides them through the process of importing real-time online analytics data from our sitecatalyst analytics product. adobe genesis<U+0097>contains application programming interfaces to integrate and augment analytics data with relevant data from internet and enterprise applications and data from a growing number of online and offline channels to enable business optimization. adobe insight<U+0097>on-premise software that enables organizations to quickly analyze large volumes of rapidly evolving data in real-time; provides users with charting and visualization capabilities to assist them with making quick business decisions that can improve overall business performance; accepts data from any source, including data warehouses and business intelligence tools. adobe social adobe social helps organizations measure and manage marketing activities across owned, earned and paid media<U+0097>ensuring the impact of social is properly attributed. it includes the following key product components: adobe social<U+0097>enables marketers to use social data as an input to optimizing interactions with their customers and prospects across all channels; helps users see social media data with other analytics data by integrating the two to give real-time measurement and segmentation information on social networks; with this insight, marketers can measure the impact of social media on their business and understand how conversations on social networks and online communities influence marketing performance. adobe cq social communities<U+0097>used by marketers to leverage social media and dedicated branded communities on their digital properties; enables customers to build out their social presence on their websites with user-generated content alongside premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities and encourage customer connection to increase engagement and drive higher brand loyalty and conversions. adobe media optimizer adobe media optimizer combines portfolio and rules based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. it includes the following key product components: adobe adlens<U+0097>a cloud-based, unified ad management system for digital marketing efforts across search, display, and social media channels; offers insight, control, and automation for cross-channel campaign management; users can manage and optimize search, display and social advertising as a unified campaign; includes data integration with adobe sitecatalyst; enables advertisers to utilize conversion metrics to make strategic media decisions and deliver optimal return on their advertising spending; also provides integration with adobe audiencemanager for targeted audience segmentation to ensure marketers can have their advertising campaigns reach their intended targeted audiences. adlens was formerly known as efficient frontier, and also combines the features of our product formerly known as adobe searchcenter. adobe audiencemanager<U+0097>hosted software that enables advertisers and publishers to maximize their online ad investment through online audience optimization; helps marketers consolidate audience information from all available sources and assists with identifying, quantifying, and optimizing high-value target audiences, which can then be offered to advertisers via an integrated, secure, privacy-friendly management system that works across all advertising distribution platforms. adobe audienceresearch<U+0097>hosted software that provides publishers with certified metrics, enabling insight into audience size and engagement for websites, mobile applications, and digital magazines; leveraging data from adobe sitecatalyst installations, it certifies the quality of the data and delivers accurate and consistent reporting in real time through relationships with the media rating council, the leading digital auditing service, and the interactive advertising bureau, which drives industry guidelines for audience measurement. 21 table of contents adobe target adobe target helps organizations dynamically test and present highly customized experiences to a digital property in order to drive significantly higher conversion rates. it includes the following key product components: adobe recommendations<U+0097>hosted software that enables businesses to promote products and content online; utilizes flexible data and behavioral driven algorithms, allowing our customers to increase conversions on their websites by ensuring relevant choices are automatically presented to their customers, either on websites or through email campaigns. adobe search&promote<U+0097>hosted software which enables marketers to optimize how visitors browse, find, compare, and select relevant products and content on web and mobile sites; marketers can easily promote priority items based on business objectives and visitor intent, as well as automate merchandising and promotions activity via certain triggers or metrics; provides flexible search and navigation interfaces, social browsing, sort and filter options, refinements based on multiple facets such as color, gender and customer ratings, an advanced marketer console to monitor conversion metrics and paths, and a visual rule builder to manage promotions. adobe test&target<U+0097>hosted software that gives digital marketers a website optimization tool with the capabilities to make their online content and offers more relevant to their customers, yielding the potential for greater customer conversion; provides an intuitive interface for designing and executing tests, creating audience segments and targeting content. adobe test&target 1:1<U+0097>hosted software that enables digital marketers to personalize the presentation of content and offers that a visitor may find most relevant, increasing the likelihood of engagement and conversion; enables marketers to target individual site visitors rather than predefined visitor segments; includes self-learning algorithms which minimize the investment required to target individuals with personalized content and offers; content can be optimized to any key performance indicator, including revenue, conversion, or click-through rate. adobe experience manager adobe experience manager enables marketers to create, manage, and optimize online customer experiences to build brand, drive demand and extend reach in the digital world. it integrates adobe's broad portfolio of industry-leading tools to empower marketers to execute with ease, agility, and effectiveness. experience manager also facilitates collaboration with it by providing the unified tools and platform to enable them to rapidly develop and deploy new templates, designs, and components for web, mobile and social channels to business users. the foundation of our experience manager solutions is adobe cq, our wcm platform which enables organizations to deliver carefully tailored customer experiences across web and mobile channels. experience manager also provides a rich analytics framework by enabling powerful, embedded integrations with a collection of analytics applications for online business optimization. this framework enables marketers to collect, test, and measure customer interactions with their brand to further refine the user experience, reinforcing a sustained, virtuous cycle that is constantly optimizing. key capabilities offered by experience manager include: <U+0095> automated personalization<U+0097>marketers can deliver targeted content to customers based on their persona, context, and other data, and simulate user experiences for different personas. as marketers identify which offers and content are relevant to their customers, they can continually evolve their experiences by executing multiple testing to improve content relevance in any channel; <U+0095> cross-channel-marketers can rapidly deliver content to all screens, as adobe cq automatically detects a user's device and sends the representation optimized for its device group. content authors can simulate the experience for mobile sites and mobile applications as it would appear on a particular device; <U+0095> digital asset management <U+0097>provides the ability to organize and manage digital assets with a single repository; <U+0095> social communities<U+0097>marketers can easily embed social properties such as wikis, blogs, calendars, and forums to glean customer insights to drive their business forward, foster brand advocates to evangelize their products and services, and empower their customers to share their own content, driving deeper engagement with their brand; and <U+0095> campaign management<U+0097>automates the management of multi-channel campaigns to help marketers handle customer segments, lists, leads, and reports. 22 table of contents adobe experience manager includes the following key product components: adobe cq<U+0097>our wem, dam, and social collaboration platform that enables interactive marketers to leverage the online channel as the most cost-effective marketing vehicle to engage customers and prospects to increase competitive advantage and drive revenue; offered as a hosted and on-premise solution. adobe scene7<U+0097>hosted solution used to enhance, publish, and deliver dynamic marketing assets to web, mobile, social, email, and print; enables businesses to leverage consumer data and tailor content delivery to provide a rich, immersive digital experience to each consumer in real-time; content is tailored by dynamically generating and delivering variations of rich content that is relevant for consumer engagement across channels and devices; used by many leading online retail websites to automate the production and availability of rich media experiences, including zoom, dynamic sizing, personalization and interactive dynamic product catalogs. landing pages<U+0097>enables digital marketers to quickly create, edit, and publish landing pages and microsites that build brand, drive demand, and reach new customers with agile digital experiences. adobe cq social communities<U+0097>used by marketers to leverage social media and dedicated branded communities on their digital properties; enables customers to build out their social presence on their websites with user-generated content alongside premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities and encourage customer connection to increase engagement and drive higher brand loyalty and conversions. digital asset management<U+0097>provides a repository for organizing and managing digital assets; integrates with adobe cq and adobe's creative authoring tools to provide a seamless path from asset creation to storage, approval, publishing, and reuse; designed to manage assets and dynamically deliver rich media, including video, for multi-channel distribution; uses web-based shared workspaces for workflow-based idea sharing and offers 24/7 self-service of marketing materials and video and image libraries; simplifies planning, production, and distribution of digital assets within organizations and with external digital agencies. adobe crx<U+0097>an open, standards-based enterprise content management (<U+0093>ecm<U+0094>) platform, built on a modern architecture that is highly scalable; natively manages all content as defined in the content repository for java technology api version 2.0 specification; this programming interface, defined by the ecm industry, provides developers with a stable and well-defined, yet extensible content and query model that protects past and future investments. media & advertising solutions we provide solutions for creating, delivering and monetizing video, enabling customers such as media and entertaining companies to expand the reach of their business using an entire workflow from adobe. within our digital media business our content creation tools are managed and offered to help customers create professional and premium video content. as part of our video content creation solutions, we also offer adobe anywhere which enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity. as more and more premium video delivery has migrated to the web, adobe has built out solutions in our digital marketing business to assist customers with delivering, protecting and monetizing their video assets. in 2012, we announced project primetime, which is a unified video platform that helps customers achieve broadcast audience reach, lower operating costs, and boost revenue from ad sales. our solution delivers a tv-like viewing experience across platforms, including ios and android, and on devices from desktops to tablets to smart tvs. project primetime provides a single, end-to-end workflow that links our streaming, drm, ad serving, audience management, analytics, and optimization technologies. our efforts with project primetime are based on the development and integration of the following products and solutions: adobe access<U+0097>a scalable, flexible content protection solution which provides an efficient workflow to help companies deliver and protect premium video across desktops, mobile devices, and platforms, including ios and android; as an ultraviolet approved drm technology, it also extends audience reach and enables a variety of business models, including hd rental, subscription, and electronic sell-through. adobe auditude<U+0097>a video ad serving platform that provides premium tv-like commercial breaks during video delivery, supported by robust tools and services to drive the highest volume of advertising demand from direct and indirect sales; enables seamless ad insertion across pc, ios and android devices, set-top boxes, game consoles, and other internet-connected video playback devices; allows marketers to deliver relevant, targeted advertising with full control over ad quality and sequencing. 23 table of contents adobe media server<U+0097>a family of server-based software which provides video publishing and workflow capabilities that enable customers to deliver video to pc and non-pc platforms, including those running ios and android; utilizes flexible delivery methods which can save bandwidth costs and lighten network load; offered to customers with different levels of capabilities: <U+0095> adobe media server standard<U+0097>base level version enables customers to deliver video on-demand and live through http delivery to reach broad video audiences using ios and adobe flash player compatible devices and pcs. <U+0095> adobe media server professional<U+0097>combines with adobe access software to enable customers to stream protected, studio-grade content using a single drm workflow across desktops, connected tvs, tablets, and smartphones, including ios and android devices. <U+0095> adobe media server extended<U+0097>broadens video delivery broadcast capabilities by enabling customers to serve video to more viewers on a large scale with peer-to-peer capabilities. <U+0095> adobe media server on amazon web services<U+0097>an easy and affordable way for customers to deploy multiprotocol media streaming that scales to meet business needs; supports dynamic http packaging, protected http streaming, and drm for apple hls; enables a single packaging and protection workflow, and provides delivery scale through integration with amazon cloudfront. adobe media encoder<U+0097>a free media encoder and live audio and video capture software, also available as part of adobe creative cloud and our creative suite video products; streams audio and video in real time to adobe media server software; enables web broadcasts of live events such as sporting events, concerts, webcasts, and news and educational events. adobe pass for tv everywhere<U+0097>as part of the tv everywhere industry initiative, adobe pass enables content owners to verify a user's entitlement to content in a manner that is simple and secure; implemented as a hosted service, it allows for back-end integration based on the business rules required by both programmers and pay tv providers; helps content owners and pay tv providers take their content to the internet with a secure environment to prevent fraud, and a superior customer experience. adobe video streaming service<U+0097>via cdn partners, adobe offers hosted services for streaming on-demand video for the adobe flash player runtime across high-performance networks; built with adobe media server, adobe video streaming service provides an effective way to deliver .flv video to large audiences without the overhead of setting up and maintaining streaming server hardware and network. http dynamic streaming<U+0097>enables on-demand and live streaming of standards-based mp4 video over regular http connections; gives content creators, developers, and publishers more choice in high-quality media; while the real time message protocol remains the protocol of choice for lowest latency, fastest start, dynamic buffering, and stream encryption, http dynamic streaming enables leveraging of existing caching infrastructures, and provides tools for integrating content preparation into existing encoding workflows. digital marketing<U+0097>digital enterprise products adobe connect<U+0097>a rich web-based saas offering or on-premise perpetual license server communication system that enables organizations to reduce the costs of travel and increase the effectiveness of online training, marketing events, sales meetings and collaborative web conferencing solutions which are instantly accessible by customers, partners and employees using adobe flash player; consists of a core adobe connect events server or hosted service, and modules that provide specific application functionality, including adobe connect training and adobe connect events; can be deployed with either some or all of these components together; adobe connect training allows organizations to build a complete online training system with microsoft powerpoint presentations that include surveys, analysis, course administration and content management; adobe connect events allows users to provide seminar and training sessions as well as to conduct business presentations through the web. adobe livecycle collaboration service<U+0097>enables architects and developers to create more engaging and more dynamic user experiences that deliver multi-user, real-time collaboration features into new or existing rich internet applications; allows customers to offload management and processing for features such as chat, video, voip and white-boarding, ultimately to provide guided product or service selection, assisted product design or enhanced customer support. adobe livecycle connectors for ecm<U+0097>solutions that enable livecycle customers to connect their livecycle applications with other industry-leading enterprise content management systems, such as emc documentum, ibm filenet and ibm content manager. adobe livecycle content services<U+0097>offers a library of services that can be used with other livecycle solution components to create content-rich engagement applications whereby end users can share and collaborate on content development in content spaces as part of a company's business processes; supports check-in/check-out capabilities, keeps a complete audit history of all 24 table of contents document actions and provides a fully integrated set of content services ranging from an enterprise content repository to social collaboration tools such as enterprise forums; also includes team collaboration capabilities such as forums and discussions, and provides microsoft office plug-ins that enable users to interact with the process engine and content repository using microsoft word and microsoft excel. adobe livecycle mosaic<U+0097>provides rich internet application framework for rapidly assembling and engaging activity-centric enterprise applications, and provides knowledge workers with real-time, contextual information from multiple sources in a single, personalized view; used by developers to extend existing applications by exposing their business logic and user interfaces into application tiles that can be assembled to create unified views. adobe livecycle data services<U+0097>high-performance, scalable and flexible framework that streamlines the development of rias using flex and adobe air; abstracts the complexity required to create server push-based applications and supports a rich set of features to create real-time solutions; utilizes powerful data services and simplifies data management problems such as tracking changes, synchronization, paging and conflict resolution; deployed as a standard j2ee web application, which enables customers to leverage their existing infrastructure. adobe livecycle forms<U+0097>server-based software application that organizations can use to cost-effectively and securely extend their core business processes beyond their enterprise system; enables customers to create and deploy xml-based form templates as pdf, swf, or html for use with adobe reader or adobe flash player software, or with web browsers; provides for the capture of data from submitted forms and the transfer of the data directly into an organization's core business systems, thereby streamlining form-driven business processes and improving data accuracy. adobe livecycle reader extensions<U+0097>server-based software application that lets enterprises easily share interactive adobe pdf documents with external parties without requiring recipients of the documents to purchase acrobat software that normally would be necessary to interact with the adobe pdf documents they receive; unlocks features on an individual adobe pdf document by document basis so that when such a file is opened in the free adobe reader, users have access to tools that normally would not be available in adobe reader, such as reviewing and commenting functions, signatures to digitally sign pdf documents, embedding file attachments, enabling database and web service capabilities, and the ability to fill in form data, submit and save electronic documents locally. adobe livecycle output<U+0097>server-based solution that supports on-demand document processes including the generation of documents such as correspondence, confirmations, bids, or shipping labels; provides capabilities to merge xml data from back-end systems with livecycle designer es templates to generate documents in pdf, pdf/a, postscript, pcl, or zebra label formats; customers can customize electronic document packages by combining newly generated pdf documents with existing files from document repositories; customers can also convert pdf documents to print or image file formats and then route them automatically to support direct server-based printing or archiving operations. adobe livecycle pdf generator<U+0097>server-based software that automates the creation, assembly, distribution and archiving of pdf documents in combination with critical business processes; converts a wide range of native and standard file formats, and can combine newly created pdf documents with existing files or pages to assemble customized pdf packages; supports direct server-based pdf printing or can convert pdf documents to a wide variety of formats, including image formats and pdf/a. adobe livecycle production print<U+0097>server-based solution that performs high-volume jobs through efficient batch processes, generating documents such as statements, invoices, contracts, or welcome kits; merges xml, ascii or other data types from back-end systems with livecycle designer es templates to generate documents in a broad range of print or electronic formats to support high volume production requirements; enables customers to print document packages by collecting multiple jobs over time and then grouping them to minimize mailing costs. adobe livecycle digital signatures<U+0097>server-based software application that helps organizations automate the processing of electronic documents by providing batch-based capabilities to digitally sign and certify adobe pdf documents, validate digital signatures and encrypt/decrypt adobe pdf documents; safeguards information when it leaves a company's network and integrates with existing public key infrastructures. adobe livecycle rights management<U+0097>server-based software application that helps organizations manage information access securely with dynamic, persistent document control; allows for access control and auditing of adobe pdf, microsoft word, microsoft excel, microsoft powerpoint, ptc pro/engineer, dassault catia and lattice xvl cad document usage inside or outside the firewall, online or offline and across multiple document platforms; lets organizations know when a document has been viewed, printed or altered and restricts access so that only intended recipients can open, use and forward a document; allows for previously granted document permissions and access to be revoked; leverages acrobat and adobe reader and other client plug-in software to author and view protected documents. 25 table of contents adobe livecycle process management<U+0097>server-based process management application that allows organizations to orchestrate people, systems, content and business rules into streamlined, end-to-end processes that are accessible to process participants through engaging user interfaces, online or offline; provides out-of-box dashboards to help users gain insights into business operations in real time and management tools to fix day-to-day operational problems and make long-term process improvements. adobe livecycle business activity monitoring<U+0097>software that allows administrators and process participants to quickly identify bottlenecks, check progress and view other process information related to business transactions; comes in two versions: adobe livecycle business activity monitoring (<U+0093>bam<U+0094>) es standard, which allows for the monitoring of all livecycle processes with 16 out-of-the-box dashboards and, adobe livecycle bam es extended, which adds the ability to extend livecycle bam es to other enterprise business systems so that users can monitor business processes via dashboards inside and outside the livecycle environment. adobe livecycle managed services<U+0097>livecycle is available as on-premise software or as a managed services offering delivered in partnership with amazon.com. livecycle managed services customers pay adobe an annual subscription fee. in return, adobe provisions and manages a livecycle instance for the customer on amazon web services. by outsourcing the management of their livecycle instance to adobe, customers benefit from increased capital efficiency and reduced complexity. as a result, customers can focus more of their efforts on providing successful user outcomes and less on the tasks of managing computing infrastructure. adobe central pro output server<U+0097>a server-based software application for document generation that allows organizations to create personalized, customer-facing documents from any data source, including legacy, line-of-business, enterprise resource planning or crm applications; merges data with an electronic document template using a powerful processing engine to dynamically generate electronic documents such as purchase orders, invoices, statements and checks for delivery via adobe pdf, the web, e-mail, fax or print; works with adobe output designer which is a companion tool used to create sophisticated document templates. adobe livecycle designer<U+0097>desktop software application that simplifies the creation and maintenance of intelligent xml based forms for deployment as adobe pdf forms, html applications and flash based rias; provides an intuitive, graphical design tool for creating xml templates that look exactly as the author intended and previewing them before deployment; it also simplifies adding intelligence to documents, such as business and routing logic, and binding form fields to arbitrary xml schemes for seamless integration with enterprise applications. adobe output designer<U+0097>a design tool that allows users to create electronic document templates for use with adobe solutions for document generation; aids in the creation of electronic documents that exactly replicate existing paper documents. adobe output pak for mysap.com<U+0097>an sap-certified server-based software application for document generation that enables organizations to optimize their investment in their sap solution by creating personalized, professional-looking, customer-facing documents; provides an easy, fast and cost-effective way to create and maintain documents for the sap environment; integrates directly with an sap system to extract information which is merged with a document template that defines the layout and formatting of the document; output can be in a variety of formats, including adobe pdf, print, fax, e-mail and the web. adobe web output pak<U+0097>a server-based software application for document generation; creates documents in pdf and html for presentation on the web and in wireless markup language for presentation to a wireless device; allows users to personalize and control the look of documents based on the data the documents contain. print and publishing products adobe authorware<U+0097>a legacy rich media authoring tool used to develop caption based elearning on windows and macintosh based platforms; use of the product ranges from creating web-based tutorials to simulations incorporating audio and video; applications developed with authorware can be delivered on the web, over corporate networks or on cd-rom. adobe captivate<U+0097>enables users to rapidly create professional and engaging elearning content-including software simulation, quizzes, animation and multimedia-and deliver the content in .flv and other formats; the content can be created without any programming or multi-media skills and can be published to cd/dvds and learning management systems used in training, sales, marketing and customer support applications; often used in combination with adobe connect, adobe captivate provides a robust technology solution to bring understanding and retention to end users of rapid training and elearning solutions. adobe coldfusion<U+0097>provides a server-scripting environment and a set of features used by organizations for building database-driven scalable applications that are accessible through web browsers, adobe flash player and adobe air; built on an open java technology architecture and can be deployed on third-party java application servers that support the j2ee specification. 26 table of contents adobe coldfusion builder<U+0097>development tool for building coldfusion applications; provides a unified, customizable and extensible development environment to code applications, manage servers and deploy projects. adobe contribute<U+0097>an easy-to-use tool to update and publish web content, designed for non-technical business users who need to make minor changes to intranet and internet websites that conform to the structure, style, layout and site standards setup by a website administrator; streamlines the web content maintenance process and provides website administrators with a set of simple content management functionality to manage and administer websites; also provides bloggers with a simple tool to create and update their blogs. adobe director<U+0097>a tool for creating professional multimedia content that combines images, text, audio and video into presentations, interactive experiences and prototypes; for websites, it provides users with the ability to deliver multimedia content that supports three dimensional content and animations for use in various markets, including education, games and commerce; also enables the creation of fixed-media content for cd titles and dvd titles in the entertainment, education and corporate training markets. adobe elearning suite<U+0097>an integrated set of software for creating professional elearning and html5-based courseware; includes capabilities of adobe captivate, flash professional, dreamweaver, photoshop extended, acrobat, adobe presenter, adobe audition and adobe bridge. adobe framemaker<U+0097>an application for authoring and publishing long, structured, content-rich documents including books, documentation, technical manuals and reports; provides users a way to publish their content to multiple output formats, including print, adobe pdf, html, xml and microsoft word. adobe framemaker server<U+0097>extends the capabilities of framemaker software in an automated, server-based environment; includes features that facilitate high-volume publishing, including catalog, database, and directory publishing, as well as the production of personalized technical documents and custom ebooks. adobe font folio<U+0097>contains more than 2,400 typefaces from the adobe type library in opentype format, offering a type solution for print, the web, digital video or electronic documents; also includes adobe type manager which makes it easy to create beautiful text for print, web and video projects. adobe jrun<U+0097>a legacy application server solution based on the j2ee specification; integrates with our development tool offerings and is used to deploy applications for functions such as online banking and customer service. adobe pagemaker<U+0097>software used to create high-quality documents simply and reliably with robust page layout tools, templates and stock art. adobe pdf print engine<U+0097>a next-generation printing platform that enables complete, end-to-end pdf-based workflows using common pdf technology to generate, preview and print pdf documents; allows pdf documents to be rendered natively throughout a workflow, providing performance benefits which include eliminating the need to flatten transparent artwork. adobe postscript<U+0097>a printing and imaging page description language that delivers high quality output, cross-platform compatibility and top performance for graphically rich printing output from corporate desktop printers to high-end publishing printers; gives users the power to create and print visually rich documents with total precision; licensed to printing equipment and workflow software manufacturers for integration into their printing products. adobe robohelp<U+0097>an easy-to-use authoring and collaboration tool used by developers and technical writers to create professional help systems and documentation for desktops, smartphones, tablets and web-based applications; utilizes support for html5, webhelp, compiled windows html help (<U+0093>chm<U+0094>), air help, pdf, ebook, and native mobile apps. adobe shockwave player<U+0097>a rich media player used for deploying multimedia content for use in internet solutions including education, training, games and commerce. adobe technical communication suite<U+0097>an integrated set of software for technical communicators who create and delivery technical-orientated content; includes acrobat, adobe captivate, framemaker, illustrator and robohelp technologies; helps customers improve their workflows, especially technical communicators who want a single solution to meet their content creation and publishing needs. freehand mx<U+0097>a legacy professional vector graphics tool designers and illustrators use to create images. 