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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
________________
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file Number: 0-15175
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 77-0019522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices and zip code)
(408) 536-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (the “Act”) during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of the registrant’s common stock, $0.0001 par value per share, held by non-affiliates of the
registrant on May 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter, was
$8,136,680,867 (based on the closing sales price of the registrant’s common stock on that date). Shares of the registrant’s
common stock held by each officer and director and each person who owns 5% or more of the outstanding common stock of the
registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. As of January 30, 2004, 238,469,044 shares of the registrant’s
common stock, $.0001 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120
days of the end of the fiscal year ended November 28, 2003, are incorporated by reference in Part III hereof. Except with respect
to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part
hereof.

Table of contents

  • Page 1
    ... or organization) 77-0019522 (I.R.S. Employer Identification No.) 345 Park Avenue, San Jose, California 95110-2704 (Address of principal executive offices and zip code) (408) 536-6000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act...

  • Page 2
    ..., Financial Statement Schedule, and Reports on Form 8-K ...61 Directors and Executive Officers of the Registrant...Executive Compensation...Security Ownership of Certain Beneficial Owners and Management...Certain Relationships and Related Transactions ...Principal Accounting Fees and Services ...59...

  • Page 3
    ... Jose, California 95110-2704. Our telephone number is 408-536-6000. We maintain a Web site at www.adobe.com. Investors can obtain copies of our SEC filings from this site free of charge, as well as from the SEC Web site at www.sec.gov. BUSINESS OVERVIEW In the early 1980's, Adobe developed software...

  • Page 4
    ..., a new innovative file management tool call Version Cue, and powerful Adobe Portable Document Format ("PDF") workflow capabilities. The Adobe Creative Suite also supports collaboration by providing Acrobat 6.0 Professional in the Premium edition. With the release of the Adobe Creative Suite, in...

  • Page 5
    ... a new file management and integration technology called Version Cue. Adobe Font Folio OpenType Edition - contains more than 2,200 typefaces from the Adobe Type Library in OpenType format, offering a complete type solution for print, the Web, digital video, or electronic documents. Adobe FrameMaker...

  • Page 6
    ..., newspaper publishing, Web site design, intranet site development, music and entertainment, corporate and marketing communications, product design, user interface design, sales training, printing, architecture, and fine arts. They rely on Adobe's digital imaging and digital video editing solutions...

  • Page 7
    ...we released a new integrated family of digital video products, including a new rewritten version of Adobe Premiere Pro software for video editing, version 6.0 of Adobe After Effects software for adding special effects to video, Adobe Audition software for audio editing, and Adobe Encore DVD software...

  • Page 8
    ... professional-quality images for print and the Web. Adobe Premiere Pro - new professional digital video-editing software used to create broadcast-quality movies for video, film, DVD, multimedia, and streaming over the Web. Adobe SVG Viewer - a plug-in for Web browsers that allows users to view Web...

  • Page 9
    ...loan documents and account statements), and transfer knowledge (such as user manuals, product specifications and financial reports). We believe the key to producing documents that drive business is an enterprise class document generation solution that takes content from multiple sources, dynamically...

  • Page 10
    ...highly formatted document templates to generate personalized, reliable documents for print or electronic delivery. Based on customer need, we also released Acrobat Elements Server in fiscal 2003. Acrobat Elements Server provides a means for customers to broadly deploy PDF creation for multiple users...

  • Page 11
    ...easily share interactive, intelligent PDF documents with external parties. It unlocks features in the free Adobe Reader so that end users can use digital signatures to sign electronic documents, add comments by using electronic sticky notes and other mark-up tools, save the document and fill-in form...

  • Page 12
    ...files and deliver them via email, Web, or fax; allows users to preview their documents on-screen, crop or rotate pages, and add electronic annotations. Adobe Acrobat Standard - creates secure, reliable, and compact Adobe PDF files from desktop authoring applications such as Microsoft Office software...

