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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2007
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:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 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 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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes 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 June 1, 2007, the last
business day of the registrant’ s most recently completed second fiscal quarter, was $20,875,448,074 (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 December 28, 2007, 568,955,874 shares of the registrant s common stock, $0.0001 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2008 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal year
ended November 30, 2007, 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
    ..., 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: Title of Each Class Common Stock, $0.0001 par value per share Name of Each Exchange...

  • Page 2
    ...Principal Accounting Fees and Services ...108 109 109 109 109 Market for Registrant' s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities...Selected Financial Data ...Management' s Discussion and Analysis of Financial Condition and Results of Operations Quantitative...

  • Page 3
    ... design, imaging and publishing software for print, Web and dynamic media production, and by delivering a technology platform, we help people express, share, manage and collaborate on their ideas in imaginative and meaningful new ways. Our strategy is to address the needs of a variety of customers...

  • Page 4
    ... prepress professionals who use and rely on Adobe' s solutions for professional publishing, Web design and development, professional photography, video production, animation and motion graphic production and printing visually rich information. Our software tools are used by creative professionals to...

  • Page 5
    .... We believe professional videographers are upgrading their systems to support HD video content creation, enhancement and delivery. We also believe hobbyists will use, with more frequency, digital imaging and digital video software and online hosted software services as they purchase more affordable...

  • Page 6
    ... workflow solutions based on InDesign and InDesign Server within enterprise-class newspaper, magazine and book publishing systems. Similarly, in the Web layout and Web development markets, and in the illustration markets, we achieved strong revenue results driven respectively by the delivery of new...

  • Page 7
    ..., editing and effects processing capabilities. Adobe Creative Suite Design Premium-an integrated software solution that creative professionals can use as a platform for print, Web and mobile content publishing; combines Adobe Acrobat Professional, Adobe Dreamweaver, Adobe Flash Professional, Adobe...

  • Page 8
    ...-to-use, easy-to-access online personal meeting rooms. Adobe Creative Suite Design Standard-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 Adobe Acrobat...

  • Page 9
    ..., motion graphics, sound, text and additional video functionality; solutions built with Adobe Flash Professional are deployed via the Web to browsers and to devices that run Adobe Flash Player. Adobe GoLive-Web design and publishing software that provides innovative tools that Web authors use to...

  • Page 10
    .... Adobe Stock Photos-a service that allows users of Adobe Creative Suite products to purchase stock photography directly from leading agencies. Adobe Ultra-software used to transform digital video and HD keying into a practical daily production tool for all types of video professional users. Adobe...

  • Page 11
    ..., partners and customers. We also believe businesses will increasingly utilize Web conferencing to improve how they train, market, sell and support their products and solutions to their customers. Our Adobe Acrobat Connect provides capabilities via the Adobe Flash Player for live Web conferencing...

  • Page 12
    ...users to insert and publish 3D designs from major CAD applications in Adobe PDF documents that can easily be shared with suppliers, partners and customers using the free Adobe Reader software. Adobe Acrobat Connect-a rich Web-based communication system which enables organizations to reduce the costs...

  • Page 13
    ... 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, graphics applications and more; supports automated...

  • Page 14
    ...closely Adobe PDF and Adobe Flash technologies to provide capabilities which allow businesses and enterprises to more effectively engage customers, constituents, partners and employees in key business processes. LiveCycle ES software is an integrated J2EE server solution that blends electronic forms...

  • Page 15
    ... more complete enterprise server-based solutions targeting the document and RIA needs of governments and enterprises. We wish to help these customers develop and deliver self-service and assisted-service Web-based applications that blend rich user interfaces and documents with data capture, document...

  • Page 16
    ... including Web services, remote Java objects and real-time data and messaging systems. Adobe LiveCycle Designer ES-a desktop software application which simplifies the creation and maintenance of intelligent XML based forms for deployment as Adobe PDF forms, HTML applications and Flash based RIAs...