27 table of contents competition the markets for our products and services are characterized by intense competition, new industry standards, evolving business and distribution models, disruptive software and hardware technology developments, frequent new product introductions, short product life cycles, price cutting with resulting downward pressure on gross margins and price sensitivity on the part of consumers. our future success will depend on our ability to enhance and better integrate our existing products, introduce new products on a timely and cost-effective basis, meet changing customer needs, extend our core technology into new applications and anticipate and respond to emerging standards, business models, software delivery methods and other technological changes. digital media in our digital media segment, we offer adobe creative cloud and adobe creative suite in multiple editions which consist of combinations of several of our technologies. in addition to offering the technologies within these products, we also offer many of them as individual software applications. these products compete with those from many companies, including apple, aviary, avid, corel, microsoft, quark and others, as well as from many lower-end offerings available on touch-enabled devices via app stores, and from various open source initiatives. of the competitors listed, no single company has offerings identical to our creative suite and creative cloud family of products, but our products face collective competition from a variety of point offerings, free products and downloadable apps. for instance, aviary provides for a free set of online, cloud-based creative tools via its partners' websites and mobile applications. its tools run inside web browsers and mobile applications and include an image editor, a vector graphics editor, a special effects tool, and audio and music tools. we believe our creative suite and creative cloud family of products competes favorably on the basis of features and functionality, ease of use, product reliability, value and performance characteristics. the individual technologies within creative cloud and the creative suite editions also work well together, providing broader functionality and shortened product training time for the individual who uses multiple applications to complete a project. as discussed below, we also believe our individual creative suite and creative cloud products compete favorably against those offered by competitors noted above. our indesign product, used for professional page layout, faces competition from offerings such as quark xpress in the professional page layout market. we believe indesign competes favorably due to the innovative features of indesign, its improved integration with our other products, our strong brand among users, positive reviews by industry experts, and more recent innovations which address customer challenges related to publishing for tablets which is delivered in concert with our new digital publishing suite offerings. professional drawing and illustration products are characterized by feature-rich competition, brand awareness and price sensitivity. our adobe illustrator product faces competition from companies such as acdsee, aviary, corel, mediascape, xara and the open source product called karbon14. competition in this market is also emerging with a new category of drawing and illustration applications on tablet and smartphone platforms. we offer adobe ideas for graphics creation on tablets, and other software companies, including autodesk with its sketchbook pro application, are extending their products and feature sets to platforms such as apple's ipad and potentially other tablet devices. we believe our products compete favorably due to high customer awareness of their rich features, especially the drawing and illustration functionalities, the technical capabilities of the product and our ability to leverage core technologies from our other established products. the demand for professional web page layout and professional web content creation tools is constantly evolving and highly volatile. we believe dreamweaver and flash professional face direct and indirect competition from desktop software companies such as bare bones software, flashdevelop, jetbrains, panic, macrabbit, macromates, and various proprietary and open source web authoring tools. we also face competition from microsoft visual studio products, and other integrated development environments that enable developers to create web applications from companies such as bea systems (a subsidiary of oracle), borland (owned by micro focus) and ibm. we believe our products compare favorably to these applications; however, our market share may be constrained by microsoft's ability to target its web software to users in markets it dominates. these target customers include users of microsoft office, microsoft windows operating system, the microsoft internet explorer web browser and microsoft visual studio. our flash technologies, including adobe flash player and adobe air, face competition from alternative approaches to building rich content and web applications such as javafx, html5, native applications and unity. 28 table of contents the html specification, which among other things describes the syntax and format for encoding web pages, has evolved over several decades and adobe has participated in its evolution. our tools are among the leading applications used by web designers and developers to create html-based content that is displayed and viewed in web browsers. the newest version of html, commonly known as html5, is being developed by an industry consortium that includes adobe and leading browser vendors such as apple, google and microsoft, and contains new features which compete with some of the features of flash. these features include the ability to create and display rich advertising and play video natively within the browser. we are working to implement support for html5 in our creative product solutions, and we believe we will provide the widest array of support and tooling for html5 content creation over time. we are also contributing adobe technology to webkit, the open source project utilized by popular internet browsers such as apple's safari and google's chrome browser, to improve the user experience for html5-based content in areas such as publishing and animated graphics. by increasing the capabilities for displaying rich content in browsers with html5, we believe we can increase the desire by web content creators for our tools that create such content. as it relates to flash, we believe that flash technology-based content and tooling have a significant technology lead over other solutions trying to replicate its feature sets on pc-based systems, particularly in use cases such as online gaming, web applications, 3d-based content, and premium online video delivery. given apple's considerable market share with smartphones and tablets, and apple's decision to not support adobe flash player on its mobile devices, in 2011 we decided (based on this and other factors) to discontinue new development on adobe flash player for mobile browser implementations in favor of supporting adobe air for the packaging of standalone mobile applications developed using flash technologies. as it relates to html5, we believe demand for authoring using new html5 features will intensify the competition in the professional web page layout market. we also believe the potential fragmentation of html5 implementations by the various browser vendors that compete with each other will create the need for tool improvements to address the disparities between platforms and devices that could result. our dreamweaver product, new adobe edge tools & services and adobe muse are well positioned to assist customers with migrating to new versions of standards such as html5, as well as delivering the means to create rich, interactive experiences on devices and screens of all sizes. we expect new tools and solutions to come to market that will compete with our tools. however, we believe our continuing innovation in our tools, and how these tools are integrated with other adobe technologies that are used by web content creators, creates a value proposition that is greater than those trying to compete with our web page content creation offerings. as customers such as publishers and media companies increase their desire to deliver their assets to new platforms such as mobile devices and tablets, we expect new and existing companies to continue to offer solutions that address these challenges that are competitive with our digital publishing suite. many design agencies are building capabilities to offer such solutions, and companies such as amazon, apple, aquafada, google, texterity and zinio offer an alternative format and business model for the delivery of newspaper and magazine content to mobile devices. with our adobe media server solution, we face competition from microsoft with its windows media server for windows media and silverlight, as well as apple, move networks, real networks, wowza media systems and others. our tools used to create applications for pcs and mobile devices such as smartphones and tablets are influenced by evolving industry standards, rapid software and hardware technology developments and frequent new product and technology introductions by companies or open-source initiatives targeting similar opportunities. technologies and products that compete with our tools for creating mobile applications include solutions that utilize java and scalable vector graphics. on apple devices running the ios operating system, on devices running microsoft operating systems and on devices running the google android operating system, developers can choose to use native development environments for those platforms. they can also utilize other developer solutions that can be compiled to run on such devices, including those from companies such as appcelerator, unity technologies, sencha and strobe. we believe our robust programming model and developer tools used to create rich content, our large developer community and ecosystem that utilize our tools and the growth of companies who utilize our flash, air, phonegap and phonegap build solutions as a basis for rich content and application delivery across multiple screens are key assets in our ability to effectively compete in this market. further, the rich expressiveness of flash, which provides the capability to deliver audio, video, motion graphics, vector graphics and visual effects resulting in rich user experiences and interfaces in browsers on pc platforms and as applications across pc and mobile device platforms such as ios and android, is a key differentiation when compared to the capabilities of alternate solutions, especially for gaming and premium video delivery use cases. the needs of digital imaging and video editing software users are constantly evolving due to rapid technology and hardware advancements in digital cameras, digital video cameras, printers, pcs, tablets, mobile phones and other new devices. our imaging and video software offerings, including photoshop, photoshop lightroom, photoshop elements, after effects, adobe audition, encore, adobe premiere elements and adobe premiere pro, face competition from companies offering similar products. we also 29 table of contents continue to face competition from new and free products, including web services and mobile/tablet applications that compete directly with our adobe revel offering. in professional digital imaging, software applications and services compete based on product features, brand awareness and price sensitivity. in addition to competition with apple's aperture product, our photoshop and photoshop lightroom products face direct and indirect competition from a number of companies, including corel. new image editing applications for mobile devices and tablets with features that compete with our professional products are also emerging as adoption of these devices grows. our adobe photoshop products compete favorably due to high customer awareness of the photoshop brand in digital imaging, the positive recommendations for our photoshop product by market influencers, the features and technical capabilities of the product and our ability to leverage core features from our other established products. our other digital imaging and video editing offerings, including adobe photoshop elements and adobe premiere elements, are subject to intense competition, including customer price sensitivity, competitor brand awareness and competitor strength in oem bundling and retail distribution. we face direct and indirect competition in the consumer digital imaging market from a number of companies that market software that competes with ours, including acd systems, ai soft (japan), apple, arcsoft, corel, i4 (japan), google, kodak, nova development, magix, microsoft, photodex corporation, sonic (owned by rovi), pinnacle (owned by avid) and sony. in addition, we face competition from device, hardware and camera manufacturers such as apple, canon, dell, hewlett-packard, nikon, phase one, sony and others as they try to differentiate their offerings by bundling, for free, their own digital imaging software, or those of our competitors. similarly, we face potential competition from operating system manufacturers such as apple with their iphoto product and microsoft as they integrate or offer hobbyist-level digital imaging and image management features with their operating systems. we also face potential competition from smartphone and tablet manufacturers that integrate imaging and video software into their devices to work with cameras that come as part of their smartphone and tablet offerings. in addition, new social networking platforms such as facebook (including its instagram offering) and portal sites such as google and yahoo! are becoming a direct means to post, edit and share images, bypassing the step of using image editing and sharing software. competition is also emerging with a new category of imaging and video applications on tablet and smartphone platforms. existing as well as new competitors are extending their products and feature sets to platforms such as apple's ipad and potentially other tablet devices. similarly, new cloud-based saas offerings continue to emerge which offer image editing and video-editing capabilities, as well as social and sharing features. in addition to competing with our own mobile applications such as photoshop express, our lightroom product and our photoshop elements and adobe premiere hobbyist products, these products could start to encroach upon the feature sets of our professional tools. applications for digital video editing, motion graphics, special effects, audio creation and dvd authoring face increasing competition as video professionals and hobbyists migrate towards the use of digital camcorders and digital video production on their computers, and dvd systems and online video for rich media playback. our after effects, adobe audition, encore and adobe premiere pro software products, as well as the adobe creative suite production premium edition which contains these products, face competition from companies such as apple, avid, canopus (owned by grass valley), sonic (owned by rovi) and sony. our adobe premiere elements software product, which is targeted for use by hobbyists, faces competition from companies such as apple, arcsoft, autodesk, avid, broderbund, corel, magix, microsoft and sony as well as video editing capabilities found in operating systems, hosted saas solutions, video editing solutions bundled by video camcorder manufacturers with their hardware offerings, and video editing solutions bundled onto smartphones. similarly, we face potential competition from operating system manufacturers such as apple with its imovie and idvd products and microsoft with its windows movie maker product as they integrate or offer hobbyist-level digital imaging and image management features with their operating systems. we believe we compete favorably against other digital imaging, digital video and consumer-focused image management software applications with our adobe photoshop elements and adobe premiere elements products due to strong consumer awareness of our brand in digital imaging and digital video, our relationships with significant oems, positive recommendations for our products by market influencers, our focus on the retail software channel and strong feature sets. after effects is a leader in professional compositing and visual effects due to its strong feature set and its integration with our other products that helps create a broad video editing platform for our customers. in professional digital video editing, we are an industry leader with adobe premiere pro and compete favorably due to our strong feature set, our oem relationships and the integration with our other products to create a broad digital video publishing platform for our customers. with our acrobat business, we continue to face competition from microsoft. their widely used office product offers a feature to save microsoft office documents as pdf documents, which competes with acrobat. they also offer a proprietary digital 30 table of contents rights management technology and a document format, called xml paper specification (<U+0093>xps<U+0094>), which competes with adobe pdf. given microsoft's market dominance, the pdf feature in office, xps, and any other competitive microsoft product or technology that is bundled as part of its office product or operating system or made freely available, could harm our overall acrobat market opportunity. our acrobat product family also faces competition in the pdf file creation market from many clone products marketed by companies such as adlib, active pdf, apple, global graphics, nuance, software995, sourcenext and others. in addition, other pdf creation solutions can be found at a low cost, or for free, on the web. for customers that use acrobat as part of document collaboration and document process management solutions, where electronic document delivery, exchange, collaboration, security and archival needs exist, our acrobat product family faces competition from entrenched office applications such as microsoft office and its integration with its sharepoint product. in the higher end of the electronic document market, acrobat pro and acrobat pro extended provide features which compete with other creative professional pdf tool providers, such as enfocus, dalim and zinio. google's google apps set of products also provides document creation and collaboration capabilities, including the ability to preview pdf documents, which can be used as an alternative to our collaboration features in acrobat. to address these competitive threats, we are working to ensure our adobe acrobat applications stay at the forefront of innovation in emerging opportunities such as pdf document generation, document collaboration and document security. digital marketing the markets in which our digital marketing business unit competes are growing rapidly and characterized by intense competition. our adobe marketing cloud solutions face competition from large companies such as google, yahoo!, microsoft, oracle, ibm, hp, salesforce.com and others, in addition to point product solutions and focused competitors. additionally, new competitors are constantly entering these markets, increasing competition. certain of these competitors provide software on demand to customers, generally through a web browser, or provide software that is installed by customers directly on their servers. in addition, we compete at times with our customers' or potential customers' internally developed applications. of the competitors listed, no single company has products identical to our digital marketing offerings. our digital marketing solutions compete in a variety of areas, including: reporting and analytics; multi-channel marketing and optimization; online and social marketing; web experience management and others. in the market of digital marketing, we believe our creative tools heritage differentiates us from our competitors; we have worked closely with marketing and creative customers for thirty years. we also believe we have market leadership in the digital marketing market, with current customers representing leading brands in the world including markets such as financial services, global media, retail and auto manufacturing. our comprehensive solution to serve the needs of customers in this market extends further than any other company addressing the opportunity; we integrate content and data, analytics, personalization, web experience management, campaign management and social capabilities in our adobe marketing cloud, surpassing the features of any competitor. most importantly, we provide a vision for our digital marketing customers as we engage with them across the important aspects of their business, extending from their use of our creative cloud, to how they manage, deliver, measure and monetize their content with our adobe marketing cloud. our current principal competitors for our reporting and analytics offerings include companies that offer web analytics and optimization services on-demand such as comscore (which recently acquired adxpose and certifica), google, ibm (which owns coremetrics, unica and tealeaf), microsoft, webtrends, xiti and yahoo!. we also compete with software and business intelligence vendors, such as infor (which owns epiphany), nielsen/netratings (which is a part of the nielsen online unit of the nielsen company) and sas institute. in addition, we also compete with online marketing service providers, such as doubleclick (owned by google), microsoft advertising (formerly aquantive when acquired by microsoft) and 24/7 real media (acquired by wpp). our insight products compete with channel analytics providers, such as asterdata (owned by teradata), clickfox, netezza (owned by ibm), qliktech and truviso. in addition to competing with large search, display and social companies, our adlens products and multi-channel campaign management offerings, including those obtained through our acquisition of efficient frontier, compete with point solutions providers such as bluekai, criteo, decidedna (owned by wpp), doubleclick search (owned by google), ignitionone, kenshoo and marin software. our target solutions compete with multivariate testing providers, such as kefta (owned by acxiom digital), memetrics (owned by accenture), monetate, optimizely, optimost (owned by hp) and [x + 1]. our target products and solutions compete with intra-site search vendors and merchandising solutions providers such as autonomy (owned by hp), celebros, endeca technologies (owned by oracle), fast search and transfer asa (owned by microsoft), fredhopper, google, nextopia software and sli systems. 31 table of contents our adobe social offerings compete primarily with social monitoring platforms such as radian6 (owned by salesforce.com) and visible technologies, as well as with social marketing companies such as buddy media (owned by salesforce.com), lithium technologies, vitrue (owned by oracle) and wildfire (owned by google). our experience manager solution competes with: general enterprise content platforms, including products from documentum (owned by emc), hp (which acquired autonomy), ibm, opentext, and oracle (which acquired fatwire); content management tools like microsoft sharepoint; large-scale wem systems from companies such as vignette (owned by opentext); and more specialized solutions, including products from alfresco, coremedia, percussion, and sdl. in addition, there are low-cost and open source alternatives, such as drupal, joomla!, and wordpress. many of the companies with which we compete offer a variety of products or services and as a result could also bundle their products or services, which may result in these companies effectively selling their products or services at or below market prices. in addition, large software, internet and database management companies have expanded and enhanced their offerings in the digital marketing area, either by developing competing services or by acquiring existing competitors or strategic partners of ours. for example, apple provides its iad service, google offers both a free and premium web analytics service and acquired doubleclick, one of our strategic partners, in 2007. also, microsoft offers a web analytics service, and offers microsoft advertising, which is based on microsoft's 2007 acquisition of aquantive; yahoo! also offers a web analytics service based on its acquisition of indextools; salesforce.com acquired buddy media and radian6 to provide services to monitor and analyze social media conversations; oracle acquired endeca technologies, fatwire, involver and vitrue and has entered into a definitive agreement to acquire eloqua, and hp acquired autonomy (which had previously acquired interwoven) to increase their presences in the digital marketing space; and ibm, with its coremetrics and unica acquisitions, has extended its e-retailing offering in an initiative it calls project northstar. these competitors, given their significant resources and preexisting relationships with our current and potential customers, could compete effectively against us. we believe competitive factors in our markets include the proven performance, security, scalability, flexibility and reliability of services; the strategic relationships and integration with third-party applications; the intuitiveness and visual appeal of services' user interfaces; the low total cost of ownership and demonstrable cost-effective benefits to customers; the ability of services to provide n-dimensional segmentation of information; pricing; the flexibility and adaptability of services to match changing business demands; enterprise-level customer service and training; perceived market leadership; the usability of services, including services being easy to learn and remember, efficient and visually compelling; the real-time availability of data and reporting; independence from portals and search engines; the ability to deploy the services globally and to provide multi-currency, multi-language and multi-character support and to have a local presence in international markets; and success in educating customers in how to utilize services effectively. we believe that we compete favorably with both the enterprise and low-cost alternatives, based on many of these competitive factors including our strong feature set, the breadth of our offerings, our focus on global, multi-brand, multi- language websites, our superior user experience, tools for building multi-screen, multi-channel applications, standards-based architecture, scalability and performance and leadership in industry standards efforts. our web conferencing solution, adobe connect, faces competition from many web conferencing vendors, including cisco webex, microsoft office live meeting (now a part of their microsoft lync offering), ibm lotus sametime and citrix gotomeeting (and their recent acquisition of netviewer). cisco webex is a market share leader, and microsoft has steadily increased its marketing of its solution as well as acquired skype which is a service that enables video calls via the internet. microsoft has brought to market products and technologies to address many of the market needs we focus on with our livecycle family of products. microsoft offers its eforms solution called infopath in certain versions of microsoft office and has added office forms services which extends their forms to users as ms outlook e-mail messages or to web browsers rather than the infopath client. they also continue to offer their windows rights management services in their windows server product which is designed to allow corporate networks to manage and enforce restrictions built into documents. certain windows operating systems contain a proprietary digital rights management technology which competes with our livecycle rights management. in addition, microsoft's office product includes sharepoint which competes with certain aspects of our livecycle products. microsoft has also delivered technology called windows presentation foundation and silverlight which offers an alternative to building ria applications within the microsoft .net framework. in the electronic forms solution market, in addition to competition from microsoft infopath based solutions, we face competition from ibm through their eforms solution recently rebranded as lotus workplace forms. similarly, we face competition for document process management solutions from workflow solution vendors such as pegasystems, lombardi (owned by ibm), nuance and ultimus. print and publishing our print and publishing product line targets many markets. in technical authoring and publishing, our adobe framemaker product faces competition from large-scale electronic publishing systems, xml-based publishing companies such as ptc, as well 32 table of contents as lower-end desktop publishing products such as microsoft word. competition is based on the quality and features of products, the level of customization and integration with other publishing system components, the number of hardware platforms supported, service and price. we believe we can successfully compete based upon the quality and features of the framemaker product and our extensive application programming interface. in desktop publishing, our adobe pagemaker product faces competition from other software products, including microsoft publisher. competition is based on the quality and features of products, ease-of-use, printer service support and price. we believe we have a strong product and can successfully compete with these types of applications based upon the quality and features of the pagemaker product, its strong brand among users and its widespread adoption among printer service bureaus. in printing technologies, we believe the principal competitive factors for oems in selecting a page description language or a printing technology are product capabilities, market leadership, reliability, price, support and engineering development assistance. we believe that our competitive advantages include our technology competency, oem customer relationships and our intellectual property portfolio. adobe postscript faces competition from hewlett-packard's proprietary pcl page description language and from developers of other page description languages based on the postscript language standard, including global graphics and zoran. in addition, microsoft's xps document format and autodesk's dwg format compete with adobe pdf and our postscript technologies and solutions. in the elearning authoring market, our adobe elearning suite and our adobe captivate product face competition from general content development tools such as microsoft powerpoint, screen recording tools such as techsmith's camtasia and more advanced elearning and software simulation solutions such as firefly, lectora and articulate. competition in this market is based on speed of development and completeness of the features of products, ease-of-use and price. we believe our product can successfully compete based upon the strength of its broad range of features, its strong brand among users and its widespread adoption among training developers. our adobe contribute product faces competition from solutions that provide for the simple creation of blogs and <U+0093>wikis,<U+0094> as well as basic content publishing products such as microsoft word, microsoft frontpage, microsoft notepad, basic html editors like ezhtmlarea and ektron, and content management solutions similar to those with which our day web experience management solution competes. competition in this market is based on usability, quality and features of products, the level of customization and integration with other wem components, the integration with web design tools, the number of hardware platforms supported, service and price. we believe we can successfully compete based upon the usability and price of contribute, its strong brand among users and integration with other wem components. in multimedia content authoring, our adobe director product faces competition from a variety of multimedia content authoring tools. competition is based on the quality and features of products, ease-of-use and price. we believe we have a strong product and can successfully compete based upon the quality and features of the director product, its strong brand among users, its widespread adoption among content developers and publishers and the widespread proliferation of the adobe shockwave player. in technical web authoring and publishing, our adobe robohelp product faces competition from large-scale web publishing systems, xml-based web publishing companies, as well as lower-end publishing products such as microsoft word. competition is based on the quality and features of products, the level of customization and integration with other publishing system components, service and price. we believe we can successfully compete based upon the quality and features of the robohelp product. our adobe coldfusion products face competition from major vendors including microsoft, ibm and oracle (via its bea subsidiary and acquisition of sun). our coldfusion products also compete with several technologies available today at no cost including the php and perl programming environments that are available for the apache web server. operations marketing and sales we market and distribute our products through sales channels, which include distributors, retailers, software developers, systems integrators, isvs and vars, as well as through oem and hardware bundle customers. we also market and license our products directly using our sales force and through our own website at www.adobe.com. we support our end users through local field offices and our worldwide distribution network, which includes locations in australia, austria, belgium, brazil, canada, china, czech republic, denmark, dubai, finland, france, germany, india, ireland, italy, japan, korea, mexico, moldova, the netherlands, norway, poland, portugal, romania, russia, singapore, south africa, spain, sweden, switzerland, taiwan, turkey, ukraine, the united arab emirates, the united kingdom and the united states. 