  • Page 13
    ... 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 Document Server - server...

  • Page 14
    ...as the Adobe Acrobat product family (product descriptions for which are listed under Desktop Document Generation). Adobe Reader ― free software for reliably reviewing and printing Adobe PDF files on a variety of hardware and operating system platforms. Adobe Reader Extensions Server - server-based...

  • Page 15
    ...Illustrator, and Photoshop, as well as new file management and integration technology called Version Cue. The Adobe Creative Suite Premium Edition adds to this the capabilities of Acrobat Professional and GoLive. The Adobe Creative Suite is a complete design and publishing solution for print and Web...

  • Page 16
    ... users of Microsoft Office, Microsoft Windows operating system, and the Microsoft Internet Explorer Web browser. In the technical authoring and publishing market, our Adobe FrameMaker product faces competition from large-scale electronic publishing systems, XML-based publishing companies such...

  • Page 17
    ... Documents market needs. In the Professional version of Microsoft Office 2003, they have introduced a new information gathering program called InfoPath 2003. They have also introduced Windows Rights Management Services in their new Windows Server 2003 product, which is designed to allow corporate...

  • Page 18
    ...their products worldwide. We derive a significant portion of Adobe PostScript royalties from international sales of printers, imagesetters, and other output devices by our OEMs. We also license software with post-contract customer support ("PCS") or maintenance. PCS includes rights to upgrades, when...

  • Page 19
    ... online technical support capabilities via the Web, which allows customers quick and easy access to possible solutions. Adobe provides product support through a combination of outsourced vendors and internal support centers. Adobe also offers Developer Support to partners and developer organizations...

  • Page 20
    ...an ability to control the partnerships. Adobe Ventures carry their investments in equity securities at estimated fair market value and unrealized gains and losses are included in investment gain (loss) on our consolidated statements of income. The stocks of a number of technology investments held by...

  • Page 21
    ... Corporation DigitalThink, Inc. Objectivity, Inc. Open Plains Technology Inc. Salon Media Group, Inc. (formerly Salon.com) Tumbleweed Communications Corp. Vicom Systems, Inc. Winsoft Zequra Technologies, Inc. Adobe Ventures L.P. Equity Investments Managing Editor Software, Inc. Adobe Ventures...

  • Page 22
    ... of Syntrillium Software ("Syntrillium"), a privately held company which developed, published and marketed digital audio tools including its recording application, Cool Edit Pro, now renamed Adobe Audition, all of which have been added to our existing line of professional digital imaging and video...

  • Page 23
    ... 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 Web site at www.adobe...

  • Page 24
    ..., Worldwide Products Senior Vice President, General Counsel and Corporate Secretary Senior Vice President and Chief Financial Officer Senior Vice President, Corporate Marketing and Communications Senior Vice President, Creative Professional Business Unit Senior Vice President, Intelligent Documents...

  • Page 25
    ... Vice President, E-business Development, and in October 2001, Mr. Stephens was promoted to Senior Vice President, Worldwide Sales, Customer Care and Field Marketing. For ten years prior to joining Adobe, Mr. Stephens held sales and marketing management positions at Dataproducts Corporation and Texas...

  • Page 26
    ...California, USA 321 Park Avenue San Jose, California, USA 151 Almaden Boulevard San Jose, California, USA 801 N. 34th Street-Waterfront Seattle, WA 98103-88 560 Rochester St. Ottawa, Ontario Canada K1S 5K2 India: Adobe Towers, 1 - 1A, Sector 25A Noida, 201301, U.P. India Japan: Gate City Ohsaki East...

  • Page 27
    ... obtained express, written licenses from both AMT and ITC approximately ten years ago permitting Adobe to allow end users to embed AMT and ITC fonts in electronic documents for "print and view" and disputes the other breach of contract claims. Adobe also asserts that Adobe Acrobat 5.0, which AMT and...