  • Page 17
    ... dynamically by merging data from multiple back-end systems with pre-designed templates and output documents in a wide range of print or electronic formats to help deliver multi-channel communications; the technology is licensed from Streamserve and sold by Adobe. Adobe Central Pro Output Server...

  • Page 18
    ...as video and interactive content to a broad range of devices. Adobe Flash Home-an active, home screen solution to deliver rich, dynamic home screens consistently across a broad range of devices; built as a client-server system, Flash Home combines customizable home screens with live data services to...

  • Page 19
    ... range of browsers, operating systems and devices. A key long-term focus to broadening the reach and viability of our technology platform is the development of a new cross-platform client named Adobe AIR. Based on Flash, PDF and HTML technologies, Adobe AIR enables the creation of Web-enabled...

  • Page 20
    ... Reader product. Adobe Flash Player-the most widely distributed rich client software on PCs and consumer electronic devices, the Flash Player provides a runtime environment for text, graphics, animations, sound, video, application forms and two-way communications. Adobe Flex Builder-an Eclipse-based...

  • Page 21
    ...Library in OpenType format, offering a complete type solution for print, the Web, digital video or electronic documents. Adobe FrameMaker-an application for authoring and publishing long, structured, content-rich documents including books, documentation, technical manuals and reports; provides users...

  • Page 22
    ...; makes it easy to create beautiful text for print, Web and video projects. Macromedia FreeHand MX-a professional vector graphics tool designers and illustrators use to create high quality images that can be scaled; supports developing images for print, the Web and the Adobe Flash Player. 22

  • Page 23
    ... 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. The needs of digital imaging and video editing software users are...

  • Page 24
    ... solution. Applications for digital video editing, motion graphics, special effects, audio creation and DVD authoring face increasing competition as video professionals and hobbyists migrate away from analog video and audio tools towards the use of digital camcorders and digital video production...

  • Page 25
    ...clone products marketed by companies such as AdLib, Active PDF, Ansyr Technology, 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 Adobe Acrobat Standard and Adobe...

  • Page 26
    ... programming environments that are available for the Apache Web server. Our Print 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...

  • Page 27
    ... languages based on the PostScript language standard, including Global Graphics and Xionics. In addition, as previously discussed, Microsoft has shipped its next generation operating system called Windows Vista. It includes a new document format called XPS which competes with Adobe PDF and our Adobe...

  • Page 28
    ..., software maintenance and support fees and training fees. Services We have a global Adobe Consulting team dedicated to developing and implementing solutions for enterprise customers in key vertical markets and to transfer technical expertise to our solution partners. The Adobe Consulting team uses...

  • Page 29
    Our support revenue also includes support for our desktop products. We offer a range of support programs, from feebased 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 ...

  • Page 30
    ... 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' s acquisition of Documentum, Inc., an enterprise content management company, in...

  • Page 31
    ... into new applications, and anticipate and respond to emerging standards, business models and other technological changes. For example, Microsoft' s Windows Vista operating system which contains a new fixed document format, XPS, which competes with Adobe PDF, and its introduction of Office 2007 31

  • Page 32
    ... to save Microsoft Office documents as PDF files through a freely distributed plug-in, which competes with Adobe PDF creation. Microsoft also has an Expression line of products targeted at designers and recently introduced Silverlight, a web development tool for RIAs, which competes with Adobe Flash...

  • Page 33
    ... for "open standards" or "open source" products could impact adoption or use with respect to some of our products. We offer our Creative Solutions and Knowledge Worker Solutions application-based products primarily on Windows and Macintosh platforms. We generally offer our server-based products, but...

  • Page 34
    ... who develop and deploy viruses, worms, and other malicious software programs that attack our products. Nevertheless, actual or perceived security vulnerabilities in our products could harm our reputation and lead some customers to seek to return products, to reduce or delay future purchases, to use...

  • Page 35
    ... automated business and rely on our network infrastructure and enterprise applications, internal technology systems and our Website for our development, marketing, operational, support, hosted services and sales activities. A disruption or failure of these systems in the event of a major earthquake...