33 table of contents we also license software with maintenance and support, which includes rights to upgrades, when and if available, support, updates and enhancements. the table below lists our significant customer, as a percentage of net revenue for fiscal 2012, 2011 and 2010. our significant customer is a distributor who sells products across our various segments. 2012 2011 2010 ingram micro 11 % 14 % 15 % we have multiple non-exclusive, independently negotiated distribution agreements with ingram micro and its subsidiaries covering our arrangements in specified countries and regions. each of these contracts has an independent duration, is independent of any other agreement (such as a master distribution agreement) and any termination of one agreement does not affect the status of any of the other agreements. in fiscal 2012, no single customer was responsible for over 10% of our gross trade receivables. in fiscal 2011, ingram micro, inc. represented 14% of our gross trade receivables. order fulfillment for physical distribution the procurement of the various components of packaged products, including dvds and printed materials, and the assembly of packages for retail and other applications products is controlled by our supply chain operations organization. we outsource our production, inventory and fulfillment activities to third parties in the united states, emea and apac. to date, we have not experienced significant difficulties in obtaining raw materials for the manufacture of our products or in the replication of dvds, printing and assembly of components. shippable backlog is comprised of unfulfilled orders, excluding those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy. we had minimal shippable backlog as of january 18, 2013 and january 20, 2012. services and support we provide professional services, technical support and customer service across all our customer segments, including enterprises, small/medium businesses, creative professionals, and consumers. our service and support revenue consists primarily of consulting fees, software maintenance and support fees and training fees. services we have a global professional services team dedicated to designing, developing and implementing solutions for enterprise customers in key vertical markets and to transfer technical expertise to our solution partners. the professional services team uses a comprehensive, customer-focused methodology to develop high quality solutions, which in turn deliver a competitive advantage to our enterprise customers. this methodology has been developed by capturing best practices from numerous client engagements across a diverse mix of solutions, industries, and customer preferences. based on this methodology, our teams are able to accelerate the time to value and maximize the return our clients earn on their investment in adobe solutions. in addition, adobe has also created a large and vibrant partner ecosystem that includes a mix of global system integrators (<U+0093>sis<U+0094>), regional sis, vars, and solution partners. adobe invests significant resources in enabling this ecosystem with the right skills and knowledge about our technologies and best practices. consequently, this ecosystem provides our clients several different choices of partners, and a large accessible pool of skilled resources that can help deploy adobe solutions. this approach not only creates value for our customers and partners, but also creates a large and productive go-to-market channel for our sales teams. support a significant portion of our support revenue is composed of our extended enterprise maintenance and support offerings. these offerings entitle customers to: <U+0095> the right to receive product upgrades and enhancements during the term of the maintenance and support period, which is typically one year; <U+0095> the right to receive technical support on the technology they have purchased from adobe; and <U+0095> the right to receive basic <U+0093>how to<U+0094> help in using our products. 34 table of contents we offer a range of support programs, from fee-based incidents to annual support contracts. additionally, we provide extensive self-help and online technical support capabilities via the web which allows customers quick and easy access to possible solutions. as a registered owner of the current version of an adobe desktop product, customers are eligible to receive getting started support on certain matters. support for some products and in some countries may vary. we provide product support through a combination of outsourced vendors and internal support centers, and through multiple channels including phone, chat web, and email. these support services are delivered by a global support organization that includes several regional and global support centers. these teams are responsible for providing timely, high quality technical expertise on all our products. we also offer developer support to partners and developer organizations. the adobe partner connection program focuses on providing developers with high-quality tools, software development kits, information and services. training we offer a comprehensive portfolio of training options to enable our customer and partner teams in the use of our products. our training portfolio includes free on-line informational services on our website (www.adobe.com) and a growing series of how-to books published by adobe press pursuant to a joint publishing agreement with peachpit press. we sponsor workshops, work with professional associations and user groups, and conduct regular beta testing programs. we also provide fee-based education services to enhance our customers<U+0092> use of our solutions, including a wide range of traditional and online training and certifications delivered by our team of training professionals. adobe's portfolio of technical training courses covers our digital media, digital marketing and other mature products and solutions. investments we make direct investments in privately held companies. we enter into these investments with the intent of securing financial returns as well as for strategic purposes as they often increase our knowledge of emerging markets and technologies, as well as expand our opportunities to provide adobe products and services. we also owned a limited partnership interest in adobe ventures iv l.p. (<U+0093>adobe ventures<U+0094>) that invested in early stage companies with innovative technologies. during fiscal 2010, adobe ventures was dissolved and all remaining assets were distributed to the partners. adobe ventures was managed by granite ventures, an independent venture capital firm and sole general partner of adobe ventures. product development as the software industry is characterized by rapid technological change, a continuous high level of investment is required for the enhancement of existing products and services and the development of new products and services. we develop our software internally as well as acquire products or technology developed by others by purchasing the stock or assets of the business entity that owned the technology. in other instances, we have licensed or purchased the intellectual property ownership rights of programs developed by others with license or technology transfer agreements that may obligate us to pay a flat license fee or royalties, typically based on a dollar amount per unit shipped or a percentage of the revenue generated by those programs. during fiscal years 2012, 2011 and 2010, our research and development expenses were $742.8 million, $738.1 million and $680.3 million, respectively. product protection we regard our software as proprietary and protect it under the laws of copyrights, patents, trademarks and trade secrets. we have a number of domestic and foreign patents and pending applications that relate to various aspects of our products and technology. while we believe our patents have value, no single patent is material to us or to any of our reporting segments. we protect the source code of our software programs as trade secrets and make source code available to third parties only under limited circumstances and subject to specific security and confidentiality constraints. from time to time, we secure rights to third party intellectual property as we decide is beneficial to our business. our products are generally licensed to end users under one of the following two methods: (1) we offer many products on a <U+0093>right to use<U+0094> basis pursuant to a license that restricts the use of the products to a designated number of devices. we also rely on copyright laws and on <U+0093>shrink wrap<U+0094> and electronic licenses that are not physically signed by the end user. copyright protection may be unavailable under the laws of certain countries and the enforceability of <U+0093>shrink wrap<U+0094> and electronic licenses has not been conclusively determined in all jurisdictions. 35 table of contents (2) we also offer products under a saas or on-demand model, where hosted software is provided on demand to customers, generally through a web browser. the use of these products is generally governed by terms of use associated with these products. policing unauthorized use of computer software is difficult and software piracy is a persistent problem for the software industry. this problem is particularly acute in international markets. we conduct anti-piracy programs directly and through certain external software associations. in addition, we have activation technology in certain products to guard against illegal use and will continue to do so in certain future products. employees as of november 30, 2012, we employed 11,144 people. we have not experienced work stoppages and believe our employee relations are good. available information our annual report on form 10-k, quarterly reports on form 10-q, current reports on form 8-k and amendments to reports filed or furnished pursuant to sections 13(a) and 15(d) of the securities exchange act of 1934, as amended, are available free of charge on our investor relations website at www.adobe.com/adbe as soon as reasonably practicable after we electronically file such material with, or furnish it to, the sec. the information posted on our website is not incorporated into this report. executive officers adobe<U+0092>s executive officers as of january 18, 2013 are as follows: name age positions shantanu narayen 49 president and chief executive officer mr. narayen currently serves as adobe<U+0092>s president and chief executive officer. mr. narayen joined adobe in january 1998 as vice president and general manager of adobe<U+0092>s engineering technology group. in january 1999, he was promoted to senior vice president, worldwide products and in march 2001 he was promoted to executive vice president, worldwide product marketing and development. in january 2005, mr. narayen was promoted to president and chief operating officer and in december 2007, he was appointed chief executive officer of adobe and joined the adobe board of directors. prior to joining adobe, mr. narayen co-founded pictra inc., a digital photo sharing software company, in 1996. he was director of desktop and collaboration products at silicon graphics inc. before founding pictra. mr. narayen is also a director of dell inc. mark garrett 55 executive vice president, chief financial officer mr. garrett joined adobe in february 2007 as executive vice president and chief financial officer. mr. garrett served as senior vice president and chief financial officer of the software group of emc corporation, a products, services and solutions provider for information management and storage, from june 2004 to january 2007, his most recent position since emc<U+0092>s acquisition of documentum, inc., an enterprise content management company, in december 2003. mr. garrett first joined documentum as executive vice president and chief financial officer in 1997, holding that position through october 1999 and then re-joining documentum as executive vice president and chief financial officer in 2002. mr. garrett is also a director of informatica corporation. michael dillon 54 senior vice president, general counsel mr. dillon joined adobe in august 2012 as senior vice president, general counsel and corporate secretary. prior to joining adobe, mr. dillon served as general counsel and corporate secretary of silver spring networks, a networking solutions provider, from november 2010 to august 2012. before joining silver spring networks, mr. dillon served in various capacities at sun microsystems, a diversified computer networking company, prior to its acquisition by oracle corporation. while at sun microsystems, from april 2006 to january 2010, mr. dillon served as executive vice president, general counsel and secretary, from april 2004 to april 2006, as senior vice president, general counsel and corporate secretary, and from july 2002 to march 2004 as vice president, products law group. from october 1999 until june 2002, mr. dillon served as vice president, general counsel and corporate secretary of oni systems corp, an optical networking company. 36 table of contents name age positions kevin lynch 46 senior vice president, chief technology officer mr. lynch currently serves as adobe<U+0092>s chief technology officer and senior vice president of the experience & technology organization. mr. lynch joined adobe as chief software architect and senior vice president for adobe<U+0092>s platform business unit through our acquisition of macromedia, inc. in december 2005. at macromedia, mr. lynch served as chief software architect and president of product development. prior to macromedia, mr. lynch participated in a variety of technical and management roles in startups including frame technology and general magic. bradley rencher 39 senior vice president and general manager, digital marketing mr. rencher serves as senior vice president and general manager of adobe<U+0092>s digital marketing business unit. mr. rencher joined omniture, inc. in january 2008 as vice president of corporate development and was promoted to senior vice president of business operations prior to adobe's acquisition of omniture in 2009. following the acquisition he joined adobe as vice president of business operations. mr. rencher was promoted to vice president and general manager, omniture business unit in 2010 and subsequently to senior vice president in 2011. prior to joining omniture, mr. rencher was a member of the technology investment banking team at morgan stanley from 2005 to 2008 and a member of the investment banking team at rbc capital markets from 1998 to 2004. matthew thompson 54 senior vice president, worldwide field operations mr. thompson joined adobe in january 2006 as senior vice president, worldwide field operations. prior to joining adobe, mr. thompson served as senior vice president of worldwide sales at borland software corporation, a software delivery optimization solutions provider, from october 2003 to december 2006. prior to joining borland, mr. thompson was vice president of worldwide sales and field operations for marimba, inc., a provider of products and services for software change and configuration management, from february 2001 to january 2003. from july 2000 to january 2001, mr. thompson was vice president of worldwide sales for calico commerce, inc., a provider of ebusiness applications. prior to joining calico, mr. thompson spent six years at cadence design systems, inc., a provider of electronic design technologies. while at cadence, from january 1998 to june 2000, mr. thompson served as senior vice president, worldwide sales and field operations and from april 1994 to january 1998 as vice president, worldwide professional services. david wadhwani 41 senior vice president and general manager, digital media mr. wadhwani serves as senior vice president and general manager of adobe's digital media business unit. prior to june 2010, mr. wadhwani was vice president and general manager of adobe<U+0092>s platform business unit. he joined adobe in 2005 through the acquisition of macromedia. prior to his time at macromedia, mr. wadhwani founded and was vp of engineering at iharvest, a content management company that was acquired by interwoven and worked at oracle in their database tools division. richard t. rowley 56 vice president, corporate controller and principal accounting officer mr. rowley joined adobe in november 2006 as vice president, corporate controller and principal accounting officer. prior to joining adobe, mr. rowley served as vice president, corporate controller, treasurer and principal accounting officer at synopsys, inc., a semiconductor design software company, from december 2002 to september 2005 and from 1999 to december 2002, mr. rowley served as vice president, corporate controller and principal accounting officer. from 1994 to 1999, mr. rowley served in several finance-related positions at synopsys. mr. rowley is a certified public accountant. 37"
## [2] "item 1. business dst systems, inc. (\"dst\" or the \"company\") is a global provider of technology-based service solutions that help clients grow their business and provide exceptional customer experiences. dst serves clients in the asset management, brokerage, retirement, insurance, healthcare and other markets to help process, communicate and safeguard critical customer information needed to manage life's most important business, such as investing money, planning for retirement and maintaining a healthy lifestyle. the company provides business solutions through a unique blend of industry knowledge and experience, technological expertise and service excellence. the company was originally established in 1969. through a reorganization in august 1995, the company is now a corporation organized in the state of delaware. narrative description of business the company's business units provide sophisticated information processing solutions and services. in addition to technology products and services, dst also provides integrated print and electronic statement and billing solutions. dst's data centers provide technology infrastructure support for asset management, insurance and healthcare companies around the globe. these business units are reported as two operating segments, financial services and customer communications (formerly known as the output solutions segment). in addition, investments in the company's real estate subsidiaries and affiliates, equity securities, private equity investments and certain financial interests have been aggregated into the investments and other segment. a summary of each of the company's segments follows. financial services the company's financial services segment provides a variety of solutions principally to the asset management, brokerage, retirement, insurance and healthcare industries. the company has developed a number of proprietary systems that are integrated into its solutions including the following: shareowner recordkeeping and distribution support systems for united states (\"u.s.\") and international mutual fund companies, broker/dealers and financial advisors, 3 table of contents investment management systems offered to u.s. and international investment managers and fund accountants, defined-contribution participant recordkeeping system for the u.s. retirement plan market, medical and pharmacy claims administration processing systems and services offered to providers of healthcare plans, third party administrators, medical practice groups and pharmacy benefit managers, and business process management and customer contact system offered to a broad variety of industries. in certain cases, multiple products are integrated into a single solution. the company identifies potential users of its financial services segment products and services and tailors its marketing programs to focus on their needs. the financial services segment's sales efforts are closely coordinated with the company's joint venture and strategic alliance partners. sources of new business for the financial services segment include (i) existing clients, particularly with respect to complementary and new products and services; (ii) companies relying on their own in-house capabilities and not using outside vendors; (iii) companies using competitors' systems; and (iv) new entrants into the markets served by the company. the company considers its existing client base to be one of its best sources of new business. the company believes that competition in the markets in which the financial services segment operates is based largely on price, quality of service, features offered, the ability to handle rapidly changing volumes, product innovation, and responsiveness. the company believes there is significant competition in its markets. the company's ability to compete effectively is dependent in part on its access to capital. the financial services segment's five largest customers accounted for 28.4% of segment operating revenues in 2012, including 9.4% from its largest customer. the service arrangements the company separately negotiates with financial services segment clients are typically multi-year agreements. customer communications the company's customer communications segment helps businesses deploy customer communications while improving operational performance across critical business functions such as sales, marketing, customer service, technology, finance, operations, and compliance. by delivering information in the desired combination of print, digital and archival formats, the segment helps its clients deliver better customer experiences at each point of interaction. the segment's product offering combines data insights and analysis with business decision-making tools and multi-channel execution and delivery designed to help businesses acquire, grow, retain, and win back customers. investments and other the investments and other segment is comprised of the company's real estate subsidiaries and joint ventures, investments in equity securities, private equity investments and other financial interests. the assets held by the investments and other segment are primarily passive in nature. 4 table of contents source of revenue the company's sources of revenue, by industry served, are presented below. the sources listed may be served by more than one of the company's business segments. year ended december 31, 2012 2011 2010 (dollars in millions) u.s. operating revenues mutual fund / investment management $ 806.4 42.6 % $ 768.9 44.1 % $ 774.9 45.2 % healthcare related services 334.1 17.7 % 274.5 15.7 % 283.7 16.6 % telecommunications, video and utilities 143.4 7.6 % 151.0 8.7 % 231.8 13.5 % other financial services 165.8 8.8 % 135.5 7.8 % 108.5 6.4 % other 56.1 2.9 % 58.6 3.3 % 79.2 4.6 % total u.s. operating revenues 1,505.8 79.6 % 1,388.5 79.6 % 1,478.1 86.3 % international operating revenues investment management and other financial services 235.4 12.4 % 208.9 12.0 % 161.1 9.4 % telecommunications, video and utilities 44.1 2.3 % 46.2 2.6 % 39.6 2.3 % other 107.1 5.7 % 100.4 5.8 % 34.8 2.0 % total international operating revenues 386.6 20.4 % 355.5 20.4 % 235.5 13.7 % total operating revenues 1,892.4 100.0 % 1,744.0 100.0 % 1,713.6 100.0 % out-of-pocket reimbursements(1) 684.2 644.7 614.9 total revenues $ 2,576.6 $ 2,388.7 $ 2,328.5 (1)principally postage and telecommunication expenditures, which are reimbursed by the customer. financial services segment the financial services segment is the largest operating segment of the company, providing the following products and services: asset management (including shareowner recordkeeping, distribution support solutions and investment management solutions), brokerage solutions/subaccounting, retirement solutions, healthcare administration processing solutions, business process management and other services. 5 table of contents the following table provides key operating data for the financial services segment: year ended december 31, financial services 2012 2011 2010 (dollars in millions) operating revenue: u.s. operating revenues mutual fund/investment management $ 703.1 $ 670.8 $ 670.8 healthcare related services 300.1 250.1 263.0 other financial services 58.8 50.8 46.6 other 36.0 35.8 58.7 1,098.0 1,007.5 1,039.1 international operating revenues investment management and other financial services 138.1 123.6 110.1 other 7.9 7.3 7.5 146.0 130.9 117.6 total operating revenues 1,244.0 1,138.4 1,156.7 out-of-pocket reimbursements(1) 54.8 42.1 44.6 total revenues $ 1,298.8 $ 1,180.5 $ 1,201.3 operating data: mutual fund shareowner accounts processed (in millions) u.s. registered accounts: non tax-advantaged 34.3 42.4 55.1 ira mutual fund accounts 23.5 24.3 25.2 other retirement accounts 8.5 8.9 9.7 section 529 and educational iras 9.4 9.5 9.4 tax-advantaged 41.4 42.7 44.3 total registered accounts 75.7 85.1 99.4 subaccounts 12.4 14.6 14.3 total accounts serviced 88.1 99.7 113.7 international u.k.(2) 9.4 8.1 7.1 canada(3) 11.3 10.1 10.7 alps assets under active distribution (billions)(4) $ 61.7 $ 51.9 $ alps assets under adminstration (billions)(4) $ 101.9 $ 93.6 $ alps assets under management (billions)(4) $ 8.3 $ 4.9 $ retirement solutions defined contribution plan participants (millions) 4.8 4.6 4.5 dst health solutions covered lives (millions) 23.3 22.6 22.9 argus pharmacy claims paid (millions) 400.7 362.0 380.4 automated work distributor workstations (thousands) 207.6 204.3 198.3 (1)principally postage and telecommunication expenditures, which are reimbursed by the customer. (2)processed by international financial data services u.k., an unconsolidated affiliate of the company. 6 table of contents (3)processed by international financial data services l.p., an unconsolidated affiliate of the company comprised of businesses in canada, ireland and luxembourg. (4)dst acquired alps holdings, inc. on october 31, 2011. asset management within the financial services segment, the company markets shareowner recordkeeping, distribution support solutions, asset gathering and servicing solutions and investment management solutions to asset managers. shareowner recordkeeping the shareowner recordkeeping systems and services support open and closed-end mutual funds, alternative investments and various forms of tax advantaged savings vehicles. included in tax-advantaged accounts are individual retirement accounts (\"iras\") and educational savings plan accounts, which encompass both coverdell and section 529 college savings plan accounts. the company markets its shareowner accounting and related products and services to investment company sponsors, plan recordkeepers and financial intermediaries. generally, mutual fund products are promoted and distributed in fund groups, which provide investors with a variety of mutual fund investments and the ability to transfer investments from one fund to another within the group. investor attraction to a wide array of mutual fund investment products (to address different investment objectives) with increasingly specialized features has increased the number of shareowner accounts. mutual fund product proliferation, combined with growing state and federal regulations, has increased the volume of transactions and the complexity of recordkeeping. in addition, new technologies have changed the service requirements and distribution channels of the mutual fund market. the company has made significant investments in computer capacities and systems functionality to handle the increasing marketplace demands in order to maintain its market position and to improve quality and productivity. most of the company's clients who utilize the shareowner recordkeeping platform are open-end mutual fund companies, which obtain funds for investment by making a continuous offering of their shares. the proprietary system application for shareowner recordkeeping is ta2000. ta2000 handles virtually all shareowner related activities including purchases, redemptions, exchanges and transfers of shares; maintaining shareowner identification and share ownership records; reconciling cash and share activity; calculating and disbursing commissions to brokers and other distributors; processing dividends; reporting sales; and providing information for printing of shareowner trade confirmations, statements and year-end tax forms. the system processes multiple classes of equity, fixed income and money market funds. shareowner recordkeeping services are offered on a full, remote and shared service basis. selection by a client of the type of service is influenced by a number of factors, including cost and level of desired control over interaction with fund shareowners or distributors. \"full\" service processing or \"bpo\" (business process outsourcing) includes all necessary administrative and clerical support to process and maintain shareowner records, reconciling cash and share activity, answering inquiries from shareowners, brokers and others, and handling the ta2000 processing functions described above. in addition, full service mutual fund transfer agency clients may elect to have their end of day available client bank balances invested overnight by and in the name of the company into money market funds or other similar overnight investment alternatives. \"remote\" service processing, or \"asp\" (application service provider), is designed to enable mutual fund management companies acting as their own transfer agent, and third party transfer agents that have their own administrative and clerical staff access to ta2000 at the company's data processing facilities, to use the company's data communications network. \"shared\" service processing enables clients to select the administrative functions to be handled by both client 7 table of contents personnel and the company. this service is facilitated by the use of awd (automated work distributor), dst's own business process management and customer contact system. the company's shareowner recordkeeping business derives revenues from fees which are generally charged based on a per account and number of funds basis for system processing services and on a per account, number of funds and transaction basis for clerical services. in limited instances, the company has asset-based fee arrangements. the company's policy is not to license ta2000. the company also derives revenues from investment earnings related to cash balances maintained in the company's full service, transfer agency bank accounts. the company believes that competition in the markets which shareowner recordkeeping operates is based largely on price, quality of service, features offered, the ability to handle rapidly changing volume, product innovation and responsiveness. the company believes there is significant competition in its markets. the company's ability to compete effectively is dependent in part on its access to capital. the company's shareowner accounting business competes not only with third party providers but also with in-house systems. financial institutions competing with the company may have an advantage because they can take into consideration the value of their clients' funds on deposit or under management in pricing their services. accounts serviced under shareowner recordkeeping arrangements with the mutual fund and alternative investment sponsors are referred to as \"registered accounts.