  • Page 28
    ... and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, Adobe believes that it has valid defenses with respect to the legal matters pending...

  • Page 29
    ... since the second quarter of 1988. Adobe's Board of Directors declared a cash dividend on our common stock of $0.0125 per common share for each of the four quarters in fiscal 2003 and 2002. Under the terms of our lease agreements for our San Jose headquarters, we are not prohibited from paying...

  • Page 30
    ...and employee data) are derived from Adobe' s consolidated financial statements. This data should be read in conjunction with the consolidated financial statements and notes thereto, and with Item 7, Management' s Discussion and Analysis of Financial Condition and Results of Operations. All share and...

  • Page 31
    ...and OEMs; direct to end users; and through our own Web site at www.adobe.com. We also license our technology to major hardware manufacturers, software developers and service providers and we offer integrated software solutions to businesses of all sizes. We have operations in the Americas, EMEA, and...

  • Page 32
    ... to drive revenue and earnings growth. With new releases of our Acrobat desktop and server products, a new video software suite, new versions of our Creative Professional products and the introduction of Adobe Creative Suite, Adobe delivered more new releases in 2003 than in any previous year...

  • Page 33
    ..., professional Web page layout, graphic and illustration creation, technical document publishing and business publishing. The ePaper segment provides electronic document distribution software that allows users to create, enhance, annotate and securely send Adobe PDF files that can be shared, viewed...

  • Page 34
    ... in the Creative Professional segment. Revenues from our business publishing products decreased 26% due to the planned migration of customers to our professional page layout products. Finally, revenues from our illustration, type and technical publishing, and Web publishing products decreased by...

  • Page 35
    ... imaging software products was due to a combination of the economic weakness across the world, the impact of lower marketing spending by corporations resulting in a reduced number of Creative Professional customers, and the trend of our customers migrating towards the purchasing of Adobe Collection...

  • Page 36
    ... of Web site development costs related to Adobe DesignTeam which was launched in the fourth quarter of fiscal 2001 and the subsequent impairment charge for the remaining development costs. Services and Support Cost of services and support revenue is composed primarily of employee-related costs and...

  • Page 37
    ... for our sales, marketing, customer support, order management and order fulfillment personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. Sales and marketing...

  • Page 38
    ..., legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, and expenses associated with computer equipment and software used in the administration of the business. General and administrative...

  • Page 39
    ... to complete the development of the technology primarily include finalization of coding, internationalization, and extensive quality assurance testing. We developed a new product, Adobe Photoshop Album, that we released in the first quarter of fiscal 2003 using Fotiva's image management technology...

  • Page 40
    ..., Inc., Viewpoint Corporation, and Virage, Inc. of $53.1 million. These losses were partially offset by gains totaling $19.5 million from the sale of our marketable equity securities. We also recorded net investment losses related to investments in Adobe Ventures and our cost method investments...

  • Page 41
    ..., upgrades and services changes in demand for application software, computers and printers intellectual property disputes and litigation industry transitions to new business models renegotiation or termination of royalty or intellectual property licensing arrangements changes in accounting rules...

  • Page 42
    ...of its Windows operating system, codenamed Longhorn, which could be released as early as late 2005. It is anticipated that Microsoft will add new electronic document capabilities to Longhorn, potentially providing additional competition to our Intelligent Document products and solutions. Furthermore...

  • Page 43
    ... products and services are subject to a high level of uncertainty. The industry for software that addresses authoring and communications over the Internet is still developing. Standards defining Web graphics have not yet been fully adopted. In addition, new models for licensing software may be...

  • Page 44
    ... Institute of Certified Public Accountants (the "AICPA"), the Securities and Exchange Commission (the "SEC") and various bodies formed to interpret and create appropriate accounting policies. A change in these policies can have a significant effect on our reported results and may even retroactively...