  • Page 36
    ..., fair labor standards, unemployment tax rates, workers' compensation rates, citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs. We also intend to expand our international operations and international sales and marketing activities...

  • Page 37
    ...and Device Solutions segment, which primarily consists of assets acquired in the Macromedia acquisition, is in an emerging market with high growth potential. Revenue is based on the introduction of new products and future royalties. If future revenue or revenue forecasts for this segment do not meet...

  • Page 38
    ... as the market for the technologies or products these companies have under development is typically in the early stages and may never materialize. Our investment activities can impact our net income. Future price fluctuations in these securities and any significant long-term declines in value of any...

  • Page 39
    ... 81,000** Product development, sales and administration Research, product development, sales, marketing and administration Product development, sales, technical support and administration Research, product development, sales and marketing 122,000 Research, product development, sales, marketing and...

  • Page 40
    ...11, 2007, plaintiff filed a motion for reconsideration of the Court's order sustaining the demurrer without leave to amend which is scheduled to be heard on January 29, 2008. In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software...

  • Page 41
    ... high and low sales price per share of our common stock for the periods indicated. All per share amounts in the following table have been adjusted to reflect the two-for-one stock split in the form of a stock dividend effected May 23, 2005. Price Range High Low Fiscal 2007: First Quarter ...Second...

  • Page 42
    ... Price Per Share Maximum Number of Shares that May Yet Be Purchased Under the Plan Plan/Period Stock Repurchase Program I Beginning shares available to be repurchased as of August 31, 2007 ...September 1 - September 28, 2007 Structured repurchases ...September 29 - October 26, 2007 From employees...

  • Page 43
    ..., net of any cancelled, surrendered or exchanged shares less all stock repurchases under the ongoing plan, beginning in the first quarter of fiscal 1998. In November 2007, the Board of Directors approved a 30 million share increase to the Stock Repurchase Program II commencing in fiscal 2008. This...

  • Page 44
    ... 173.32 150.24 Comparison of Five Year Cumulative Total Return $350 $300 $250 $200 $150 $100 $50 $0 2002 2003 Adobe Systems 2004 S & P 500 2005 2006 2007 S & P 500 Software & Services * The material in this report is not deemed "filed" with the SEC and is not to be incorporated by reference into...

  • Page 45
    ... in the form of stock dividends effected May 23, 2005. 2007 2006 Fiscal Years 2005 2004 2003 Operations: Revenue ...Gross profit ...Income before income taxes ...Net income(*) ...Net income per share(*) Basic...Diluted ...Cash dividends declared per common share ...Financial position: Cash, cash...

  • Page 46
    ...and mobile software and services used by creative professionals, designers, knowledge workers, high-end consumers, OEM partners, developers and enterprises for creating, managing, delivering and engaging with compelling content and experiences across multiple operating systems, devices and media. We...

  • Page 47
    ...to determine the fair value of stock options, restricted stock and employee stock purchase plan shares. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and...

  • Page 48
    ... established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. We are currently under examination by the Internal Revenue Service for our fiscal 2001, 2002 and 2003 tax returns, primarily related to our intercompany transfer...

  • Page 49
    ... of knowledge worker customers, providing essential applications and services to help them reliably share information and collaborate effectively. This segment contains revenue generated by the Adobe Acrobat family of products. Our Enterprise and Developer Solutions segment provides server-based...

  • Page 50
    ... of fiscal 2007. Revenue from our Knowledge Worker Solutions segment increased $70.7 million during fiscal 2007 as compared to fiscal 2006 primarily due to an increase in the licensing of our new Acrobat 8 family of products. Revenue from our Enterprise and Developer Solutions segment increased...

  • Page 51
    ... due to the acquisition of Macromedia. Revenue in the Americas and EMEA increased during fiscal 2006 as compared to fiscal 2005 due to the strength of our Creative Solutions, Enterprise Solutions, Knowledge Worker Solutions and Other segments. Additionally, revenue in EMEA increased approximately...