\" this distinguishes these accounts from broker subaccounts, which are serviced under contract with a broker/dealer. registered accounts include both tax-advantaged and non tax-advantaged accounts on the books of the transfer agent. at december 31, 2012, the company provided shareowner recordkeeping services for approximately 75.7 million registered accounts (both tax advantaged and non-tax advantaged accounts). at december 31, 2012, 41.4 million of the registered accounts were tax advantaged. dst serviced 23.5 million iras invested in mutual funds and 8.5 million accounts in an assortment of retirement accounts (sar-sep, keogh and simples). in addition, dst supported 9.4 million educational savings accounts, of which 8.7 million are section 529 plan accounts. distribution support solutions the company offers products designed to assist clients in meeting the expanding needs associated with distributing u.s. investment products through financial intermediaries. the array of solutions supporting distribution of investment products is expanding to address regulatory, service and information needs of the financial services industry. certain products are paid by investment managers and certain products are paid by the distributor. the two primary distribution support solutions offered are dst vision and fan mail. dst vision is an aggregating web site designed exclusively for financial advisors and broker/dealer back-office operations. the site enables mutual fund companies, real estate investment trusts, and variable annuity companies to reduce operational expense by replacing costly support phone calls from intermediaries with web-based self-servicing. providing over 140,000 financial advisors access to approximately 400 participating investment product manufacturers, vision is an industry leading source of customer information. having access to consolidated account information across all of an investor's product relationships provides significant customer support efficiencies to the financial intermediaries' operations. advisors can also utilize portfolio management tools, access electronic shareholder statements, and initiate transaction processing. vision charges are paid by the product companies through a combination of user access charges and activity- related fees. the company also provides additional services to advisors affiliated with independent broker/dealers. through the vision professional product, advisors have access to presentation-ready, automated and consolidated quarter-end shareholder reporting with supplemental product and holdings analytics. the fees for vision professional are paid by the advisors under a subscription service. 8 table of contents fan mail (financial advisor network) is a centralized data delivery source for investor account detail from mutual fund, variable annuity, and real estate investment trusts companies. fan mail provides advisors and broker/dealer back-offices the transactional and position information necessary to populate proprietary database and software applications. daily automated downloads streamline back-office administrative tasks, reporting, and compliance oversight. fan mail is compatible with the industries' most popular portfolio management and compliance software applications. with participation from more than 240 product manufacturers, fan mail is one of the industries' most comprehensive sources of investor account detail and transactional information. fan mail charges are paid by the product companies based on the volume of account and transaction records delivered to the underlying intermediary. while vision and fan mail largely service the same audience, there are distinct reasons an intermediary would use one or both products. vision, as a web site, is designed to provide a real-time view of the underlying recordkeeping detail and is frequently used to resolve operations-based servicing issues or to execute transactions or perform account maintenance. fan mail is used by intermediaries that need to take possession of the data to source proprietary software applications. consequently, almost all fan mail users also use vision. the company also offers a variety of other solutions to mutual fund companies, including omnibus transparency and salesconnect. omnibus transparency offers a solution that provides mutual fund companies the ability to request and receive supplemental trade data from intermediaries for compliance with rule 22c-2 of the investment company act of 1940. salesconnect assists fund companies with identifying and servicing the financial intermediaries that distribute the client's investment products. salesconnect combines sales reporting and client relationship management software with a trade resolution and data management service. the company is currently offering ancillary products targeted at the distribution component of the product manufacturers. these products provide intelligence as to competitive positioning and profitability of distribution relationships based on assets and transactional data. asset gathering and servicing solutions by alps acquired by dst on october 31, 2011, alps holdings, inc. (\"alps\"), is a provider of a comprehensive suite of asset servicing and asset gathering solutions to open-end mutual funds, closed-end funds (\"cefs\"), exchange-traded funds (\"etfs\") and alternative investment funds. alps markets its suite of asset servicing and asset gathering solutions to the investment management industry. clients can leverage both aspects of alps and utilize its comprehensive asset servicing model and consult with the distribution team on strategies needed to raise assets. alps provides a tailored investment servicing model providing compliance, creative services, medallion distribution, fund administration, fund accounting, legal, tax administration and transfer agency services on a platform servicing open-end funds, etfs, closed-end funds and alternative investment funds. alps focuses on the needs of small to medium sized funds that require a broad set of customizable services. alps uses internal expertise, as well as external alliances, to provide distribution services ranging from consulting to active wholesaling and marketing. alps partners with select firms utilizing its experience to structure, service and distribute a variety of investment product types. alps asset gathering solutions include: marketing and wholesaling services; closed-end fund ipo launch platform providing product sales, road show and marketing support; and proprietary open-end and exchange-traded funds under alps advisors. the alps acquisition broadens the range of products and services dst offers to the investment management and brokerage industries. alps derives revenues from asset servicing and distribution activities, which are generally based on a percentage of assets for which services are provided. alps asset servicing products and solutions compete with third party providers and in-house systems. alps 9 table of contents asset servicing business competes with large and regional custodial banks. in the asset gathering business, alps principally competes with asset management firms. investment management solutions & services dst global solutions limited (\"dst global solutions\"), a wholly-owned united kingdom (\"u.k.\") company, provides investment management software applications, implementation and other professional services. it has offices in the u.k., north america, australia, canada, china, dubai, hong kong, singapore, south africa, switzerland and thailand. its development centers are presently in the u.k. and australia. dst global solutions markets its solutions and services directly to its end-user clients, which are generally asset managers, third party administrators, asset owners and wealth managers. many of the applications require integration into the client's environment. this results in demand for implementation support, such as testing, training and process flow documentation. dst global solutions is continuing to improve its capabilities to provide these services to clients, which is a competitive advantage versus other competitors when servicing large global clients with dispersed operations and larger local clients in certain developing markets. dst global solutions has continued its commitment to expand its middle office applications, with an emphasis on support for the growing complexity and increasing regulation of the global investment industry. dst global solutions also offers solutions to support the distribution of investment products in select markets. the company has an offering for transfer agency that is used in seven developing market countries. the company derives revenues from the above solutions and services, from license fees, fees for customized installation and programming services and annual maintenance fees, which include asp solutions. dst global solutions' competitors vary by market segment and solution set. the company expects that the mix of competitors will shift over time as the industry changes from more traditional investment strategies around equities and fixed income instruments to encompass alternative investment products. the company believes that it has a combination of capabilities against this array of competitors because of its expertise in specific application areas such as large-scale accounting and record-keeping applications. joint venture shareowner processing the company provides domestic and international shareowner processing through joint venture companies of the company and state street corporation (\"state street\"). boston financial data services, inc. (\"bfds\") bfds, a 50%-owned joint venture with state street, is an important distribution channel for the company's services and products. bfds combines use of the company's proprietary applications and customer communications capabilities with the marketing capabilities and custodial services of state street to provide full-service and shared-service shareowner recordkeeping to u.s. mutual fund companies. bfds also offers settlement administration services, full service proxy solutions, teleservicing and full-service support for defined contribution plans using the company's trac/ retirement solutions system. bfds's revenues are primarily derived on a per account, number of fund and transaction basis. bfds also derives revenues from maintaining and managing, as agent for its clients, such bank accounts as necessary for the performance of its services. bfds is the financial services segment's second largest customer, accounting for approximately 8.5% of the segment's operating revenues in 2012, and 5.6% of the company's total operating revenues in 2012. 10 table of contents international financial data services, u.k. (\"ifds u.k.\") ifds u.k., a 50%-owned joint venture with state street, offers full, remote and shared service processing for open ended investment companies (\"oeic\"), unit trusts and related products. ifds u.k. served 9.4 million oeic unit holdings as of december 31, 2012. it is the largest third party provider of such services in the u.k. ifds u.k. has developed fast, an oeic and unit trust recordkeeping system. the largest remote client of ifds u.k., representing approximately 3.4 million or 35.7% of the total unitholder accounts at december 31, 2012, is cofunds, ltd. (\"cofunds\"), a mutual fund supermarket. cofunds, which is the u.k.'s largest independent investment platform has approximately $77.4 billion of assets under administration at december 31, 2012. ifds u.k. has a non-controlling equity investment in cofunds of approximately 20% and accounts for its cofunds investment using the equity method. ifds u.k. also offers policy administration processing services to the providers of workplace and group defined contribution pension plans, servicing 163,000 policyholders at december 31, 2012. ifds u.k. derives revenues from its shareowner accounting services through use of its proprietary software systems, clerical processing services and other related products. fees are generally charged on a per unitholder account and per transaction basis although certain revenue is also derived from fixed fees and, in part, by the level of funds under management of certain client companies. international financial data services, l.p. (\"ifds l.p.\") ifds, l.p. is a 50%-owned u.s. partnership with state street that wholly owns the following operating companies: international financial data services, canada (\"ifds canada\") ifds canada provides full, remote and shared service processing to the canadian mutual fund industry and u.s. offshore funds. ifds canada uses ifast, its proprietary mutual fund recordkeeping system, to support canadian mutual fund processing and ta2000 to support u.s. offshore fund processing. revenues are derived from providing remote, shared and full service mutual fund shareowner processing services based upon assets under management or the number of shareowner accounts and transactions. ifds canada also receives time and material fees for client-specific enhancements and support to remote processing. international financial data services, ireland (\"ifds ireland\") ifds ireland provides transfer agency services to state street ireland and other third party clients under outsourcing agreements. client servicing activities are focused on supporting state street's and other third parties' services to fund promoters and investment managers who provide offshore funds. revenues are derived from an agreement with state street, which encompasses a combination of fixed monthly fees and from agreed upon fee schedules with third party clients. in june 2010, ifds ireland completed the acquisition of percana group limited (\"percana\"), a software development company that provides policy holder servicing systems to the international life insurance industry using its proprietary eclipse insurance processing software. in addition, percana provides consultancy and outsourcing services to its clients. revenues at percana are derived from the sale of software licenses, support and maintenance, business process outsourcing and professional consultancy. international financial data services, luxembourg (\"ifds luxembourg\") ifds luxembourg provides transfer agency services to state street luxembourg under an outsourcing agreement, as well as to other clients on a direct contractual basis. client servicing activities are focused on supporting state street's and other clients' services to fund promoters and investment managers in the luxembourg and continental european market. revenues are derived with state 11 table of contents street pursuant to an agreement which encompasses a combination of fixed monthly fees and per transaction fees, and from other third-party clients based on agreed-upon fee schedules. brokerage solutions/subaccounting the company markets subaccounting services, compliance solutions and professional services to broker/dealers and financial advisors. dst brokerage solutions provides mutual fund shareowner recordkeeping services to brokerage firms who perform recordkeeping functions in a subaccounting arrangement for mutual fund accounts that have been sold by the broker/dealer's financial advisors. the company offers subaccounting services to broker/dealers on both a remote (asp) and full service (bpo) basis. a broker/dealer providing subaccounting services may provide these services to multiple fund companies. the company's ta2000 system is able to meet the complex reconciliation and system interfaces required by broker/dealers. the company believes using the same core processing functionality for both transfer agency shareowner recordkeeping (registered accounts) and subaccounting should further the clients' objectives of consistent accounting for shareowner positions, since the recordkeeping is done by one system ta2000. the finix, converge and subserveo acquisitions in 2011 position dst brokerage solutions to sell more services and solutions to the broker/dealer industry. revenues for subaccounting services are generally based on the number of subaccounts serviced and, because of the level of services provided directly by the broker/dealer, fewer of ta2000's features are required. this results in per account revenue for subaccounts being less than what the company derives from its mutual fund shareowner processing services for registered accounts. subaccounts serviced by the company were 12.4 million at december 31, 2012. the company's subaccounting business competes not only with third party providers but also with in-house systems. financial institutions competing with the company may have an advantage because they can take into consideration the value of their clients' funds on deposit or under management in pricing their services. retirement solutions the company markets its participant recordkeeping and plan administration services for defined contribution plans to investment company sponsors and plan recordkeepers. dst retirement solutions llc (\"dstrs\"), a wholly-owned subsidiary of dst, was formed to meet the needs of defined contribution service providers. the entity combines the company's trac technology solution with bfds' defined contribution full service plan administration and recordkeeping unit. from full service (bpo) to remote (asp), dstrs offers a variety of selective outsourcing options, including front- and back-office technology solutions for financial service organizations offering retirement plan recordkeeping for plans of any size. as of december 31, 2012 dstrs serviced 4.8 million plan participants on the trac platform. revenues from these services are primarily based on the number of participants in the defined contribution plans. the company's trac system provides participant recordkeeping and administration for defined contribution plans, including 401(k), 403(b), 457, money purchase and profit sharing plans that invest in mutual funds, company stock, guaranteed investment contracts, annuities and other investment products. the company believes the defined contribution market is a significant growth opportunity for its services and products because (i) that market continues to experience significant expansion as more employers shift away from defined benefit programs, (ii) the federal government has policies that encourage, and the retirement plan industry has a strong desire to expand, coverage to include the estimated 78.5 million americans not participating in a retirement savings program today, and (iii) potential participation is likely to increase as retirement plan sponsors adopt auto enrollment and guaranteed income features for new employees, and a relatively small percentage of plan providers 12 table of contents utilize processing service arrangements and instead process on licensed software which the company believes is less flexible and more expensive. international retirement solutions the company's wholly-owned subsidiary, bluedoor, based in melbourne, australia, provides software solutions to funds and fund managers who perform participant accounting and recordkeeping for the retirement savings (\"superannuation\") market in australia. it is also being extended to support \"wrap\" platforms in the u.k. and australia. healthcare administration solutions dst healthcare holdings, inc. is focused on providing solutions to meet the information processing, quality of care and cost management needs while achieving compliance and improving operational efficiency of healthcare organizations through two wholly-owned subsidiaries, dst health solutions, llc (\"dsths\") and argus health systems, inc. (\"argus\"). dst health solutions dsths provides processing systems, integrated care management applications and bpo services for payers and providers in the u.s. healthcare industry. dsths' business process outsourcing services and solutions are marketed to health insurance companies, health plans, benefits administrators, private physician practices and hospital-based physician groups. customers include health maintenance organizations (\"hmo\"), preferred provider options (\"ppo\"), point of service (\"pos\"), consumer directed health (\"cdh\"), dental, vision, and behavioral health organizations operating commercial, non-profit and government sponsored programs (e.g. medicare advantage, medicare part d and medicaid) supporting services to approximately 23.3 million people as of december 31, 2012. dsths processing services are offered on a software license, asp or bpo basis. services are offered as stand-alone component solutions to complement health plan, existing operations or systems, or as an integrated core administration package of systems and comprehensive administrative solutions. claims administration services include claims processing, benefit plan management, eligibility and enrollment management, mail receipt and processing, imaging /data capture and retention, overflow, fulfillment, utilization management, case management and customer service. integrated care management applications assist customers to improve member outcomes and manage costs. care management applications are designed to enable customers to gather and utilize member information for efficient service delivery, comprehensive clinical evaluation and effective care coordination. dsths' integrated care management solution is a real-time, intuitive, workflow driven solution suite that enables a customer to provide the services members need as they move between health and wellness, utilization management, disease management and case management programs. in addition to proprietary systems, dsths is the exclusive distributor of a patient classification system developed by johns hopkins university, johns hopkins' adjusted clinical groups (\"acg\"). the acg system is a software tool for provider profiling, predictive modeling, resource management and reimbursement rate adjustment. this application provides health plans with the ability to easily identify their at-risk population and stratify them into the optimal care management program for both the member's needs and the health plan's goals for that member. fully integrated in dst's integrated care management suite, acg brings high-risk members to the attention of a care team allowing for a quick evaluation and potential intervention. in 2011, dsths acquired the assets of intellisource healthcare solutions, a provider of integrated care management, workflow and analytics solutions for the healthcare industry. intellisource has been integrated into the company's healthcare solutions offerings. 13 table of contents dsths' solutions for physician practices provide revenue cycle management, from scheduling to reimbursement. the flexible bpo or asp solutions assist in optimizing reimbursement, reducing claims denials and forecasting operational costs. dsths can support practice groups of various sizes and specialties, including physician networks, hospital-based physicians, hospital emergency departments and management services organizations. dsths revenues are generally derived from fees charged based on a per member/ per month (\"pmpm\") basis and transactional basis for bpo services. dsths also receives pmpm revenues from asp agreements, which are multi-year service and usage agreements that allow users to access the dsths proprietary software hosted in dst data centers. dsths realizes revenue from fixed-fee license agreements that include provisions for ongoing support and maintenance and for additional license payments in the event that usage or members increase. dsths also derives professional service revenues from fees for implementation services, custom programming and data center operations. dst health solutions' competitors vary by the healthcare market segment. these competitors' solutions are primarily based on complete replacement of a payer's core system. dsths believes that a component application approach shifts the focus away from core application replacement to one in which clients have more alternatives for modernization of the business operation. with a component approach, health payer clients can still choose core application replacement if warranted, or adopt component applications that address only those areas of the business that are in the highest need of improvement, resulting in protection of the client's current it investment and less overall disruption to its business operation. dsths believes there is a competitive advantage in providing physician practice management services that have been enhanced with awd in outsourcing models. argus health systems, inc. (\"argus\") argus is an independent provider of health care information management services supporting commercial, medicaid and medicare part d plans. argus markets its claims processing services to pharmacy benefit managers, managed care organizations, insurance companies, hmo, ppo, pharmaceutical manufacturers and distributors, and third party administrators. argus is one of the largest pharmacy claims processors in the industry. in 2012, argus processed more than 556 million claims, resulting in approximately 401 million paid claims to pharmacies and members. as of december 2012, argus provided claims processing for over 27.7 million members, including 6.8 million medicare part d members, approximately 20.1% of medicare part d enrollees nationwide. argus provides claims processing, information services and administrative support to help clients manage pharmacy benefit programs, including medicare part d. these services include pharmacy and member reimbursements, call center, pharmacy network management, clinical information services, member correspondence, and rebate processing. argus' business model is to provide full disclosure and reporting of pass through drug ingredient and disbursement costs to its customers. customers may participate in an argus contracted national pharmacy network with over 63,000 participating locations or may contract with their own pharmacy network. argus' proprietary claims processing system, rxnova, is a highly scalable and comprehensive system for the administration of pharmacy benefits, prescription claims adjudication, eligibility, pharmacy management, and related activities. this benefit management solution is a web-based application using rules-based architecture and parameter-driven functionality to provide real-time online benefit configuration through an intuitive user interface. rxnova provides substantial flexibility to accommodate varying provider requirements, allows point-of-sale monitoring and control of pharmacy plan benefits with on-line benefit authorization and can provide information to dispensing pharmacists that help ascertain potential medication problems arising from such factors as duplicate prescriptions, incorrect dosage and drug interactions. 14 table of contents argus operates rxnova at the company's data centers. argus' primary clients are providers of pharmacy benefit plans including insurance companies, hmo, ppo, other pharmacy benefit managers, pharmaceutical manufacturers and distributors. argus derives revenue from pharmacy claims processing services provided to managed care organizations, pharmacy benefit managers and pharmaceutical manufacturers. argus also derives revenue from the management of pharmacy networks, call center services, pharmaceutical rebate administration, and clinical programs and management reporting for the benefit of their customers, as well as investment earnings related to client cash balances maintained in the company's bank accounts. argus' claims processing services compete with other third party providers. for certain product offerings, competitors include companies who perform their services in-house with licensed or internally developed systems and processes. a significant competitive factor is the level and quality of customer support provided. the company believes that it competes effectively in the market due to its ongoing investment in its products and the development of new products to meet the needs of managed care organizations, pharmacy benefit managers, pharmaceutical manufacturers and distributors, and third party administrators. another competitive difference is that argus' business model provides a transparent drug pricing transaction between argus customer and the pharmacy with no markup between the price paid by its customer and the negotiated charge from the pharmacy. some competitors derive revenue through \"spread\" pricing whereby the drug cost charged to customers is higher than the negotiated rate with pharmacies. in addition, some competitors own mail order facilities which enable them to earn spread revenue on the drug transaction and may result in conflicts in objectives of the servicer to drive members to mail order vs. objectives of the customer to offer more competitive rates for other alternatives, such as 90 days at retail. business process solutions awd is an enterprise-scale business process management (\"bpm\") platform. awd supports the capture of all inbound work at the point of contact (mail, telephone call, internet, e-mail, fax, social media, etc.). it then manages the work steps required to complete the request. the system assigns work, based on priority, to the resource most qualified to complete the current work step. awd's sealed audit trail tracks all activities associated with completing each item of work, providing a valuable tool for compliance with internal and external regulations. by enforcing standard business processes regardless of the origin of the request, the system ensures every awd user within a customer organization is consistently working on the most important item that he or she has the training and experience to complete. awd's automation services allow customers to streamline tasks in which human interaction is not required, resulting in increased productivity. in addition, awd's orchestration services allow customers to seamlessly link business processes that cross multiple application systems. awd also enables customers with multiple service centers to seamlessly move work between locations, minimizing geography as a barrier to productivity gains. the awd platform also includes imaging and content management, business intelligence and monitoring, a contact center desktop with proactive call scripting, intelligent character and word recognition capabilities and correspondence/communication tools. initially introduced to enhance the company's mutual fund shareowner recordkeeping system, awd was designed to interface with a wide range of high volume application processing systems. awd's services oriented architecture operates on linux, sun solaris, microsoft and ibm platforms. the company's best practice templates are designed for quick implementation of the solution, providing the opportunity for a rapid return on investment. awd's web services, catalog of adapters and architecture allow customers to easily interface with existing application systems and operating environments. awd is a mission-critical application marketed directly to mutual fund and other investment management 15 table of contents firms, life insurance companies, healthcare providers and payers, property and casualty insurance companies, banks, mortgage operations, brokerage firms and video/broadband/telephony operators. awd customers are located in over twenty countries including the north america, canada, u.k., continental europe, australia, south africa, india, china, taiwan and japan. the company's awd products compete with business process management solution vendors, other data processing and financial software vendors. competitive factors include features and adaptability of the software, level and quality of customer support, software development expertise, and price. the company believes that it can compete effectively in those markets the company chooses to pursue. the company's value proposition combines awd with hosting services and business process outsourcing for awd clients. the company derives awd revenues from multi-year service and usage agreements based on the number of users accessing the software and fixed fee license agreements that may include provisions for additional license payments in the event that usage increases. the company also derives awd revenues from fees for implementation services, custom programming, annual software maintenance and awd data center operations. the company's electronic file solution (\"efs\") is designed to be a reliable and secure electronic system for long-term records management. efs allows for the capture, indexing, storage and retrieval of important records according to each client's unique business requirements. information processing facilities and services the data processing needs of the company's financial services segment and certain products of the customer communications segment are provided by two data centers in kansas city, missouri, and a disaster recovery data center in st. louis, missouri. the winchester data center (\"winchester\") is the company's primary central computer operations and data processing facility. winchester has a total of 163,000 square feet, of which 76,000 square feet is raised floor computer room space. winchester runs mainframe computers with a combined processing capacity of more than 34,000 million instructions per second and direct access storage devices with an aggregate storage capacity that exceeds 380 terabytes. winchester also contains more than 1,600 servers with over 2.6 petabytes of storage capacity supporting windows, unix and iseries small and midrange computing environments. these servers are used to support the company's products and processing for certain of the company's affiliates. the physical facility is seismically braced and designed to withstand tornado-force winds. the poindexter data center supports the company's awd image processing, efs, and hosting clients. the facility has a total of 13,800 square feet. the computer room houses iseries computers, disk-based storage systems (over 1 billion replicated images), optical storage, linux and windows systems, which support more than 45,000 users. the poindexter data center also houses over 550 servers supporting various company products. the processing environments are supported in both the winchester and poindexter data centers to provide our clients with a high availability solution. the company derives revenues from solutions and hosting services based upon capacity utilized, which is significantly influenced by the volume of transactions and the number of users. the company's disaster recovery data center is essentially equivalent in size to winchester. it houses mainframe technology equivalent to winchester, including mainframe computers that have the capacity to run over 30,000 mips and the capacity to store more than 425 terabytes of direct access storage devices. the company's data communications network is linked to the disaster recovery data center to enable client access to the center. the iseries processors at poindexter and the iseries processors at winchester provide contingency plan capabilities for each other's processing needs. the company regularly tests disaster recovery processes. 