  • Page 45
    ... initiated that allowed eligible employees to exchange options granted with an option price greater than $40 per share for a lesser number of new options, according to specified exchange ratios. The program excluded executive officers and members of our Board of Directors. The cancellation date for...

  • Page 46
    ... the fair value method of accounting under Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," refer to Note 1 of our Notes to Consolidated Financial Statements. We did not grant any stock options to our Named Executive Officers in fiscal...

  • Page 47
    General Option Information The following table sets forth the summary of option activity under our stock option program for fiscal years 2003, 2002 and 2001 (in actual amounts): Outstanding Options Weighted Average Exercise Number of Shares Price 45,017,400 $ 38.26 19,177,315 28.38 (4,826,823) 12.55...

  • Page 48
    ... average exercise price of $6.31 per share. Includes 14.2 million shares that are reserved for issuance under the 1997 Employee Stock Purchase Plan and 3.5 million shares that were estimated, as of November 28, 2003, to be issued as a result of the option exchange program. (2) LIQUIDITY AND...

  • Page 49
    ...-term and long-term investments and purchases of computer systems for research and development, sales and marketing, product support, and administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase programs and strategically acquire software companies...

  • Page 50
    ... debt in the bank or public market, if required. Stock Repurchase Program I - On-going Dilution Coverage To facilitate our stock repurchase program designed to minimize dilution from stock issuance primarily from employee stock plans, we have historically repurchased shares in the open market, sold...

  • Page 51
    ... real estate development agreement for the construction of an additional office building for our corporate headquarters in downtown San Jose, California. Under the agreement, the lessor agreed to finance up to $117.0 million over a two-year period, toward the construction and associated costs of the...

  • Page 52
    ... ("residual value guarantee"). See Note 14 in our Notes to Consolidated Financial Statements for further information. In August 1999, we entered into a five-year lease agreement for our other two office buildings that currently serve as our corporate headquarters in San Jose, California. Under...

  • Page 53
    ... are waived in accordance with the rules and regulations of the SEC. During the fourth quarter of 2004, the Audit Committee pre-approved the following non-audit services anticipated to be performed by KPMG LLP: 1) fiscal 2003 tax return services and 2) general tax consulting services. 53

  • Page 54
    ... foreign currency forward exchange contracts and purchased put option contracts with a notional value of $112.4 million. As of November 28, 2003, all contracts were set to expire at various times through April 2004. The bank counterparties in these contracts expose us to credit-related losses in the...

  • Page 55
    ... experienced an other-than-temporary decline in fair value. Our policy includes, but is not limited to, reviewing each company's cash position, earnings/revenue outlook, stock price performance over the past six months, liquidity and management/ownership. If we believe that an other-than-temporary...

  • Page 56
    ... November 29, 2002, an increase of 84%. This increase was primarily due to strong operational cash flow, proceeds from stock option exercises and lower levels of stock repurchases. These securities are subject to interest rate fluctuations. Changes in interest rates could adversely affect the market...

  • Page 57
    ...carrying amount and economic viability of these companies. This policy includes, but is not limited to, reviewing each of the companies' cash position, financing needs, earnings/revenue outlook, operational performance, management/ownership changes and competition. The evaluation process is based on...

  • Page 58
    ... November 29 Revenue ...$ 267,896 Gross profit...246,899 Income before income taxes ...73,247 Net income (2)...49,808 Basic net income per share (2)...0.21 Shares used in computing basic net income per share ...236,581 Diluted net income per share ...0.20 Shares used in computing diluted net income...

  • Page 59
    ... disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were sufficiently effective to ensure that the information required to be disclosed by us in this annual report on Form 10-K was recorded, processed, summarized and...

  • Page 60
    ... by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES You will find this information in the section captioned "Principal Accounting Fees and Services," which will appear in the Proxy Statement we will deliver to our stockholders in connection with our Annual Meeting of Stockholders to be...