16 table of contents all three data centers are staffed 24 hours a day, seven days a week and have self-contained power plants with mechanical and electrical systems designed to operate virtually without interruption in the event of commercial power loss. the data centers utilize redundant telecommunications networks serving the company's clients. customer communications segment the company's customer communications segment offers a full range of customer communications solutions serving a variety of industries in the u.s., u.k. and canada. services are provided to the asset management, brokerage, retirement, retail banking, insurance, healthcare, consumer finance, video/broadband, telecommunications, utilities, retail, travel, charity, automotive and other service industries. the customer communications segment's north america business provides digital print, electronic solutions, direct marketing, and fulfillment services directly to clients and through relationships in which its services are combined with or offered concurrently through providers of data processing services. north american products are also distributed or bundled with product offerings to clients of the financial services segment. the acquisition of newkirk products, inc. in 2011 expanded the north america business to include participant enrollment, educational materials, and compliance communications related to retirement, insurance, mutual funds and healthcare plans. the business also provides significant cross-sell opportunities and leverage in dst's retirement and healthcare-related businesses. customer communications has several operating facilities in the u.k. and is among the largest direct communications manufactures in the country. the u.k. business is oriented to data driven marketing communication. the services and products offered integrate communications through print, data and e-solutions and provide additional solutions such as data-insight and online marketing to its customers. the key competitive factors for the customer communications segment in the u.s. are price, the ability to offer single-source print and electronic transactional, marketing and compliance customer communication solutions, postage capabilities allowing more efficient delivery and potential cost savings, the range of customization options available for personalizing communications and their ease of application, the quality and speed of services provided, the multi-channel delivery capability based on customer preference, the quality of customer support and the ability to handle large volumes efficiently and cost effectively. in north america, the most significant competitors for print, mail and electronic delivery of transactional, marketing and compliance documents are (i) those companies that provide these services on an in-house basis, (ii) local companies in the cities where the segment's printing operations are located and (iii) national competitors. in the u.k., the market remains competitive with a mature print management model and smaller competitors operating in niches. the customer communications segment's five largest clients accounted for 20.0% of segment operating revenues in 2012, including 9.9% from its largest client. the service arrangements the 17 table of contents company separately negotiates with customer communications segment clients are typically multi-year agreements. year ended december 31, customer communications 2012 2011 2010 (dollars in millions) operating revenue: u.s. operating revenues mutual fund/investment management $ 103.3 $ 98.1 $ 104.9 telecommunications, video and utilities(2) 139.9 146.9 225.8 healthcare-related services 33.9 24.4 20.7 other financial services 108.3 87.8 66.2 other 24.8 28.9 28.3 410.2 386.1 445.9 international operating revenues investment management and other financial services 97.3 85.3 51.0 telecommunications, video and utilities 37.4 40.1 34.8 other 105.1 98.3 32.4 239.8 223.7 118.2 total operating revenues 650.0 609.8 564.1 out-of-pocket reimbursements(1) 636.7 607.0 575.8 total revenues $ 1,286.7 $ 1,216.8 $ 1,139.9 operating data: images produced (billions)(3) 11.6 11.1 11.1 items mailed (billions)(3) 2.9 2.7 2.3 (1)principally postage expenditures, which are reimbursed by the customer. (2)includes a significant $63.0 million contract termination payment in 2010. (3)excludes volumes for dsicmm group limited in 2010. multi-channel execution and delivery the customer communications segment's multi-channel execution and delivery solutions provide: transactional communications; direct marketing services; postal optimization; compliance solutions, including proxy management and compliance document delivery; and archival and retrieval solutions. the segment's electronic and mobile communications offerings also enable clients to connect with customers digitally using the same data stream as for print. digital color printing the customer communications segment's digital press technology (dpt) platform is an integrated and automated production environment that transforms our clients' electronic data into customized documents that can be delivered via a number of channels. the highly automated production environment maximizes productivity and reduces delivery times. in addition to digital color printing, products and services include variable and selective insertion and distribution of custom-designed shareowner and other account-based communications, such as transaction confirmations, dividend checks, account statements and year-end tax reports. the customer communications segment is integrated in part with and uses processing functions of the company's 18 table of contents ta2000 system and the company's information data processing facilities. revenue is derived from the number of images processed and the range of customization and personalization options chosen by the clients. electronic and mobile communications the customer communications segment offers a broad range of electronic solutions designed to meet the needs of electronic statement presentment, payment, and distribution across multiple electronic channels including client web sites; consolidator sites; secure e-mail; digital postal mail; and mobile websites and messages. direct marketing the customer communications segment's direct marketing solutions provide highly personalized mail pieces to its clients' target audiences. services include database list management, development and programming, print production, postal processing, personalization, inkjet addressing, inserting, and other production services. in the u.k., the segment delivers tailored one-to-one communication for its clients driven by transactional history and the customer's profile. content in the form of text and graphics is delivered using the most appropriate technology, including offset litho, laser and inkjet output as well as e-delivery. the data insights and other services offered in the u.k. enable its clients to further integrate their communications across multiple channels. revenue for direct marketing services is generally based on the number of distributed mail pieces. postal optimization as one of the largest first-class mailers in the u.s., the customer communications segment provides a range of postal services to help clients optimize mail efficiencies and streamline postage expenses. postage-related services include automated postage payment, postage advance accounts (deposits and escrow accounts), and management of presort vendors and international mail, as well as helping clients address postal compliance issues. the segment's postal processing services include address quality, postage payment, presort, and tracking. the segment offers its smart commingling service, which combines multiple clients' first-class mail to qualify for finer zip code sortation. combining clients' mail pieces enables more mail to meet the volumes established by the usps for three-digit and five-digit priority processing. this service enables the segment to bypass traditional postal processing touchpoints resulting in faster delivery times, which can enhance customer satisfaction and help clients receive a faster return response or remittance. as a continuous mailer, the segment can process and release statements and other documents 24 hours a day, 365 days a year as soon as the individual mail trays are ready. in the u.k., the customer communications segment provides postal optimization of both u.k. and international mail. the u.k. market is deregulated, with a number of alternate postal providers in addition to the royal mail. the processing of data allows the optimization of postage through the lowest cost routing solution. the consolidation and pre-sortation of international-destined mail via a network of overseas postal providers provides savings to the segment's clients. the customer communications segment derives revenues from its postal optimization services based generally on the number of mail pieces processed through each service option chosen by the clients. compliance solutions the customer communications segment in north america supports full-service proxy solutions that comprise proxy management, solicitation, and vote certification services; record keeping, vote 19 table of contents tabulation, and electronic shareholder interfaces; and print and mail, and electronic delivery, hosting, and voting services. in addition, the segment offers a compliance document delivery solution, supporting both printed output and electronic presentment. the production of compliance communications is also one of the major services provided by the segment's u.k. operation, which is one of the major business process outsourcers for the financial services industry in that country. solutions offered include the production of investment statements and daily regulatory communication for the asset and wealth management sectors. archival and retrieval solutions the need for customer service retrieval of statements is addressed by the segment's presentment solutions. these products provide customer service representatives with a searchable, indexed statement image that matches the print or electronic version sent to consumers, which can enable faster customer service calls and improved first-call resolution rates. in addition to retention via web presentment solutions, encrypted cd/dvd, microfilm, and computer output microfiche (com) capabilities are also available for longer-term storage and archival. communication intelligence and decisioning the customer communications segment's communication intelligence and decisioning solutions help clients make informed marketing, sales, and financial decisions by utilizing data science and data analysis to create individual customer dialogues, targeted campaigns, and variable communications to an entire customer base across multiple channels. in addition, the segment offers content databases to enable the management and delivery of marketing and sales material in print, online or on a mobile device to support its clients' field sales efforts. specialized educational materials, training, and libraries are also offered to the north american retirement and healthcare markets. dialogue and campaign management the customer communications segment offers dialogue and campaign management platforms which allow clients to segment their customer databases for targeted cross-channel campaigns using personalized messaging, syndicated content, and selective inserting down to the individual document level. both the north america and u.k. businesses also offer event-based and mobile marketing. in the u.k., the segment provides literature fulfillment services similar to those provided in north america, as well as the fulfillment of magazines in response to subscriptions, product fulfillment for charities, and print on demand solutions for sectors such as financial services and education. marketing technology with the company's acquisition of capital fulfillment group in 2010 and the launch of lateral group, north america in 2012, the customer communications segment offers technologies to support its clients' marketing and sales efforts. one example is marketpower, an advanced marketing resource management platform that streamlines the process of managing, procuring, and distributing marketing and other collateral. other offerings include litboard, a mobile sales and marketing content library; an email marketing/ecrm platform; and document composition and management services; hosting; and online and mobile application development. integrated communications management for the retirement and healthcare sectors the customer communications segment offers comprehensive solutions for providing defined contribution retirement plan and health plan communications to both plan sponsors and participants. 20 table of contents supported communication categories include targeted participant communications, enrollment materials, compliance communications, and management reports. the segment's system offers the ability to use the same customer-provided data and same text for multiple communications. communications can be highly personalized by using business rules to determine what content a participant sees and what graphics are incorporated within the communication, and by making complex calculations based on participants' own account information to prepare illustrations. the system supports print and electronic distribution of all communications. communications, or constituent parts of communications, can be pushed to participant websites, an e-communication warehouse or specified provider or plan sponsor websites. educational materials and training for the retirement and healthcare sectors the customer communications segment provides retirement plan educational materials, such as newsletters, to service providers for distribution to plan sponsors and plan participants. the customer communications segment also provides education and training to retirement plan professionals through in-person and online seminars. in addition, the segment offers a comprehensive online library of retirement plan educational materials on a subscription basis. the library can serve as an important resource for retirement plan professionals and other advisors. data analytics and consulting the customer communications segment offers data analytics and consulting in both the u.s. and u.k. to help its clients gain and utilize insights into customer needs and preferences. the segment's offerings in this category range from analysis of existing programs, campaigns, and data to creation of new campaigns, platforms, and content using multiple data streams to enrich our clients' understanding of their customers. facilities the customer communications segment's north america business has operating facilities in the u.s. and canada, and is among the largest users of continuous, high-speed, full-color inkjet printing systems and among the largest first-class mailers in the u.s. in the u.k., the segment has several production facilities to deliver a range of output types, including offset litho printing, high-quality digital laser printing, and inkjet printing. it is among the largest direct communications manufacturers in that country. the acquisition of lateral group limited in 2011 expanded the u.k. business to include data analytics and enhanced data-driven marketing services. investments and other segment the investments and other segment is comprised of the company's real estate subsidiaries and joint ventures, investments in equity securities, private equity investments and other financial interests. the assets held by the investments and other segment are primarily passive in nature. the company owns and operates real estate mostly in north america and the u.k., primarily for lease to the company's other business segments. the company is a partner in certain real estate joint ventures that lease office space to the company, certain of its unconsolidated affiliates and unrelated third parties. the company and its real estate subsidiaries own approximately 1.3 million square feet of office and retail space and 1.3 million square feet of production facilities which are held primarily for lease to the company's other business segments. the real estate subsidiaries also hold master leases in certain properties which are leased to the company's operating segments. the company's real estate subsidiaries also own a number of parking facilities, various developed and undeveloped properties, a residential apartment facility and an underground facility. 21 table of contents the investments and other segment holds investments in available-for-sale equity securities with a market value of approximately $589.3 million at december 31, 2012, including approximately 9.3 million shares of state street corporation (\"state street\") with a market value of $436.3 million based on closing exchange values at december 31, 2012. the following table summarizes the square footage of u.s. real estate facilities wholly-owned by dst or owned through unconsolidated affiliates of dst as of december 31, 2012 (in millions): dst wholly-owned* joint venture-owned occupied by dst and related affiliates 1.9 0.5 occupied by third parties and vacant 1.3 2.4 total 3.2 2.9 *amounts exclude square footage of wholly-owned data centers and related property and a joint venture-owned 1,000 room convention hotel. dst considers its data centers and surrounding property to be specialized operational assets and does not consider them to be real estate assets. therefore, its data centers are not included in its real estate operations, but rather the financial services segment. software development and maintenance the company's software development and maintenance efforts are focused on introducing new products and services, as well as enhancing its existing products and services. the following table summarizes software development and maintenance and enhancements and capitalized software development costs (in millions): year ended december 31, 2012 2011 2010 software development, maintenance and enhancements $ 159.6 $ 162.6 $ 162.1 capitalized software development costs $ 30.9 $ 31.4 $ 27.8 intellectual property the company holds u.s. patents, u.s. copyrights and various trademarks covering various aspects of the information processing and computer software services and products provided by the financial services segment and statement and mail processing services and technology provided by the customer communications segment. the duration of the patent term is generally 20 years from its earliest application filing date. the patent term is not renewable. the durations of the copyrights depend on a number of factors, such as who created the work and whether he or she was employed by the company at the time. the trademark rights generally will continue for as long as the company maintains usage of the trademarks. the company believes its copyrights are adequate to protect its original works of authorship. the company believes that although the patents, trademarks and copyrights related to financial services and customer communications are valuable, the success of the company primarily depends upon its product and service quality, marketing and service skills. despite patent, trademark and copyright protection, the company may be vulnerable to competitors who attempt to imitate the company's systems or processes. in addition, other companies and inventors may receive patents that contain claims applicable to the company's systems and processes. 22 table of contents employees the following table summarizes the number of employees of the company and its majority-owned subsidiaries, as well as the number of employees at the company's significant unconsolidated affiliates as of december 31, 2012. u.s. international total financial services segment 5,400 2,400 7,800 customer communications segment 2,600 1,500 4,100 investments and other 25 25 total, excluding unconsolidated affiliates 8,025 3,900 11,925 unconsolidated affiliates 2,200 3,800 6,000 total, including unconsolidated affiliates 10,225 7,700 17,925 except for certain employees of howitt limited, a subsidiary of the lateral group, which was acquired in 2011, none of the company's employees are represented by a labor union or covered by a collective bargaining agreement. the company considers its employee relations to be good. segment, geographic area and other financial information this discussion of the business of dst systems, inc. should be read in conjunction with, and is qualified by reference to, management's discussion and analysis of financial condition and results of operations (\"md&a\") under item 7 herein. in addition, pursuant to rule 12b-23 under the securities exchange act of 1934, as amended, the information set forth in the first paragraph and under the headings \"introduction\" and \"seasonality\" in the md&a and the segment and geographic information included in item 8, note 16 are incorporated herein by reference in partial response to this item 1. available information the company's annual report on form 10-k, quarterly reports on form 10-q, current reports on form 8-k and all amendments to those reports will be made available free of charge on or through the company's internet website (www.dstsystems.com) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the sec. in addition, the company's corporate governance guidelines and the charters of the audit committee, the corporate governance/nominating committee, compensation committee and finance committee of the dst board of directors are available on the company's internet website. these guidelines and charters are available in print to any stockholder who requests them. written requests may be made to the dst corporate secretary, 333 west 11th street, kansas city, missouri 64105, and oral requests may be made by calling the dst corporate secretary's office at (816) 435-8655. an individual may read and copy any materials the company files with the sec at the sec's public reference room at 100 f street, n.e. washington, d.c. 20549. the public may obtain information on the operation of the public reference room by calling the sec at 1-800-sec-0330. the sec maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the sec. i"
## [3] "item 1. business corporate background general adp® was founded in 1949 on an innovative idea to help business owners focus on core business activities by relieving them from certain administrative tasks such as payroll. automatic data processing, inc. was incorporated in the state of delaware in june 1961 and completed its initial public offering in september 1961. today we are one of the world's leading providers of human capital management solutions to employers, as well as integrated computing solutions to vehicle dealers around the world. we offer solutions to businesses of all sizes, whether they have simple or complex needs, and serve approximately 620,000 clients in more than 125 countries. our common stock is listed on the nasdaq global select market® under the symbol <U+0093>adp<U+0094>. when we refer to <U+0093>we<U+0094>, <U+0093>adp<U+0094>, or the <U+0093>company<U+0094> in this annual report on form 10-k, we mean automatic data processing, inc. and its consolidated subsidiaries. available information our corporate website, www.adp.com, provides materials for investors and information about our services. adp's annual reports on form 10-k, quarterly reports on form 10-q, current reports on form 8-k, all amendments to those reports, and the proxy statement for our annual meeting of stockholders are made available, free of charge, on our corporate website as soon as reasonably practicable after such reports have been filed with or furnished to the securities and exchange commission (sec) and are also available at the sec's website at www.sec.gov. the content on any website referenced in this filing is not incorporated by reference into this filing unless expressly noted otherwise. business overview adp's mission and strategy for over sixty years, adp's mission has been to power organizations with insightful solutions that drive business success. we seek to embrace new technology and innovation to deliver convenient products and services that anticipate client needs in all of our markets. our commitment to service excellence lies at the core of our relationship with each of our clients, whether a small, mid-sized or large business, or a multinational enterprise. we recognize the importance of human capital to our future success, and we are focused on hiring, developing and retaining highly qualified, motivated and diverse talent. predicated on these priorities, our business strategy is based upon the following four strategic pillars, which are designed to position adp as the global market leader in human capital management (hcm) services: <U+0095> grow our integrated suite of cloud-based hcm, benefits, and payroll solutions to serve the u.s. market; <U+0095> invest to grow and scale our hr business process outsourcing (bpo) solutions by leveraging our platforms and processes; <U+0095> leverage our global presence to offer clients hcm, benefits, and payroll solutions where they do business; and <U+0095> grow and deepen our solutions offering to ensure our key adjacencies are market leaders. reportable segments adp's three reportable business segments are: employer services, professional employer organization (peo) services, and dealer services. for financial information by segment and by geographical area, see note 14 to the <U+0093>consolidated financial statements<U+0094> contained in this annual report on form 10-k. 3 employer services. employer services offers a comprehensive range of business outsourcing and human capital management solutions, including: <U+0095> payroll services <U+0095> benefits administration services <U+0095> talent management solutions <U+0095> human resources management solutions <U+0095> time and attendance management solutions <U+0095> insurance services <U+0095> retirement services <U+0095> compliance and payment solutions employer services' approach to the market is to match clients' needs to the solutions and services that will best meet their requirements. employer services serves clients ranging from small businesses with fewer than 50 employees to large enterprises with multinational operations. as of june 30, 2013, employer services assisted approximately 590,000 employers with approximately 681,000 payrolls. professional employer organization (peo) services. adp's peo business, adp totalsource®, provides approximately 6,900 clients with comprehensive employment administration outsourcing solutions through a co-employment relationship in which employees who work at a client's location (referred to as <U+0093>worksite employees<U+0094>) are co-employed by us and the client. adp totalsource is the largest peo in the united states based on the number of worksite employees, serving approximately 290,000 worksite employees in all 50 states. dealer services. dealer services provides integrated dealer management systems, digital marketing solutions, and other business management solutions to auto, truck, motorcycle, marine, recreational vehicle (rv), and heavy equipment retailers, distributors, and manufacturers. over 26,000 auto, truck, motorcycle, marine, rv, and heavy equipment retailers, distributors, and manufacturers use dealer services' products and services. products and services we offer our products and services in the three business segments: employer services, peo services, and dealer services. employer services human capital management (hcm). adp provides multiple solutions, via a range of software-based and service-based delivery models, which our clients use to recruit, staff, pay, manage, and retain their employees. as a leader in the growing hr business process outsourcing (bpo) market, adp also offers fully integrated outsourcing solutions that enable our clients to outsource to adp their hr, time and attendance management, payroll, and benefits administration functions. in addition, our mobile solutions application enables small business owners to process their payroll, and gives more than one million active users convenient access to their vital benefits, payroll and hr information, via multiple mobile device platforms. integrated hcm solutions. our premier suite of human capital management products offers integrated solutions to assist employers of all sizes in all stages of the employment cycle from recruitment to retirement: <U+0095> run powered by adp® combines a software platform for managing small business payroll, as well as basic human resources and tax compliance administration, with service and support from our team of small business experts. run powered by adp also integrates with other available adp services, such as time and attendance tracking, workers compensation insurance premium payment plans, and certain retirement plans. <U+0095> adp resource® is a comprehensive human resources management outsourcing solution for small businesses that offers payroll and tax administration, recruitment and selection, employee assistance, employee training programs, and risk management and safety programs. adp resource also integrates with other available adp services, such as 401(k) plan administration services and workers compensation insurance premium payment plans. <U+0095> adp workforce now® is an hcm solution for mid-sized businesses that offers a range of services depending on the client's needs, from payroll to all-in-one human capital management including human resources management, benefits administration, time and attendance services, and talent management solutions. adp workforce now 4 also integrates with other available adp services, such as 401(k) plan administration services, wellness programs, and workers compensation insurance premium payment plans. <U+0095> adp vantage hcm® is a solution for large organizations, offering a comprehensive set of human capital management capabilities within a single solution that unifies the five major areas of hcm: human resources management, benefits administration, payroll, time and attendance management, and talent management. <U+0095> globalview® and adp streamline® offer hcm solutions to multinational companies. built on the sap® erp hcm and the sap netweaver® platform, globalview standardizes large multinational clients' hcm strategy across geographical regions, including multi-country payroll and human resources management, talent management, and time and attendance management. adp streamline® offers global payroll processing and human resources management services to businesses with small and mid-sized operations in multiple countries. payroll services. adp provides flexible payroll services to employers of all sizes, including the preparation of employee paychecks, pay statements, supporting journals, summaries, and management reports. adp provides employers with a wide range of payroll options ranging from manually calling in their payroll to our specialists, entering their payroll data online with an internet-based solution, or outsourcing their entire payroll process to adp. adp also enables its largest clients to interface their major enterprise resource planning (erp) applications with adp's outsourced payroll services. employers can choose a variety of payroll payment options ranging from professionally printed checks to adp's electronic wage payment and pay card solutions. adp also prepares and files federal, state and local payroll tax returns and quarterly and annual social security, medicare, and federal, state and local income tax withholding reports on our clients' behalf. in addition, as part of our w-2 management services, adp supplies year-end tax statements to our clients' employees. for those clients who choose to process payroll in-house, adp also delivers payroll tax services, check printing and distribution, and wage garnishment services on a stand-alone basis. benefits administration services. adp provides comprehensive solutions for outsourced employee benefits administration. employee benefits administration options include health and welfare administration, spending account management (health care spending accounts, dependent care spending accounts, health reimbursement arrangements, health savings accounts, commuter benefits, and employee reimbursement services), cobra administration, direct bill services, leave administration services, carrier enrollment services, employee communication services, dependent verification services, and advocacy services. in addition, adp benefits administration services offers employers an efficient eligibility and enrollment system that provides their employees with tools, communications, and other resources they need to understand their benefits options and make informed choices. talent management solutions. adp's talent management solutions simplify the talent acquisition and performance management process from recruitment to ongoing employee development. adp's proprietary recruiting automation platform helps employers find, recruit, and hire talent quickly and cost effectively. employers can also meet their hiring needs by outsourcing their internal recruitment function to adp. adp's pre-employment services enable employers to track candidates, screen candidate backgrounds, and integrate data to facilitate the onboarding process for new hires. adp's performance and compensation management applications provide tools to automate the entire performance management process from goal planning to employee evaluations and help employers align compensation with employee performance within budgetary constraints. adp provides talent and performance management solutions via our own offerings and also via our resale arrangements with third parties. integrated with adp's performance management applications, adp's succession management solutions offer tools that allow employees to build and update their employee profiles, search for potential positions within the organization, and create-forward looking career paths, while enabling managers to identify and mitigate potential retention risks. in addition, adp's learning management solutions provide a single point of access to learning and knowledge management capabilities via multiple online delivery methods. human resources management solutions. commonly referred to as human resource information (hris) systems, adp's human resources management solutions provide employers with a single source of record to support the entry, validation, maintenance, and reporting of data required for effective hr management, such as employee names, addresses, job types, salary grades, employment history, and educational background. adp's human resources management solutions can also be integrated with adp's talent management solutions and other hcm offerings. time and attendance management solutions. adp offers multiple options for employers of all sizes to collect employee time and attendance information, including electronic or online timesheets, badge card time clocks, biometric time clocks, telephone/interactive voice response, and wireless devices. adp's time and attendance tracking tools simplify employee scheduling and automate the calculation and reporting of hours worked, helping employers enforce attendance and leave policies more consistently, control overtime, and manage compliance with wage and hour regulations. 