  • Page 61
    ... Schedule II-Valuation and Qualifying Accounts 96 99 Exhibits The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report. (b) Reports on Form 8-K (i) On September 10, 2003, Adobe filed a report on Form 8-K under Item 12 announcing its...

  • Page 62
    ... are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States...

  • Page 63
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) November 28, 2003 ASSETS Current assets: Cash and cash equivalents ...Short-term investments...Trade receivables, net of allowances for doubtful accounts of $7,903 and $7,531, respectively ...Other ...

  • Page 64
    ... per share data) Years Ended November 29, 2002 November 28, 2003 Revenue: Products...Services and support...Total revenue ...Costs of revenue: Products...Services and support...Total cost of revenue...Gross profit ...Operating expenses: Research and development ...Sales and marketing...General and...

  • Page 65
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Additional Common Stock Paid-In Shares Amount Capital Balances at December 1, 2000...Comprehensive income: Net income...Change in unrealized gain on available-for-sale securities, net of taxes...Currency ...

  • Page 66
    ... ...Provision for losses on receivables ...Tax benefit from employee stock option plans ...Acquired in-process research and development...Impairment of property, plant and equipment and goodwill...Losses on equity and cost method investments...Gains on sales of equity securities ...Loss on other...

  • Page 67
    ... to end users; and through our own Web site at www.adobe.com. We also license our technology to major hardware manufacturers, software developers and service providers and we offer integrated software solutions to businesses of all sizes. We have operations in the Americas; Europe, Middle East and...

  • Page 68
    ...98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Amortization on a straight-line basis begins once the Web site is ready for its intended use. Goodwill and Purchased and Other Intangibles In accordance with Statement of Financial Accounting Standards No...

  • Page 69
    ... an ability to control the partnerships. Adobe Ventures carry their investments in equity securities at estimated fair market value and unrealized gains and losses are included in investment gain (loss) on our consolidated statements of income. The stock of a number of technology investments held by...

  • Page 70
    ... reporting purposes, the charge was included in our Creative Professional segment. Also, during fiscal 2002, we recognized a $6.3 million pre-tax impairment charge for capitalized Adobe Design Team hosted server development costs. The impairment charge was recorded on our consolidated statement...

  • Page 71
    .... The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants and employee stock purchase plan shares. Additionally, option valuation models...

  • Page 72
    ... cost of free technical phone support upon shipment of software. We also license software in multiple element arrangements in which a customer purchases a combination of software, post-contract customer support ("PCS") and professional services. PCS, or maintenance, includes rights to upgrades...

  • Page 73
    ... for our three office buildings in San Jose, California provide for residual value guarantees. These lease agreements were in place prior to December 31, 2002 and are disclosed in Note 14. In the normal course of business, we provide indemnifications of varying scope to customers against claims of...

  • Page 74
    ... related to these leases in other areas of this Annual Report on Form 10-K (see "Guarantees" above and Note 14 of our Notes to Condensed Consolidated Financial Statements). Beginning with the first quarter of fiscal 2004, we will be consolidating Adobe Ventures. This consolidation will not have...

  • Page 75
    ... cash. Syntrillium developed, published and marketed digital audio tools including its recording application, Cool Edit Pro (renamed Adobe Audition), all of which have been added to our existing line of professional digital imaging and video products. By adding Adobe Audition and the other tools...

  • Page 76
    ... combined Fotiva's image management technology with Adobe's digital imaging and ePaper technologies to develop a new product, Adobe Photoshop Album, which was released in the first quarter of fiscal 2003. Note 3. Cash, cash equivalents, and short-term investments Carrying Value Classified as current...

  • Page 77
    ...fiscal 2002 (see Note 1 for our policy on recording other-than-temporary declines in our marketable equity securities). All of the above gains and losses were included in investment loss on our consolidated statements of income. Note 4. Property and Equipment Property and equipment consisted of the...