5 insurance services. adp insurance services, in conjunction with our licensed insurance agency, automatic data processing insurance agency, inc., facilitates access to workers compensation and group health insurance for small and mid-sized clients through a variety of insurance carriers. adp's automated pay-by-pay® premium payment program accurately calculates and collects premium payments each pay period, minimizing the risk of miscalculations. retirement services. adp retirement services helps employers administer various types of retirement plans, such as 401(k) (including <U+0093>safe harbor<U+0094> 401(k) and roth 401(k)), profit sharing (including new comparability), simple ira, and executive deferred compensation plans. adp retirement services offers a full service 401(k) plan program, which provides recordkeeping and administrative services, combined with an investment platform offered through adp broker-dealer, inc. that gives clients' employees access to a wide range of non-proprietary investment options and online tools to monitor the performance of their investments. adp retirement services also offers trustee services through a third party. compliance and payment solutions employment tax services. as part of adp's employment tax services, adp prepares and files employment tax returns on our clients' behalf with federal, state, and local tax agencies. in connection with these services, adp collects federal, state, and local employment taxes from clients and remits these taxes to the appropriate taxing agencies via an electronic interface with over 7,200 federal, state, and local tax agencies in the united states. adp also responds to inquiries from tax agencies and files tax protests on the clients' behalf. in addition to our full service payroll tax solution, adp offers a software solution for do-it-yourself employment tax management that can complement a client's in-house payroll system. in our fiscal year ended june 30, 2013 (<U+0093>fiscal 2013<U+0094>), adp in the united states processed and delivered approximately 51 million employee year-end tax statements and over 41 million employer payroll tax returns and deposits, and moved approximately $1.4 trillion in client funds to taxing agencies and its clients' employees via electronic transfer, direct deposit, and adpchecktm. tax credits services. adp tax credits services helps clients take advantage of tax credit opportunities as they hire new employees, including federal, state, and local tax credits based on geography, demographics, and other criteria such as work opportunity tax credits, federal empowerment zone employment credits, economic development incentives, training grants, and many other incentives. integrating the entire process with clients' existing hiring programs, adp tax credits services enables clients to screen employees and process eligibility forms, monitor and manage screening compliance and form compliance, submit forms to state agencies for tax credit certification, calculate credits, and produce a detailed audit trail. wage garnishment services. adp offers an integrated solution that manages the wage garnishment process by utilizing the client's payroll system. as part of this comprehensive service, adp also manages required correspondence to payee agencies, lien processing and order evaluation, and notices. adp's wage garnishment services also offer a call center to field garnishment-related inquiries from employees, payees, and other third parties. unemployment claims management. adp offers a single-source solution to manage the entire unemployment claims process, including pre-separation planning, claim protests and administration, appeal processing, hearing representation, and audits of benefit charges. wage payment and pay card solutions. adp offers electronic payroll disbursement options that can be integrated with a client's payroll systems and erp applications. with aline pay by adp®, payroll can be disbursed via aline check by adp®, direct deposit, or the aline card by adp®, a network-branded payroll card. using the aline card, employees can access their payroll funds immediately in several ways, including via a network member bank or an atm or point of sale terminal. the aline card can also be used to make purchases or pay bills. additional features of the aline card include the ability to load additional funds onto the card, receive electronic payments such as government benefits or tax refunds, and transfer funds from the card to a u.s. bank account. professional employer organization (peo) services adp totalsource®, adp's peo business, offers small and mid-sized businesses a comprehensive human resources outsourcing solution through a co-employment model. as a peo, adp totalsource provides integrated human resources management services while the client continues to direct the day-to-day, job-related duties of the employees. adp totalsource integrates key hr management and employee benefits functions, including hr administration, employee benefits, and employer liability management, into a single-source solution: 6 hr administration. adp totalsource offers a variety of comprehensive, integrated hr administration services, such as: <U+0095> employee recruitment and selection <U+0095> payroll and tax administration <U+0095> time and attendance management <U+0095> benefits administration <U+0095> employee training and development <U+0095> online hr management tools <U+0095> employee leave administration employee benefits. through the co-employment model, adp totalsource provides eligible worksite employees with access to: <U+0095> group health, dental and vision coverage <U+0095> a 401(k) retirement savings plan <U+0095> health savings accounts <U+0095> flexible spending accounts <U+0095> group term life and disability coverage <U+0095> an employee assistance program employer liability management. adp totalsource helps clients manage and limit employment related risks and related costs by providing: <U+0095> a workers' compensation program <U+0095> unemployment claims management <U+0095> safety compliance guidance and access to safety training <U+0095> access to employment practices liability insurance <U+0095> guidance on compliance with federal, state and local employment laws and regulations adp totalsource's scale allows us to deliver a variety of benefits and services with efficiency and value typically out of reach to small and mid-sized businesses. adp totalsource is the largest peo in the united states based on the number of worksite employees. adp totalsource has 54 offices located in 26 states and serves approximately 6,900 clients and an aggregate of approximately 290,000 worksite employees in all 50 states. dealer services dealer management systems (dms) and other retail solutions. dealer services' dealer management systems offer comprehensive, integrated solutions that dealerships use to manage their core dealership business activities. dms solutions are available as <U+0093>on-site<U+0094> applications installed at the dealership or as managed services solutions in which clients access adp's dms solutions through a cloud-based it environment managed by adp. the dms accounting modules help clients manage all standard accounting procedures, including general ledger, receivables and balance sheet maintenance. the dms service and parts modules enable automation of client operations such as service and repair order processing, purchase orders and parts ordering. the dms sales and finance and insurance (f&i) modules facilitate clients' ability to manage customer inquiries, develop, analyze, present, and consummate transactions with customers, manage and print the forms needed to consummate such transactions, and track funds. dealer services also offers a full range of additional solutions that address every department and functional area of the dealership, including customer relationship management (crm) applications, vehicle inventory and lot management solutions, and telephone systems. these additional solutions are typically fully integrated with the dms. digital marketing solutions. dealer services provides digital marketing solutions under the cobalt® brand, which adp acquired in 2010. cobalt digital marketing solutions and services include dealership websites, sales leads, email marketing, search and display advertising, and social media marketing and management services. these solutions are sold both as retail network marketing programs in conjunction with the manufacturers of ten leading automotive brands, as well as directly to auto dealerships and regional dealer associations. network solutions. dealer services designs, establishes, and maintains communications networks for its dealership clients that allow interactive communications among multiple site dealerships and connect franchised dealers with their vehicle manufacturer franchisors. these networks are used for activities such as new vehicle ordering and status inquiry, warranty 7 submission and validation, parts and vehicle location, dealership customer credit application submission and decision-making, vehicle repair estimation, and acquisition of vehicle registration and lien holder information. dealer services' network solutions also include integrated ip telephony systems, wired and wireless network access solutions, and security management applications. training services. dealer services offers comprehensive training and business process consulting services for many of its business solutions via multiple delivery methods. task-specific internet-based courses are fully automated and available 24 hours a day. dealer services also provides interactive instructor-led training via internet-based sessions or live classroom courses that are customized to meet our clients' specific needs. markets and marketing methods employer services offers its products and services in the united states and abroad. our globalview offering is available in 41 foreign countries and our streamline offering is available in 91 foreign countries, 41 of which are countries in which we also offer our globalview services. in addition, employer services offers in-country payroll and human resources outsourcing solutions to both small and large clients in close to 30 countries. in canada, we are a leading provider of payroll processing (including full departmental outsourcing) and human resource administration services. within europe, we have business operations supporting our in-country solutions in france, germany, italy, the netherlands, poland, spain, switzerland, and the united kingdom. we also offer payroll outsourcing services as well as hcm solutions in south america (in brazil, chile, argentina, and peru), china, india, and australia. we offer wage and tax collection and remittance services in canada, the united kingdom, the netherlands, and france. peo services offers services exclusively in the united states. in fiscal 2013, 80% of employer services' revenues were from the united states, 13% were from europe, 5% were from canada, and 2% were from south america, australia, and asia. dealer services primarily serves automobile dealers, which in turn may be dependent on a relatively small number of auto manufacturers, but also serves truck, powersports (i.e., motorcycle, marine, and rv) and heavy equipment dealers, auto repair shops, used car lots, state departments of motor vehicles, vehicle manufacturers, and vehicle distributors. dealer services has offerings in more than 100 countries across north america, europe, africa, the middle east, and the asia pacific region. we market our products and services primarily through our direct sales force. employer services also markets its solutions through indirect sales channels, such as marketing relationships with banks and accountants, among others. in addition, dealer services uses distributors to sell, implement and support its solutions in select emerging markets. none of adp's major business groups has a single homogenous client base or market. while concentrations of clients exist in specific industries, no one client or industry group is material to adp's overall revenues. adp enjoys a leadership position in each of its major service offerings and does not believe any major service or major business unit of adp is subject to unique market risk. competition the industries in which adp operates are highly competitive. adp knows of no reliable statistics by which it can determine the number of its competitors, but it believes that it is one of the largest providers of business outsourcing solutions in the world. employer services and peo services compete with other independent business outsourcing companies, companies providing enterprise resource planning services, software companies and financial institutions. captive in-house functions, whereby a company installs and operates its own business processing systems, are another competitive factor in the industries in which employer services and peo services operate. dealer services' competitors include full service dms providers, such as the reynolds & reynolds company (dealer services' largest dms competitor in the united states and canada), dealertrack, inc., and companies providing applications and services that compete with dealer services' non-dms applications and services, such as auto trader group, inc. and dealer.com, inc. industry regulation our business is subject to a wide range of complex laws and regulations. in addition, many of our products and services are designed to assist clients with their compliance with laws and regulations to which they are subject. we have developed and continue to enhance compliance programs and policies to monitor and address the legal and regulatory requirements applicable to our products, services, and operations, including dedicated compliance personnel and training programs. as one of the world's largest providers of business outsourcing solutions, our systems contain a significant amount of both client data and data related to employees of our clients. we are, therefore, subject to compliance obligations under both federal and state privacy and data security-related laws, including, with respect to some of our businesses such as our cobra, flexible spending account and insurance services businesses and adp advancedmd®, the health insurance portability and 8 accountability act of 1996. we are also subject to federal and state security breach notification laws with respect to client employee data. as part of our payroll and payroll tax management services, we move client funds to taxing authorities and our clients' employees via electronic transfer, direct deposit, and adpcheck. certain elements of our u.s. money transmission activities, including our electronic payment and prepaid access (payroll pay card) offerings, are subject to certain licensing requirements. elements of our money transmission activities outside of the united states are subject to similar laws and requirements in the countries in which we offer such services. in addition, our u.s. prepaid access (payroll card) offering is subject to the anti-money laundering and reporting provisions of the bank secrecy act. our employee screening and selection services business offers background checking services that are subject to the fair credit reporting act. our peo business (adp totalsource) is subject to various state licensing requirements. in addition, because adp totalsource is a co-employer with respect to its clients' worksite employees, we may assume certain obligations and responsibilities of an employer under federal and state tax, insurance and employment laws. in addition, many of our businesses offer products and services that assist our clients in complying with laws and regulations to which they are subject; although the laws apply to our clients and not to adp, changes in such laws may affect our operations, products and services. for example, our cobra administration services and flexible spending account services are designed to comply with relevant federal guidelines relating to, respectively, employers' benefits continuation obligations and the requirements of section 125 of the internal revenue code. similarly, our tax credits services business, which helps clients take advantage of tax credit opportunities as they hire new employees, is based on federal, state, or local tax laws and regulations allowing for tax credits. we are also impacted by foreign data privacy laws, such as the european union privacy directive, which regulate the processing of personal information. the foregoing description does not include an exhaustive list of the laws and regulations governing and impacting our business. see the discussion contained in the \"risk factors\" section in part i, item 1a of this annual report on form 10-k for information regarding changes in laws and regulations that may decrease our revenues and earnings. clients and client contracts adp provides its services to approximately 620,000 clients. in fiscal 2013, no single client or group of affiliated clients accounted for revenues in excess of 2% of annual consolidated revenues. adp is continuously in the process of performing implementation services for new clients. depending on the service agreement and/or the size of the client, the installation or conversion period for new clients could vary from a short period of time for a small employer services client with fewer than 50 employees (as little as 24 hours) to a longer period for a large employer services client with 1,000 or more employees or a dealer services client with multiple deliverables (generally six to twelve months), and in some cases may exceed two years for a large globalview client or other large, complicated implementation. although we monitor sales that have not yet been billed or installed, we do not view this metric as material in light of the recurring nature of our business. this is not a reported number, but it is used by management as a planning tool relating to resources needed to install services, and a means of assessing our performance against the installation timing expectations of our clients. our business is typically characterized by long-term client relationships that result in recurring revenue. our services are provided under written price quotations or service agreements having varying terms and conditions. no one price quotation or service agreement is material to adp. adp's client retention is estimated at approximately 12 years in employer services, approximately 6 years in peo services, and approximately 12 years in dealer services, and has not varied significantly from period to period. systems development and programming during the fiscal years ended june 30, 2013, 2012, and 2011, adp invested approximately $757 million, $699 million, and $667 million, respectively, from continuing operations, in systems development and programming, migration to new computing technologies and the development of new products and maintenance of our existing technologies, including purchases of new software and software licenses. 9 product development adp continually upgrades, enhances, and expands its existing solutions and services. generally, no new solution or service has a significant effect on adp's revenues or negatively impacts its existing solutions and services, and adp's solutions and services have significant remaining life cycles. licenses adp is the licensee under a number of agreements for computer programs and databases. adp's business is not dependent upon a single license or group of licenses. third-party licenses, patents, trademarks, and franchises are not material to adp's business as a whole. number of employees adp employed approximately 60,000 persons as of june 30, 2013."
## [4] "item 1. business overview broadridge is a leading global provider of investor communications and technology-driven solutions to banks, broker-dealers, mutual funds and corporate issuers. our systems and services include investor communication solutions, and securities processing and business process outsourcing services. in short, we provide the infrastructure that helps the financial services industry operate. with over 50 years of experience, we provide financial services firms with advanced, dependable, scalable and cost-effective integrated systems. our systems help reduce the need for clients to make significant capital investments in operations infrastructure, thereby allowing them to increase their focus on core business activities. we deliver a broad range of solutions that help our clients better serve their retail and institutional customers across the entire investment lifecycle, including pre-trade, trade, and post-trade processing. we serve a large and diverse client base across our four businesses: bank/broker-dealer communications, mutual fund and retirement solutions, corporate issuer solutions, and bank/broker-dealer technology and operations. our businesses operate in two business segments: investor communication solutions and securities processing solutions. investor communication solutions our bank/broker-dealer communications, mutual fund and retirement solutions and corporate issuer solutions businesses operate within this segment. a large portion of our investor communication solutions business involves the processing and distribution of proxy materials to investors in equity securities and mutual funds, as well as the facilitation of related vote processing. proxyedge®, our innovative electronic proxy delivery and voting solution for institutional investors and financial advisors, helps ensure the participation of the largest stockholders of many companies. we also provide the distribution of regulatory reports and corporate action/reorganization event information, as well as tax reporting solutions that help our clients meet their regulatory compliance needs. in addition, we provide financial information distribution and transaction reporting services to both financial institutions and securities issuers. these services include the processing and distribution of account statements and trade confirmations, traditional and personalized document fulfillment and content management services, marketing communications, and imaging, archival and workflow solutions that enable and enhance our clients communications with investors. all of these communications are delivered through paper or electronic channels. in addition, broadridge provides corporate issuers with registered proxy services as well as registrar, stock transfer and record-keeping services. bank/broker-dealer communications: broadridge is the leader in corporate governance activities, processing approximately 85% of the outstanding shares in the united states ( u.s. ), and approximately 72% of the shares voted outside the u.s. in the performance of our proxy services. we process approximately two billion investor communications annually through a combination of physical and electronic channels. mutual fund and retirement solutions: broadridge is the leading independent provider of retirement fund processing and provides unique data-driven market intelligence, specialized marketing communications and fund governance. corporate issuer solutions: broadridge serves corporate issuers with a variety of their needs including proxy and transfer agency services, both domestically and globally. securities processing solutions our bank/broker-dealer technology and operations business operates within this segment. we offer a suite of advanced computerized real-time transaction processing services that automate the securities transaction lifecycle, from desktop productivity tools, data aggregation, performance reporting, and portfolio management to 4 table of contents order capture and execution, trade confirmation, settlement, and accounting. our services help financial institutions efficiently and cost-effectively consolidate their books and records, gather and service assets under management, focus on their core businesses, and manage risk. with multi-currency capabilities, our global processing solution supports real-time global trading of equity, option, mutual fund, and fixed income securities in established and emerging markets. in addition, our business process outsourcing services allow broker-dealers to outsource certain administrative functions relating to clearing and settlement, from order entry to trade matching and settlement, while maintaining their ability to finance and capitalize their businesses. bank/broker-dealer technology and operations: broadridge is the leading back- and middle-office securities processing platform for north american and global broker-dealers. provided on an application service provider ( asp ) basis, broadridge s platform is a global market solution, clearing and settling in over 50 countries. broadridge processes on average over $5 trillion in equity and fixed income trades per day of u.s. and canadian securities, including approximately 60% of u.s. fixed income trades. history and development of our company we are the former brokerage services division of automatic data processing, inc. ( adp ). broadridge was incorporated in delaware as a wholly-owned subsidiary of adp on march 29, 2007 in anticipation of our spin-off from adp. six years ago, we spun off from adp and began operating as an independent public company on march 30, 2007. our company has over 50 years of history in providing innovative solutions to financial services firms and publicly-held companies. in 1962, the brokerage services division of adp opened for business with one client, processing an average of 300 trades per night. in 1979, we expanded our u.s.-based securities processing solutions to process canadian securities. we made significant additions to our securities processing solutions business through two key acquisitions in the mid-1990s. in 1995, we acquired a london-based provider of multi-currency clearance and settlement services, to become a global supplier of transaction processing services. in 1996, we acquired a provider of institutional fixed income transaction processing systems. we began offering our proxy services in 1989. the proxy services business, which started what has become our investor communication solutions business, leveraged the information processing systems and infrastructure of our securities processing solutions business. our proxy services offering attracted 31 major clients in its first year of operations. in 1992, we acquired the independent election corporation of america which further increased our proxy services capabilities. by 1999, we were handling over 90% of the investor communication distributions for securities held of record by banks and broker-dealers in the u.s. from proxy statements to annual reports. during the 1990s, we expanded our proxy services business to serve security owners of canadian and united kingdom issuers and we began offering a complete outsourced solution for international proxies. in 1994, we began offering proxyedge, our innovative electronic proxy delivery and voting solution for institutional investors that helps ensure the participation of the largest stockholders of many companies. in 1998, having previously provided print and distribution services as an accommodation to our securities processing and proxy clients, we decided to focus on account statement and reporting services. in 2001, we developed and released postedge® to meet the need for electronic distribution and archiving of all investor communications. three years ago, broadridge entered the transfer agency business through its acquisition of a provider of registrar, stock transfer and record-keeping services. in fiscal year 2011, the company acquired three businesses in the investor communication solutions segment. in august 2010, the company acquired newriver, inc. ( newriver® ), a leader in mutual fund electronic investor disclosure solutions. in december 2010, the company acquired forefield, inc. ( forefield® ), a leading provider of real-time sales, education and client communication solutions for financial institutions and their advisors. in january 2011, the company acquired matrix financial solutions, inc. ( matrix® ). matrix is a provider of mutual fund processing services for third party administrators, financial advisors, banks and wealth management professionals. matrix s back-office, trust, 5 table of contents custody, trading and mutual fund settlement services are integrated into our product suite thereby strengthening broadridge s role as a provider of data processing and distribution channel solutions to the mutual fund industry. the company has also acquired businesses in the securities processing solutions segment. in fiscal year 2010, the company acquired city networks ltd ( city networks® ), a leading software and services provider of reconciliation, multi-asset process automation and operational risk management solutions to the global financial services industry. in fiscal year 2012, the company acquired paladyne systems, inc. ( paladyne® ), a provider of buy-side technology solutions for the global investment management industry. the broadridge business investor communication solutions a majority of publicly-traded shares are not registered in companies records in the names of their ultimate beneficial owners. instead, a substantial majority of all public companies shares are held in street name, meaning that they are held of record by broker-dealers or banks through their depositories. most street name shares are registered in the name cede & co., the name used by the depository trust and clearing corporation ( dtcc ), which holds shares on behalf of its participant broker-dealers and banks. these participant broker-dealers and banks (which are known as nominees because they hold securities in name only) in turn hold the shares on behalf of their clients, the individual beneficial owners. nominees, upon request, are required to provide companies with lists of beneficial owners who do not object to having their names, addresses, and share holdings supplied to companies, so called non-objecting beneficial owners (or nobos ). objecting beneficial owners (or obos ) may be contacted directly only by the broker-dealer or bank. because dtcc s role is only that of custodian, a number of mechanisms have been developed in order to pass the legal rights it holds as the record owner (such as the right to vote) to the beneficial owners. the first step in passing voting rights down the chain is the omnibus proxy, which dtcc executes to transfer its voting rights to its participant nominees. under applicable rules, nominees must deliver proxy materials to beneficial owners and request voting instructions. nominees are often prohibited by applicable new york stock exchange ( nyse ), or other self-regulatory organization ( sro ) rules, or by express agreements with their customers from voting the securities held in their customers accounts in the absence of receiving such customers voting instructions. a large number of nominees have contracted out the administrative processes of distributing proxy materials and tabulating voting instructions to us. nominees accomplish this by transferring to us via powers of attorney the authority to execute a proxy, which authority they receive from dtcc (via omnibus proxy). we then distribute the proxy materials and voting instruction forms (known as vifs ) to beneficial owners. the securities and exchange commission s (the sec ) rules require public companies to reimburse nominees for the expense of distributing stockholder communications to beneficial owners of securities held in street name. the reimbursement rates are set forth in the rules of sros, including the nyse. we act as a billing and collection agent for many nominees with respect to this reimbursement. we bill public companies on behalf of the nominees, collect the fee and remit to the nominee any difference between the fee that the nominee is entitled to collect and the amount that the nominee has agreed to pay us for our services. in addition, the nyse rules establish fees specifically for the services provided by intermediaries in the proxy process such as broadridge. we also compile nobo lists on behalf of nominees in response to requests from issuers. the preparation of nobo lists is subject to reimbursement by the securities issuers requesting such lists to the broker-dealers. the reimbursement rates are based on the number of nobos on the list produced pursuant to nyse or other sro rules. such rules also provide for certain fees to be paid to third party intermediaries who compile such nobo lists. we function as such an intermediary in the nobo process. 