  • Page 78
    ..., reported by segment as of November 28, 2003: Digital Imaging and Video Goodwill, net of amortization ...$ 14,112 Creative Professional $ 4,650 ePaper $ 77,209 $ Total 95,971 Purchased and other intangible assets consisted of the following: November 28, 2003 Purchased technology and licensing...

  • Page 79
    ... $93.4 million, respectively, which comprise gains and losses from our short-term and long-term investments. Of these losses, $12.0 million, $13.1 million and $59.8 million, respectively, related to our investments in Adobe Ventures and our cost method investments. During fiscal 2003, 2002 and 2001...

  • Page 80
    ... of fiscal 2002 and was designed to eliminate 239 engineering, sales and marketing and general and administrative positions worldwide in order to realign our resources for our future business plans. These plans include adding resources to support our ePaper enterprise business in fiscal 2003. We...

  • Page 81
    ...in lieu of taxes attributable to employee stock plans.. $ 32...tax expense ...State tax expense, net of federal benefit ...Non-deductible goodwill ...Tax-exempt income ...Tax credits ...Differences between statutory rate and foreign effective tax rate...Change in deferred tax asset valuation allowance...

  • Page 82
    ... 401(k) of the Internal Revenue Code, which is a pretax savings plan covering substantially all of our United States employees. Under the plan, eligible employees may contribute up to 18% of their pretax salary, subject to the Internal Revenue Service annual contribution limits. In fiscal 2003...

  • Page 83
    ... initiated that allowed eligible employees to exchange options granted with an option price greater than $40 per share for a lesser number of new options, according to specified exchange ratios. The program excluded executive officers and members of our Board of Directors. The cancellation date for...

  • Page 84
    ... the granting of restricted stock and/or performance awards to officers and key employees. As of November 28, 2003, we had reserved 8.0 million shares of our common stock for issuance under the Plan. Restricted shares issued under the Restricted Stock Plan generally vest annually over two to three...

  • Page 85
    ... the date of grant. Under our SAR plan, designated employees are awarded rights that are equal to one share of Adobe's common stock for each right awarded with an exercise price based on the fair market value on the grant date. When the award vests, employees generally have the right to exercise the...

  • Page 86
    ... by Adobe prior to exercise at $0.01 per right and expire on July 23, 2010. Stock Repurchase Program I - On-going Dilution Coverage To facilitate our stock repurchase program designed to minimize dilution from stock issuance primarily from employee stock plans, we have repurchased shares in the open...

  • Page 87
    .... We utilized this type of financing because it allows us to access bank-provided funding at the most favorable rates and allows us to maintain our cash balances for other corporate purposes. At the end of the lease term, we can purchase the building for the lease balance, remarket or relinquish...

  • Page 88
    ...("residual value guarantee"). In August 1999, we entered into a five-year lease agreement for our other two office buildings that currently serve as our corporate headquarters in San Jose, California. Under the agreement, we have the option to purchase the buildings at any time during the lease term...

  • Page 89
    ... obtained express, written licenses from both AMT and ITC approximately ten years ago permitting Adobe to allow end users to embed AMT and ITC fonts in electronic documents for "print and view" and disputes the other breach of contract claims. Adobe also asserts that Adobe Acrobat 5.0, which AMT and...

  • Page 90
    ... foreign currency forward exchange contracts and purchased put option contracts with a notional value of $112.4 million. As of November 28, 2003, all contracts were set to expire at various times through April 2004. The bank counterparties in these contracts expose us to credit-related losses in the...

  • Page 91
    ... into these foreign exchange contracts to hedge forecasted product licensing revenue in the normal course of business, and accordingly, they are not speculative in nature. We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income (loss), until the...

  • Page 92
    ... the retail market, and to customers whereby we license software directly. Management believes that any risk of loss is reduced due to the diversity of our customers and geographic sales areas. A credit review is completed for our new distributors, dealers, and OEM partners. We also perform ongoing...

  • Page 93
    ..., professional Web page layout, graphic and illustration creation, technical document publishing and business publishing. The ePaper segment provides electronic document distribution software that allows users to create, enhance, annotate and securely send Adobe PDF files that can be shared, viewed...

  • Page 94
    ... income ...379,447 287,027 378,457 Non-operating income (loss)...1,045 (2,338) (71,526) Income before income taxes...$ 380,492 $ 284,689 $ 306,931 * Total operating expenses include research and development, sales and marketing, general and administrative, and restructuring and other charges. For...

  • Page 95
    ..., receivables from Ingram and Tech Data accounted for 31% and 21%, respectively, of our total receivables. Note 17. Subsequent Event In connection with our stock option exchange program that we initiated in May 2003, we granted approximately 3.4 million shares with an exercise price of $39.10 on...

  • Page 96
    ADOBE SYSTEMS INCORPORATED SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (In thousands) Valuation and Qualifying Accounts Which are Deducted in the Balance Sheet from the Assets to Which They Apply Charged/ Balance Credited at to Beginning Operating of Period Expenses Allowance for doubtful accounts...

  • Page 97
    ..., on February 5, 2004. ADOBE SYSTEMS INCORPORATED By: /s/ Murray J. Demo Murray J. Demo, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 98
    ... Acrobat Acrobat Capture Acrobat Messenger Adobe Audition Adobe Encore DVD Adobe Premiere Adobe Type Manager After Effects Atmosphere Distiller ePaper Extreme Font Folio FrameMaker GoLive Illustrator InCopy InDesign PageMaker PDF Transit Photoshop PostScript Reader Version Cue All other trademarks...

  • Page 99
    ...Plan* 1999 Nonstatutory Stock Option Plan, as amended* 1999 Nonstatutory Stock Option Plan, as amended* 1999 Nonstatutory Stock Option Plan, as amended* 1999 Equity Incentive Plan, as amended* Form of Indemnity Agreement* Amended and Restated Limited Partnership Agreement of Adobe Incentive Partners...

  • Page 100
    ... between Adobe Systems Incorporated and Sumitomo Bank Leasing and Finance, Inc. Lease agreement between Adobe Systems and Selco Service Corporation Participation agreement among Adobe Systems, Selco Service Corporation, et al. Confidential Resignation Agreement* Executive Severance Plan in...

  • Page 101
    Exhibit Number Exhibit Description Incorporated by reference Form Date Number Filed Herewith 31.1 31.2 32.1 32.2 Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934 Certification of Chief Financial Officer, as required by Rule 13a-14...

  • Page 102
    ... Systems Europe Ltd. Adobe Systems France EURL Adobe Systems GmbH Adobe Systems (Schweiz) GmbH Adobe Systems Iberica SL Adobe Systems Italia SRL Adobe Systems Nordic AB Adobe Systems Norge AS Adobe Software Trading Company Limited Adobe Systems Software Ireland Limited Frame Technology International...

  • Page 103
    ... income, and cash flows for each of the years in the three-year period ended November 28, 2003, and related financial statement schedule, appearing elsewhere in this Form 10-K. Our report refers to changes in accounting for goodwill in 2003. KPMG LLP Mountain View, California February 4, 2003

  • Page 104
    ... Chief Executive Officer of the registrant, certify that: 1. I have reviewed this annual report on Form 10-K of Adobe Systems Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements...

  • Page 105
    ... Financial Officer of the registrant, certify that: 1. I have reviewed this annual report on Form 10-K of Adobe Systems Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made...

  • Page 106
    ... 2002 In connection with the Annual Report of Adobe Systems Incorporated (the "Registrant") on Form 10-K for the annual period ended November 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bruce R. Chizen, President and Chief Executive Officer of...

  • Page 107
    ... connection with the Annual Report of Adobe Systems Incorporated (the "Registrant") on Form 10-K for the annual period ended November 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Murray J. Demo, Senior Vice President and Chief Financial Officer...