6 table of contents we also provide proxy distribution, vote tabulation, and various additional investor communication tools and services to institutional investors, corporate issuers, and investment companies. the services we provide in this segment represented approximately 73%, 71%, and 72% of our total revenues in fiscal years 2013, 2012, and 2011, respectively. these services include the following: bank and brokerage offerings. we handle the entire proxy materials distribution and voting process for our bank and broker-dealer clients on-line and in real-time, from coordination with third-party entities to ordering, inventory maintenance, mailing, tracking and vote tabulation. we offer electronic proxy delivery services for the electronic delivery of proxy materials to investors and collection of consents; maintenance of a database that contains the delivery method preferences of our clients customers; posting of documents on the internet; e-mail notification to investors notifying them that proxy materials are available; and proxy voting over the internet, mobile devices and tablets. we also have the ability to combine stockholder communications for multiple stockholders residing at the same address which we accomplish by having ascertained the delivery preferences of investors. in addition, we provide a complete outsourced solution for the processing of international proxies. we also provide a complete reorganization communications solution to notify investors of reorganizations or corporate action events such as tender offers, mergers and acquisitions, bankruptcies, and class action lawsuits. we also offer our bank and brokerage clients financial information distribution and transaction reporting services to help them meet their regulatory compliance requirements and business needs including: prospectus fulfillment services; electronic prospectus services; postedge, our electronic document archival and electronic delivery solution for documents including trade confirmations, tax documents and account statements; marketing communications; imaging, archival and workflow solutions; and on-demand digital print services. in addition, we offer our mailbox products advisor mailboxtm and investor mailbox® which provide a holistic network environment that supports and complements any investor communication strategy. advisor mailbox is the latest complement to our investor mailbox solution, our service providing the electronic delivery of investor communications to our clients websites, creating investor access to regulatory delivery notices, day-to-day account and investment information and convenient response tools. our advisor mailbox is an electronic communications platform for financial advisors that delivers immediate electronic access to the communications and documents sent to such advisors customers. advisor mailbox streamlines multiple communication paths for all investor-related documents into a single-visit portal that is integrated onto an advisor s platform. we also provide tax services to financial services firms that support their various information year-end reporting (e.g., forms 1099) and withholding requirements, with a focus on securities and fund processing/clearance operations. our tax data services provide tax content and data management, including securities tax classifications and reclassifications, calculations of original issue discount and other accrual and cost basis adjusting events. our tax managed services provide technology and personnel outsourcing, withholding services and client reporting, including print/electronic distribution and archival. in fiscal year 2011, the company acquired newriver, a leader in mutual fund electronic investor disclosure solutions. newriver has provided the company with important capabilities for the broker-dealer and retirement and annuity markets. specifically, its proprietary extraction, normalization and presentment capabilities from the sec s edgar database have enabled us to enhance our prospectus post-sale fulfillment operations by moving to an on-demand solution. this process provides efficiency for our clients as it reduces their reliance on offset print and fund delivered inventory. broadridge has also been able to leverage the intellectual property in this business to provide portfolio-specific solutions for the retirement and annuity markets. through our integration of this functionality into our existing capabilities, we offer a new and efficient fulfillment model for regulatory and compliance mailings. the company also acquired forefield in fiscal year 2011, a leading provider of real-time sales, education and client communication solutions for financial institutions and their advisors. forefield has expanded its services portfolio to leverage its industry leading financial content for use by financial services firms in their social media content libraries. forefield also provides an advisor website product that can be populated with 7 table of contents forefield s content or content created by the advisor. forefield continues to develop new applications that further the goal of creating timely, accurate and meaningful communications for both advisors and their clients. for example, forefield s women s resource center, which contains a broad selection of content for both the advisor and their client, focuses specifically on the requirements and challenges faced by women investors. institutional investor offerings. we provide a suite of services to manage the entire proxy voting process of institutional investors, including fulfilling their fiduciary obligations and meeting their reporting needs such as proxyedge, our workflow solution that integrates ballots for positions held across multiple custodians and presents them under a single proxy. voting can be instructed for the entire position, by account vote group or on an individual account basis either manually or automatically based on the recommendations of participating governance research providers. proxyedge also provides for client reporting and regulatory reporting. proxyedge can be utilized for meetings of u.s. and canadian companies and for meetings in many non-north american countries based on the holdings of our global custodian clients. proxyedge is offered in several languages and there are currently 4,500 proxyedge users worldwide. corporate issuer offerings. we are the largest processor and provider of investor communication solutions to public companies. we offer our corporate issuer clients many tools to facilitate their communications with investors such as internet and telephone proxy voting, electronic delivery of corporate filings, and householding of communications to stockholders at the same address. one of our opportunities for growth in the investor communication solutions segment involves serving corporate issuer clients in providing communications services to registered stockholders that is, stockholders who do not hold their shares through a broker-dealer in street name. we also offer proxy services to non-north american corporate issuers in connection with their general and special meetings of stockholders. our corporate issuer services include sharelink®, which provides complete project management for the beneficial and registered proxy process. we also provide registrar, stock transfer and record-keeping services. our strategy in the transfer agency business is to address the needs public companies have expressed for lower cost, more reliable stockholder record maintenance and communication services. we intend to accomplish this by leveraging our existing investor communications and securities processing capabilities to enable us to deliver enhanced transfer agency services to corporate issuers. in addition, we can offer issuers and their shareholders the ability to migrate their shareholders holdings from registered to beneficial ownership, thereby creating efficiencies for issuers and greater convenience for their shareholders. our shareholder forumtm solution is an online venue that offers public companies the ability to host structured, controlled communication with their shareholders on a timely and regular basis. validated shareholders can submit questions, answer surveys in preparation of the annual meeting and year-round, and communicate in various ways with a corporation. our virtual shareholder meetingtm service provides corporate issuers in a number of states with the ability to host their annual meeting electronically on the internet, either on a stand-alone basis, or in conjunction with their physical annual meeting. as the entity that provides beneficial shareholder proxy processing on behalf of many banks and brokerage firms, we can provide shareholder validation and voting to companies that want to hold virtual meetings. mutual fund offerings. we provide a full range of tools that enable mutual funds to communicate with large audiences of investors efficiently, reliably, and often with substantial cost savings. our solutions allow mutual funds to centralize all investor communications through one resource. we also provide printing and mailing of regulatory reports, prospectuses and proxy materials, as well as proxy solicitation services. in addition, we distribute marketing communications and informational materials and create on-demand enrollment materials for mutual fund investors. our position in the industry enables us to manage the entire communication process with both registered and beneficial stockholders. our access data salesvision® platform provides comprehensive data aggregation and data management solutions. salesvision is software delivered as a service and assists mutual funds in processing commission and distribution payments, monitoring their compliance with regulatory requirements, and assembling shareholder and intermediary data in a form to better drive their sales strategy and marketing programs. 8 table of contents in addition, we provide mutual fund processing services for third party administrators, financial advisors, banks and wealth management professionals through our subsidiary matrix, which was acquired in fiscal year 2011. our back-office, trust, custody, trading and mutual fund settlement services are integrated into our product suite, thereby strengthening our role as a provider of data processing and distribution channel solutions to the mutual fund industry. securities processing solutions transactions involving securities and other financial market instruments originate with an investor, who places an order with a broker who in turn routes that order to an appropriate market for execution. at that point, the parties to the transaction coordinate payment and settlement of the transaction through a clearinghouse. the records of the parties involved must then be updated to reflect completion of the transaction. tax, custody, accounting and record-keeping requirements must be complied with in connection with the transaction and the customer s account information must correctly reflect the transaction. the accurate processing of trading activity and custody activity requires effective automation and information flow across multiple systems and functions within the brokerage firm and across the systems of the various parties that participate in the execution of a transaction. our securities processing solutions automate the transaction lifecycle of equity, mutual fund, fixed income, and option securities trading operations, from order capture and execution through trade confirmation, settlement, custody and accounting. our services facilitate the automation of straight-through-processing operations and enable financial institutions to efficiently and cost-effectively consolidate their books and records, gather and service assets under management, focus on their core businesses, and manage risk. with our multi-currency capabilities, we support trading activities on a global basis. in september 2011, we acquired paladyne, a provider of buy-side technology solutions for the global investment management industry. paladyne provides front-, middle-, and back-office solutions such as order management, data warehousing, reporting and portfolio accounting to hedge funds, investment managers and the providers that service this space (prime brokers, hedge fund administrators and custodians). the scope of paladyne s client base includes start-up or emerging managers through some of the largest global hedge fund complexes and global administrators. we have integrated our business process outsourcing expertise with the paladyne technology solutions to offer a set of managed services to the buy-side of the industry. paladyne has enhanced the asset classes we service and expanded our global footprint and market coverage. in march 2010, we entered into an information technology services agreement (the it services agreement ) with international business machines corporation ( ibm ), under which ibm provides certain aspects of our information technology infrastructure. the migration of our data center processing from adp to ibm was completed in august 2012. our securities processing services represented approximately 27%, 29%, and 28% of our total revenues in fiscal years 2013, 2012, and 2011, respectively. these services include the following: north american processing services. we provide a set of sophisticated, multi-currency systems that support real-time processing of securities transactions in north american equities, options, fixed income securities, and mutual funds. brokerage processing services ( bps ) is our core multi-currency back-office processing system that supports real-time processing of transactions in the u.s. markets. bps handles everything from order management to clearance/settlement and custody, and assists our clients in meeting their regulatory reporting and other back-office requirements. bps is provided on a hosted asp basis. we also offer a version of bps for processing canadian securities. in addition to our bps offering, we provide specialized transaction processing tools and services for small to mid-market financial firms in canada. we also provide state-of-the-art fixed income transaction processing capabilities and support for front-, middle-, and back-office functions. our securities processing services can be integrated with our web-based desktop applications, wealth management tools, enterprise workflow, automated inquiry reporting and record-keeping services. 9 table of contents international processing services. we provide advanced multi-currency transaction processing solutions for institutional and retail securities operations, corporate actions, and business process outsourcing services such as data cleansing. our global processing solution is our integrated delivery of multiple securities processing products and services to create a comprehensive system that is capable of processing transactions in equity, option, mutual fund, and fixed income securities in established and emerging markets, at any time. its advanced real-time processes automate the securities transaction lifecycle from order capture and execution through confirmation, settlement, and accounting. business process outsourcing services. we also provide business process outsourcing services relating to a variety of securities clearing, record-keeping, and custody-related functions. our clients execute and clear their securities transactions and engage us to perform a number of related administrative back-office functions, such as record-keeping and reconciliations. in this capacity, we are not the broker-dealer of record. broadridge s integrated solutions our core systems for processing equity, option, and mutual fund transactions in the u.s. markets can also be combined with our specialized systems for processing fixed income and international securities transactions. these specialized securities processing services can be fully integrated with business process outsourcing services. in addition, our clients can integrate our securities processing and business process outsourcing services with our other services including: (i) the processing of trade confirmations and account statements, delivered in paper or electronically; (ii) equity and mutual fund prospectus processing; (iii) automated workflow tools that help our clients streamline their securities processing and operations activities; and (iv) a full suite of wealth management products including data aggregation tools, end-customer websites, broker desktop, financial planning and modeling tools, performance reporting and portfolio accounting. clients we serve a large and diverse client base in the financial services industry including retail and institutional brokerage firms, global banks, mutual funds, annuity companies, institutional investors, specialty trading firms, clearing firms, third party administrators, and hedge funds. we also provide services to corporate issuers. in fiscal year 2013, we: processed approximately 85% of the outstanding shares in the u.s. in the performance of our proxy services; processed approximately two billion investor communications through either paper or electronic channels; processed on average over $5 trillion in equity and fixed income trades per day of u.s. and canadian securities, including approximately 60% of u.s. fixed income trades; and provided fixed income trade processing services to 15 of the 21 primary dealers of fixed income securities in the u.s. in fiscal year 2013, we derived approximately 25% of our consolidated revenues from five clients. our largest single client accounted for approximately 6% of our consolidated revenues. competition we operate in a highly competitive industry. our investor communication solutions business competes with companies that provide investor communication and corporate governance solutions including transfer agents who handle communication services to registered (non-beneficial) securities holders, proxy advisory firms, proxy solicitation firms and other proxy services providers. we also face competition from numerous firms in the compiling and printing of transaction confirmations and account statements. our securities 10 table of contents processing solutions business principally competes with brokerage firms that perform their trade processing in-house, and with numerous other outsourcing vendors. our back-office support services offered through this segment also compete with very large financial institutions that manage their own back-office record-keeping operations. in many cases, clients engage us only to perform certain functions, such as back-office processing, and do not outsource their other functions such as clearing operations support that we would also perform for them. technology we have several information processing systems which serve as the core foundation of our technology platform. we leverage these systems in order to provide our services. we are committed to maintaining extremely high levels of quality service through our skilled technical employees and the use of our technology within an environment that seeks continual improvement. our mission-critical applications are designed to provide high levels of availability, scalability, reliability, and flexibility. they operate on industry standard enterprise architecture platforms that provide high degrees of horizontal and vertical scaling. this scalability and redundancy allows us to provide high degrees of system availability. in march 2010, we entered into the it services agreement with ibm, under which ibm performs a broad range of technology services including supporting our mainframe, midrange, open systems, network and data center operations, as well as providing disaster recovery services. we have the option of incorporating additional services into the agreement over time. the it services agreement expires on june 30, 2022. we have the right to renew it for up to an additional 12-month term. our principal data center systems and applications had previously been operated and managed by adp. the migration of our data center processing from adp to ibm was completed in august 2012. we have the right to terminate the it services agreement for several reasons including for cause, for convenience, or in the event of a change of ownership control of ibm. however, several of the grounds for termination of the it services agreement by broadridge require us to pay a termination fee to ibm. ibm also has certain termination rights in the event of a material breach of the company s obligations under the it services agreement and its failure to cure. most of our systems and applications process in tier iii+ and tier iv data centers. tier iii+ and tier iv data centers employ multiple active power and cooling distribution paths, redundant components, and are capable of providing 99.995% availability. tier iii+ and tier iv data centers provide infrastructure capacity and capability to permit any planned activity without disruption to the critical load, and can sustain at least one worst-case, unplanned failure or event with no critical load impact. our geographically dispersed processing centers also provide disaster recovery and business continuity processing. to further demonstrate our commitment to maintaining the highest levels of quality service and client satisfaction within an environment that fosters continual improvement, our data centers are international organization for standardization ( iso ) 9001:2000 certified. in addition, broadridge s core applications and facilities for the provision of our proxy, u.s. equity and fixed income securities processing services, and ibm s data centers are iso 27001 certified. this security standard specifies the requirements for establishing, implementing, operating, monitoring, reviewing, maintaining and improving a documented information security management system within the context of the organization s overall business risks. it specifies the requirements for the implementation of security controls customized to the needs of individual organizations. this standard addresses confidentiality, access control, vulnerability, business continuity, and risk assessment. product development. our products and services are designed with reliability, availability, scalability, and flexibility so that we can fully meet our clients processing needs. these applications are built in a manner which allows us to meet the breadth and depth of requirements of our financial services industry clients in a highly efficient manner. we continually upgrade, enhance, and expand our existing products and services taking into account input from clients, industry-wide initiatives and regulatory changes affecting our clients. 11 table of contents intellectual property. we own registered marks for our trade name and own or have applied for trademark registrations for many of our services and products. we regard our products and services as proprietary and utilize internal security practices and confidentiality restrictions in contracts with employees, clients, and others for protection. we believe that we hold all proprietary rights necessary to conduct our business. employees at june 30, 2013, we had approximately 6,400 employees. none of our employees is subject to collective bargaining agreements governing their employment with our company. we believe that our employee relations are good. regulation the securities and financial services industries are subject to extensive regulation in the u.s. and in other jurisdictions. as a matter of public policy, regulatory bodies in the u.s. and the rest of the world are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of investors participating in those markets. in the u.s., the securities and financial services industries are subject to regulation under both federal and state laws. at the federal level, the sec regulates the securities industry, along with the financial industry regulatory authority, inc. ( finra ), the various stock exchanges, and other sros. our investor communication solutions and securities processing solutions businesses are generally not directly subject to federal, state, or foreign laws and regulations that are specifically applicable to financial institutions. however, as a provider of services to financial institutions and issuers of securities, our services are provided in a manner to assist our clients in complying with the laws and regulations to which they are subject, such as our proxy distribution, processing, and voting services. as a result, the services we provide may change as applicable sec, finra and sro regulations are revised. for example, in 2007 the sec amended the proxy rules to allow public companies to follow a notice and access model of proxy material delivery. the sec s notice and access rules caused us to develop and offer a number of new and additional services. on july 14, 2010, the sec voted unanimously to issue for public comment a concept release (the concept release ) focusing on a wide range of topics related to the u.s. proxy system. the concept release was organized by the three general topics on which the sec sought public input: (1) ensuring the accuracy, transparency, and efficiency of the voting process, (2) enhancing shareholder communication and participation, and (3) addressing the relationship between voting power and economic interest. the comment period on the concept release ended in 2010. the sec may, but is not necessarily required to, engage in rulemaking with respect to the topics addressed by the concept release. in september 2010, the nyse formed the proxy fee advisory committee made up of issuers, broker-dealers and investors to review the nyse proxy distribution fees. in may 2012, the proxy fee advisory committee issued its recommendations on the fees paid by issuers for the distribution of proxy materials to beneficial shareholders. the proposed changes in fees are subject to sec approval. we will monitor any future actions taken by the sec, the sros or other participants in the proxy process with respect to the concept release and the nyse s fee proposal. if changes are made to the u.s. proxy system, we expect to continue to adapt our business practices and service offerings to assist our clients in fulfilling their obligations under any new or modified legal requirements and industry practices. certain of our securities processing operations are periodically reviewed by the u.s. federal financial institutions examination council ( ffiec ) under its authority to examine financial institutions technology service providers. examinations by the ffiec cover areas such as data integrity and data security. a sufficiently unfavorable review from the ffiec could result in our clients not being allowed to use our services. our business process outsourcing and mutual fund processing services are performed by a registered broker-dealer. as a registered broker-dealer and member of finra, it is subject to regulations concerning many aspects of its business, including trade practices, capital requirements, record retention, money laundering prevention, the 12 table of contents protection of customer funds and customer securities, and the supervision of the conduct of directors, officers and employees. a failure to comply with any of these laws, rules or regulations could result in censure, fine, the issuance of cease-and-desist orders, or the suspension or revocation of sec or finra authorization granted to allow the operation of its business or disqualification of its directors, officers or employees. in addition, as a registered broker-dealer, it is required to participate in the securities investor protection corporation ( sipc ) for the benefit of customers. in addition, mg trust company, llc ( mg trust company® ), a subsidiary of matrix, is a colorado state non-depository trust company whose primary business is to provide cash agent, custodial and directed or non-discretionary trust services to institutional customers. mg trust company operates pursuant to the rules and regulations of the colorado division of banking. in addition, our business process outsourcing services are subject to regulatory oversight by the sec and finra. the recent economic turmoil has resulted in increased regulatory scrutiny of the securities industry including the outsourcing of regulatory functions. this oversight could result in the future enactment of more restrictive laws or rules with respect to business process outsourcing. we will monitor any future actions taken by the sec and finra, and if new requirements are enacted, we expect to adapt our business practices and service offerings to assist our clients in fulfilling their obligations under any new or modified legal requirements and industry practices. in addition, if we expand our business process outsourcing services into other countries in the future, we will be required to comply with the regulatory controls of each country in which we conduct business. our transfer agency business, broadridge corporate issuer solutions, inc., is subject to certain rules and regulations promulgated by the sec, including without limitation, with respect to registration with the sec, annual reporting, examination, internal controls, proper disposal of shareholder information and obligations relating to its operations. our transfer agency business has been formally approved by the nyse to act as a transfer agent or registrar for issuers of nyse listed securities and is subject to certain nyse requirements concerning operational standards. furthermore, it is also subject to u.s. internal revenue service (the irs ) and postal regulations, as well as certain provisions of the gramm-leach-bliley act and the federal trade commission s regulations with respect to maintenance of information security safeguards. privacy and information security regulations the processing of personal information is required to provide our services. data privacy laws and regulations in the u.s. and foreign countries apply to the collection, transfer, use, storage, and destruction of personal information. in the u.s., the federal gramm-leach-bliley act, which applies to financial institutions, applies to certain aspects of our business process outsourcing services, mutual fund processing and transfer agency businesses and to the services that involve data processing for financial institutions, and applies indirectly to our other businesses through contractual commitments with our clients and through industry standards. in addition, state privacy and information security laws, and consumer protection laws, which apply to businesses that collect or process personal information, also apply directly to our businesses. these laws may require notification to affected individuals, state officers, and consumer reporting agencies in the event of a security breach that results in unauthorized access to or disclosure of certain non-public personal information. these regulations and laws also impose requirements for safeguarding personal information through internal policies and procedures. similar data privacy laws related to the collection, transfer, use, and storage of personal information exist outside of the u.s., such as the european union s 95/46 ec directive of the european parliament, canada s personal information protection and electronic documents act, individual european national laws, and data privacy laws of other countries. in some cases, these laws may be more restrictive and may require different compliance requirements than the gramm-leach-bliley act, the u.s. state privacy laws or consumer protection laws, and may impose additional duties on companies. there has been increased public attention regarding the corporate use of personal information, accompanied by legislation and regulations intended to strengthen data protection, information security and consumer privacy. 13 table of contents the law in these areas is not consistent or settled. while we believe that broadridge is compliant with its regulatory responsibilities, the legal, political, and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings, or other events could expose broadridge to increased program costs, liability, and possible damage to our reputation. other our businesses, both directly and indirectly, rely on the internet and other electronic communications gateways. we intend to expand our use of these gateways. to date, the use of the internet has been relatively free from regulatory restraints. however, governmental agencies within the u.s. and other jurisdictions are beginning to address regulatory issues that may arise in connection with the use of the internet. accordingly, new regulations or interpretations may be adopted that constrain our own and our clients abilities to transact business through the internet or other electronic communications gateways. seasonality processing and distributing proxy materials and annual reports to investors in equity securities and mutual funds comprises a large portion of our investor communication solutions business. we process and distribute the greatest number of proxy materials and annual reports during our fourth fiscal quarter (the second quarter of the calendar year). the recurring periodic activity of this business is linked to significant filing deadlines imposed by law on public reporting companies and mutual funds. historically, this has caused our revenues, operating income, net earnings, and cash flows from operating activities to be higher in our fourth fiscal quarter than in any other quarter. the seasonality of our revenues makes it difficult to estimate future operating results based on the results of any specific fiscal quarter and could affect an investor s ability to compare our financial condition, results of operations, and cash flows on a fiscal quarter-by-quarter basis. segment and geographic area financial information you can find financial information regarding our operating segments and our geographic areas in note 18, financial data by segment to our consolidated financial statements under item 8 of part ii of this annual report on form 10-k. available information our headquarters are located at 1981 marcus avenue, lake success, new york 11042, and our telephone number is (516) 472-5400. we maintain an investor relations website on the internet at www.broadridge-ir.com. we make available free of charge, on or through this website, our annual, quarterly and current reports, and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or furnished to the sec. to access these reports, just click on the sec filings link found at the top of our investor relations page. you can also access our investor relations page through our main website at www.broadridge.com by clicking on the investor relations link, which is located at the top of our homepage. information contained on our website is not incorporated by reference into this annual report on form 10-k or any other report filed with or furnished to the sec. i"
## [5] "item 1. businessoverviewwho we areiac is a leading media and internet company comprised of more than 150 brands and products, including ask.com, about.com, match.com, homeadvisor.com and vimeo.com. focused in the areas of search, applications, online dating, local and media, iac's family of websites is one of largest in the world, with more than a billion monthly visits across more than 30 countries. the results of operations of iac's various businesses are reported within the following five segments: search & applications, match, local, media and other. for information regarding the results of operations of iac's reportable segments, as well as their respective contributions to iac's consolidated results of operations, see item 7-management's discussion and analysis of financial condition and results of operations beginning on page 22 and item 8-consolidated financial statements and supplementary data, beginning on page 41.all references to \"iac,\" the \"company,\" \"we,\" \"our\" or \"us\" in this report are to iac/interactivecorp.our historyiac, initially a hybrid media/electronic retailing company, was incorporated in july 1986 in delaware under the name silver king broadcasting company, inc. after several name changes (first to hsn, inc., then to usa networks, inc., usa interactive and interactivecorp, and finally to iac/interactivecorp) and the completion of a number of significant corporate transactions over the years, the company transformed itself into the leading media and internet company it is today. from 1997 through 2001, the company acquired a controlling interest in ticketmaster group (and the remaining interest in 1998) and hotel reservations network (later renamed hotels.com), as well as acquired match.com and other smaller e-commerce companies. as its transformation from a hybrid media/electronic retailing company continued to evolve, in may 2002, the company acquired a controlling interest in expedia.com and contributed its entertainment assets to vivendi universal entertainment lllp, or vue, a joint venture then controlled by vivendi. the company continued to grow its portfolio of e-commerce companies by acquiring all of the shares of expedia.com, hotels.com and ticketmaster that it did not previously own, together with a number of other e-commerce companies (including lendingtree and hotwire), in 2003. in 2005, iac acquired ask jeeves, inc. (now known as iac search & media, inc.) and, on august 9, 2005, completed the separation of its travel and travel related businesses and investments into an independent public company called expedia, inc. that year, iac also sold its common and preferred interests in vue to nbc universal. in july 2008, the company acquired the lexico publishing group, owner of various reference websites, including dictionary.com. on august 20, 2008, iac separated into five publicly traded companies: iac, hsn, inc., interval leisure group, inc., ticketmaster and tree.com, inc. in this report, we refer to this 2008 transaction as the spin-off. immediately following the spin-off, iac effected a one-for-two reverse stock split.in june 2009, we sold the european operations of match.com to meetic, s.a. (\"meetic\"), a leading european online dating company based in france, in exchange for a 27% interest in meetic and a 5 million note. in july 2009, we acquired peoplemedia, inc., operator of a number of demographically targeted dating websites. in december 2010, we exchanged the stock of a wholly owned subsidiary that held our evite, gifts.com and iac advertising solutions businesses and approximately $218 million in cash for substantially all of liberty media corporation's equity stake in iac. see item 7-management's discussion and analysis of financial condition and results of operations and item 8-consolidated financial statements and supplementary data. in february 2011, we acquired okcupid, an ad supported online personals service. during the third quarter of 2011, we increased our ownership stake in meetic to 81%. in september 2012, we acquired the about group. in december 2012, we acquired tutor, an online tutoring service.equity ownership and voteiac has outstanding shares of common stock, with one vote per share, and class b common stock, with ten votes per share and which are convertible into common stock on a share for share basis. as of february 1, 2013, barry diller, iac's chairman 2table of contentsand senior executive, owned 5,789,499 shares of class b common stock (the \"diller shares\") representing 100% of iac's outstanding class b common stock and approximately 42.5% of the outstanding total voting power of iac.pursuant to an agreement between mr. diller and iac, certain transfer restrictions apply to 1.5 million of the diller shares, including a requirement that, until december 1, 2015 and except for transfers to certain permitted transferees, the diller shares must first be converted into common stock in order to be transferred. in addition, pursuant to an amended and restated governance agreement between iac and mr. diller, for so long as mr. diller serves as iac's chairman and senior executive, he generally has the right to consent to limited matters in the event that iac's ratio of total debt to ebitda (as defined in the governance agreement) equals or exceeds four to one over a continuous twelve-month period.as a result of mr. diller's ownership interest, voting power and the contractual rights described above, mr. diller is currently in a position to influence, subject to our organizational documents and delaware law, the composition of iac's board of directors and the outcome of corporate actions requiring shareholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions.3table of contentsdescription of iac businessessearch & applicationsoverviewour search & applications segment consists of: websites, including ask.com, about.com and dictionary.com, through which we provide search services and content; and applications, including our direct to consumer downloadable applications business ( b2c ) and our partnership operations ( b2b ), as well as our ask.com and dictionary.com downloadable applications.our websites and applications businesses provide search services to our users. these search services generally involve the generation and display of a set of hyperlinks to websites deemed relevant to search queries entered by users. in addition to these algorithmic search results, paid listings are also generally displayed in response to search queries. paid listings are advertisements displayed on search results pages that generally contain a link to an advertiser's website. paid listings are generally displayed based on keywords selected by the advertiser. the paid listings we display are furnished by google inc. (\"google\") pursuant to a services agreement.websitesour websites, through which we provide search, content and other services, primarily consist of the following destination websites: ask.com, which provides general search services, as well as question and answer services that provide direct answers to natural language questions; about.com, which provides detailed information and content written by independent, freelance subject matter experts across hundreds of vertical categories; and dictionary.com, which provides online dictionary, reference, educational and learning services.applications our b2c applications business develops, markets and distributes a variety of downloadable applications that offer users the ability to access search services, as well as engage in a number of other activities online, such as play games, send e-cards, decorate e-mails and web pages and explore select vertical categories. the majority of our b2c applications are toolbars, which consist of a browser search box and related technology (which together enable users to run search queries and otherwise access search services directly from their web browsers). many of our toolbars are coupled with other applications that we have developed that enable users to personalize their online activities and otherwise make them more expressive and fun. these applications include: myfuncards, through which users can send online greeting cards; popular screensavers, through which users can personalize their desktops with photos, images and animations; and retrogamer and gaming wonderland, through which users can access classic arcade, sports and action and other casual games directly from their web browsers. other b2c applications target users with a special or passionate interest in select vertical categories (such as television programming, sports, shopping and gossip, among others) or that provide users with particular reference information (such as maps or weather forecasts). these applications include: television fanatic, through which users can browse and search for scheduling information, episode synopses and actor profiles for television shows, as well as directly access online episodes via media players and links to related third party services; totalrecipesearch, through which users can access thousands of recipes and cooking tips; and coupon alert, through which users can access coupons and online promotions. we distribute b2c applications directly to consumers free of charge. our b2b applications business works closely with partners in the software, media and other industries to design and develop customized browser based search applications to be bundled and distributed with these partners' products and services.we also market and distribute a number of downloadable applications through which we provide search and additional services, including: the ask.com iphone, ipad and android applications, which provide general search and natural language question and answer services, and the dictionary.com iphone, ipad and android applications, which provide dictionary, reference, educational and learning services.4table of contentsrevenuesubstantially all of the revenue from our search & applications segment is derived from online advertising, primarily from the display of paid listings, as well as from the display of other advertising in connection with the provision of search, content and other services. the substantial majority of the paid listings we display are supplied to us by google pursuant to a services agreement with google that expires on march 31, 2016. pursuant to this agreement, we transmit search queries to google, which in turn transmits a set of relevant and responsive paid listings back to us for display in search results. this ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. when a user submits a search query through our search & applications properties and services and clicks on a google paid listing displayed in response to the query, google bills the advertiser that purchased the paid listing directly and shares a portion of its related paid listing fee with us, which we in turn either retain in its entirety or share with third parties. to a lesser extent, we also syndicate google paid listings through third parties with whom we enter into syndication agreements. see item 1a-risk factors-we depend upon arrangements with google and any adverse change in this relationship could adversely affect our business, financial condition and results of operations. revenue is also derived from the sale of display, content based and other advertising pursuant to a variety of advertising models and the syndication of search results generated by ask-branded destination search websites. competitionwe compete with a wide variety of parties in connection with our efforts to: (i) attract users to our various search & applications properties and services generally; (ii) develop, market and distribute our b2c and b2b applications; (iii) attract third parties to distribute our applications and related technology; and (iv) attract advertisers. in the case of our search services generally, our competitors include google, yahoo!, bing and other destination search websites and search centric portals (some of which provide a broad range of content and services and/or link to various desktop applications), third party toolbar, convenience search and applications providers, other search technology and convenience service providers (including internet access providers, social media platforms, online advertising networks, traditional media companies and companies that provide online content). when we market our search and content services, our competitors include destination websites that primarily acquire traffic through paid and algorithmic search results.moreover, some of our current and potential competitors have longer operating histories, greater brand recognition, larger customer bases and/or significantly greater financial, technical and marketing resources than we do. as a result, they have the ability to devote comparatively greater resources to the development and promotion of their products and services, which could result in greater market acceptance of their products and services relative to those offered by us.in the case of our websites, we believe that our ability to compete successfully will depend primarily upon the relevance and authority of our search results, answers and other content, the functionality of our various websites and the quality of related content and features and the attractiveness of the services provided by our websites generally to consumers relative to those of our competitors. we believe that we differentiate ask.com from its competitors through question and answer services that provide accurate, authoritative and direct answers to natural language questions (in the form of algorithmic search results and/or responses from other ask.com users). our ability to continue to differentiate ask.com from its competitors in this manner depends primarily upon our ability to deliver authoritative and trustworthy content to users, as well as our ability to attract advertisers to this initiative.in the case of our applications, we believe that our ability to compete successfully will depend primarily upon our continued ability to create toolbars and other applications that resonate with consumers (which requires that we continue to bundle attractive features, content and services, some of which may be owned by third parties, with quality search services), differentiate our toolbars and other applications from those of our competitors (primarily through providing customized toolbars and access to multiple search and other services through our toolbars), secure cost-effective distribution arrangements with third parties and market and distribute our toolbars and other applications directly to consumers in a cost-effective manner.matchoverviewthrough the brands and businesses within our match segment, we are a leading provider of subscription based and ad supported online personals services in north america, europe, latin america, australia and asia. we provide these 5table of contentsservices through websites and applications that we own and operate. our european operations are conducted through an 81% stake in meetic, s.a. (\"meetic\"), which is based in france. as of december 31, 2012, we collectively provided online personals services to approximately 2.8 million subscribers. in addition, we own a 20% interest in zhenai, inc., a leading provider of online dating and matchmaking services in china.we refer to match.com in the united states, chemistry and peoplemedia (through which we operate demographically targeted dating websites) as match's \"core\" operations, to okcupid, datehookup and match's international operations (excluding meetic) as match's \"developing\" operations and to our european operations as \"meetic.\"serviceswe provide online personals services through branded websites that we own and operate, including match.com, chemistry.com, ourtime.com, blackpeoplemeet.com and okcupid.com, and through a variety of meetic branded websites in europe. these websites, all of which provide single adults with a private and convenient environment for meeting other single adults, provide online personals services to registered members (those establishing usernames and passwords) and subscribers (those who establish a username and password and pay a subscription fee). we are also the exclusive provider of subscription based personals services on yahoo.com.within our portfolio of websites, we have both subscription based and ad-supported offerings. our subscription based websites offer registered members the ability to post a profile and use any related searching and matching tools free of charge, while subscribers have access to enhanced tools and a broader feature set, including the ability to initiate, review or respond to communications with or from other users. our subscription programs consist of programs with a single month term, with discounts for programs with various longer terms. our ad supported websites generally provide online personals services with basic functionality without the commitment of a monthly subscription, in some cases making a variety of premium or add-on features available for a fee. we also offer access to our services via various mobile devices through our match, okcupid, datehookup and other branded mobile applications. as a complement to our online personals services, in june 2012, we introduced live, local events for our match.com members.marketingwe market our services through a wide variety of offline and online marketing activities. our offline marketing activities generally consist of traditional marketing and business development activities, including television, print and radio advertising and related public relations efforts, as well as events. our online marketing activities generally consist of the purchase of banner and other display advertising, search engine marketing and e-mail campaigns. in addition, we enter into a variety of alliances with third parties who advertise and promote our services. some alliances are exclusive and some, but not all, contain renewal provisions. in connection with the exclusive provision of subscription based personals services on yahoo.com, we made certain advertising commitments, which are reducible or terminable in certain circumstances.revenuematch's revenue is derived primarily from subscription fees for our subscription based online personals and related services. match also earns revenue from online advertising and other add-on features, primarily from our okcupid service.competitionthe personals business is very competitive and highly fragmented and barriers to entry are minimal. we compete primarily with online and offline broad based personals, dating and matchmaking services (both paid and free), social media platforms and applications, the personals sections of newspapers and magazines, other conventional media companies that provide personals services and traditional venues where singles meet (both online and offline). we also compete with numerous online and offline personals, dating and matchmaking services that cater to specific demographic groups.we believe that our ability to compete successfully will depend primarily upon the following factors: the size and diversity of our registered member and subscriber bases relative to those of our competitors; the functionality of our websites and mobile applications and the attractiveness of their features and our services and offerings generally to consumers relative to those of our competitors; how quickly we can enhance our existing technology and services and/or develop new features and services in response to: new, emerging and rapidly changing technologies;6table of contents the introduction of product and service offerings by our competitors; evolving industry standards; and changes in consumer requirements and trends in the single community relative to our competitors; and our ability to engage in cost-effective marketing efforts, including by way of maintaining relationships with third parties with which we have entered into alliances, and the recognition and strength of our various brands relative to those of our competitors.localour local segment consists of homeadvisor (formerly servicemagic) and citygrid media.homeadvisoroverview. homeadvisor is a leading online marketplace for matching consumers with home services professionals in the united states. homeadvisor connects consumers, by way of patented proprietary technologies, with home services professionals, all of which are pre-screened and the majority of which are customer rated. as of december 31, 2012, homeadvisor's network of home services professionals consisted of more than 80,000 professionals in the united states providing services in more than 500 categories ranging from simple home repairs to home remodeling projects.through a majority investment, homeadvisor also operates businesses in the online home services space in france and the united kingdom under various brands.services. when a consumer submits a request through the homeadvisor marketplace, we generally match that consumer with up to four home services professionals from our network based on the type of services desired and the consumer's location. consumers can then review home services professional profiles and select the professional that they believe best meets their specific needs. in all cases, if a match is made, the consumer is under no obligation to work with home service professionals referred by homeadvisor. in addition to our matching services, consumers may also access our costguide, which provides project cost information for more than 250 project types on a local basis, and our online library of service related resources, which primarily includes articles about home improvement, repair and maintenance, tools to assist consumers with the research, planning and management of their projects and general advice for working with home services professionals.homeadvisor also offers several mobile applications, including the homeadvisor.com, home911 and homesavvy iphone, ipad and android applications. home911 matches consumers with home services professionals on an expedited basis in the case of home repair emergencies and through homesavvy, consumers can maintain a customized home maintenance and repair schedule, together with project reminders.marketing. we market our services to consumers primarily through search engine marketing, as well as through affiliate agreements with third parties. pursuant to these agreements, third parties agree to advertise and promote our services and those of our home services professionals on their websites and we agree to pay them a fixed fee when visitors from their websites submit a valid service request through our website (on a cost-per-acquisition basis) or click through to our website (on a cost-per-click basis). we also market our services to consumers through the purchase of paid listings displayed in yellow page directories, portals and contextual home improvement related sites and, to a lesser extent, through traditional offline advertising. we market our services to home services professionals through our sales force, which obtains information concerning home services professionals through a variety of sources. we also promote online enrollment in our network through search engine marketing, relationships with trade associations and affiliate marketing relationships.revenue. homeadvisor's revenue is derived from fees paid by members of our network of home services professionals for matches with consumers made by homeadvisor, regardless of whether the professional ultimately provides the requested service, as well as from fees charged upon the enrollment and activation of new home services professionals in our network. fees for matches vary based upon the service requested and where the service is provided.competition. we currently compete with internet search engines and directories and with other forms of local advertising, including radio, direct marketing campaigns, yellow pages, newspapers and other offline directories, as well as with home services-related lead generation services. we also compete with local and national retailers of home improvement products that 7table of contentsoffer or promote installation services. we believe that our ability to compete successfully will depend primarily upon the following factors: the size, quality (as determined, in part, by reference to our pre-screening efforts and customer ratings and reviews), diversity and stability of our network of home services professionals and the quality of the services provided by these professionals; our continued ability to deliver service requests that convert into revenue for our network of home services professionals in a cost-effective manner; the functionality of our websites and mobile applications and the attractiveness of their features and our services generally to consumers and home services professionals, as well as our ability to introduce new products and services that resonate with consumers and home services professionals; and our ability to build and maintain awareness of, and loyalty to, the homeadvisor brand among consumers.citygrid mediaoverview. citygrid media is an online media company that owns and operates citygrid, an advertising network that integrates local content and advertising for distribution to both affiliated and third party publishers across web and mobile platforms, as well as proprietary websites, such as citysearch.com and urbanspoon.com, through which consumers can access local merchant information and reviews online. in august 2012, citygrid media acquired felix, a pay per call advertising service.citygrid. through citygrid, we aggregate local business listings, advertising and content, including both editorial and other user-generated content, which we then distribute to publishers across web and mobile platforms. these publishers include third party websites and mobile applications, as well as the websites and applications we own and operate described below.owned and operated properties. citygrid media owns and operates citysearch.com, insiderpages.com and urbanspoon.com, websites that connect consumers with local businesses by providing consumers with free access to local business profiles, customized messages from local businesses, reviews and user-generated content and related information. citysearch.com is a comprehensive directory of local business listings and related information across most verticals of businesses in the united states. insiderpages.com publishes content regarding professional service providers based in the united states. urbanspoon.com publishes content focused exclusively on restaurants and dining in north america, the united kingdom and australia. citygrid also offers related mobile applications in the case of citysearch.com and urbanspoon.com.revenue. citygrid media revenue is derived from the sale, both through a direct sales force and reseller relationships, of local and national online advertising distributed through the citygrid advertising network. in the case of direct sales, the advertising is primarily pay-for-performance based, pursuant to which local businesses pay citygrid each time an advertisement is viewed or each time a user calls a metered number. in the case of resellers, a variety of advertising models are utilized.competition. the markets for local business advertising and content are highly competitive and diverse. we primarily compete with online and offline local and national directories and online and mobile advertising services and networks. we also face competition from search engines and other site aggregation companies that aggregate our content for display on their websites, which interferes with search engine optimization and marketing efforts designed to drive traffic to properties and applications affiliated with the citygrid advertising network.mediaour media segment consists primarily of vimeo, electus, connected ventures (which operates collegehumor media and notional), news_beast (formerly the newsweek/dailybeast company) and dailyburn.vimeo is a leading video hosting platform for creative professionals and consumers, offering video creators the tools required to create, share, distribute and monetize their content online. we believe that vimeo attracts a distinct audience with its best-in-class, high definition video player, multi-pass video encoding and clean, uncluttered advertising experience. vimeo's revenue is derived primarily from subscription product offerings, as well as advertising. 8table of contentselectus is an integrated multimedia entertainment studio that unites producers, creators, advertisers and distributors to produce video content for distribution across a variety of platforms in the united states and various jurisdictions abroad. connected ventures operates collegehumor media, an online entertainment company targeting males ages eighteen to forty-nine through collegehumor.com and other websites, as well as notional, a content production studio which creates long-form content for distribution through traditional media channels. our media segment also includes news_beast and dailyburn. news_beast is an online media company that currently produces the digital version of newsweek magazine and operates thedailybeast.com, a website dedicated to news, commentary, culture and entertainment that curates and publishes existing and original online content from its own roster of contributors. dailyburn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms, including iphone, ipad and android.our media segment revenue is derived primarily from advertising, media production and subscriptions.otherour other segment consists primarily of shoebuy and tutor. shoebuy is a leading internet retailer of footwear and related apparel and accessories. shoebuy generally passes purchases made by customers through its various websites on to the relevant vendors for fulfillment and shipping. tutor is an online tutoring solution which was acquired in december 2012. our other segment revenue is derived primarily from merchandise sales and subscriptions.employeesas of december 31, 2012, iac and its subsidiaries employed approximately 4,200 full-time employees. iac believes that it generally has good employee relationships, including relationships with employees represented by unions or other similar organizations.additional informationcompany website and public filings. the company maintains a website at www.iac.com. neither the information on the company's website, nor the information on the website of any iac business, is incorporated by reference in this annual report, or in any other filings with, or in any other information furnished or submitted to, the sec.the company makes available, free of charge through its website, its annual reports on form 10-k, quarterly reports on form 10-q and current reports on form 8-k (including related amendments) as soon as reasonably practicable after they have been electronically filed with (or furnished to) the sec.code of ethics. the company's code of ethics, as amended in april 2009, applies to all employees (including all of iac's executive officers and senior financial officers (including iac's chief financial officer and controller)) and directors and is posted on the company's website at http://ir.iac.com/corporate-governance-document.cfm?documentid=11372. this code of ethics complies with item 406 of sec regulation s-k and the rules of the nasdaq stock market. any changes to the code of ethics that affect the provisions required by item 406 of regulation s-k, and any waivers of such provisions of the code of ethics for iac's executive officers, senior financial officers or directors, will also be disclosed on iac's website.9table of contentsitem 1a. risk"
## [1] "--------------------------"