  • Page 52
    ... 2005 due to the purchased technology amortization associated with the Macromedia acquisition. Services and Support Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to provide consulting services, training and product support. 52

  • Page 53
    ... of SFAS 123R. Cost of services and support revenue also increased due to costs associated with our Expert Support program. Operating Expenses Overview Included in compensation costs for fiscal 2006 and 2007 are compensation and related benefits, including stock-based compensation costs as a result...

  • Page 54
    ...incentive compensation and stock-based compensation ...Increased compensation and related benefits associated with headcount growth ...Increased professional fees and contractor costs...Increased marketing spending related to product launches and overall marketing efforts to further increase revenue...

  • Page 55
    ...: % Change 2007 to 2006 % Change 2006 to 2005 Increased compensation associated with incentive compensation and stock-based compensation ...Increased compensation and related benefits associated with headcount growth ...Increased professional fees and contractor fees ...Increased depreciation...

  • Page 56
    ...following: 2007 2006 2005 Net gains (losses) related to our investments in Adobe Ventures and cost method investments...Gains from sale of equity investments ...Write-downs due to other-than-temporary declines in value of our marketable equity securities ...Gains from sale of short-term investments...

  • Page 57
    ...and office rent; and cost of product revenue. Another source of cash is proceeds from the exercise of employee options and participation in the employee stock purchase plan and another use of cash is our stock repurchase program, which is detailed below. Cash flows from operating activities Net cash...

  • Page 58
    ... overall increased taxable income. Deferred revenue increased primarily due to increased maintenance and support obligations including deferrals for free upgrades associated with certain product releases. Working capital uses of cash included increases in trade receivables and other current assets...

  • Page 59
    ... 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, products...

  • Page 60
    ... in aggregate up to 20.0 million shares of our common stock. This program is in addition to our existing stock repurchase program designed to return value to our shareholders and offset dilution from employee stock programs. During fiscal 2007, we had provided prepayments of $850.0 million under...

  • Page 61
    ... and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue. Guarantees The lease agreements for our corporate headquarters provide for residual value guarantees. Under Financial Accounting Standards Board...

  • Page 62
    ... long-term investment exposures. Economic Hedging-Hedges of Forecasted Transactions We use foreign exchange option contracts to hedge certain operational ("cash flow") exposures resulting from changes in foreign currency exchange rates. These foreign exchange option contracts, carried at fair value...

  • Page 63
    ... to review our long-term investments on a regular basis to evaluate whether or not a security has experienced an other-than-temporary decline in fair value. Our policy includes, but is not limited to, reviewing each company' s cash position, financing needs, earnings and revenue outlook, operational...

  • Page 64
    ... start-up or development stages which are inherently risky. The technologies or products these companies have under development are typically in ...as of November 30, 2007. This sensitivity analysis was based on a modeling technique that measures the hypothetical market value changes that would result ...

  • Page 65
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) November 30, 2007 ASSETS Current assets: Cash and cash equivalents...Short-term investments ...Trade receivables, net of allowances for doubtful accounts of $4,398 and $6,798, respectively ...Other ...

  • Page 66
    ... per share data) November 30, 2007 Years Ended December 1, 2006 December 2, 2005 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...

  • Page 67
    ... ...Re-issuance of treasury stock under stock compensation plans...Tax benefit from employee stock option plans...Purchase of treasury stock ...Stock-based compensation ...Adjustment to the valuation of Macromedia assumed options...Balances at November 30, 2007 ... Common Stock Shares Amount 591,528...

  • Page 68
    ...flows from financing activities: Purchase of treasury stock ...Proceeds from re-issuance of treasury stock ...Excess tax benefits from stock-based compensation ...Payment of dividends...Net cash used for financing activities ...Effect of exchange rates on cash and cash equivalents ...Net increase in...

  • Page 69
    ...and mobile software and services used by creative professionals, designers, knowledge workers, high-end consumers, OEM partners, developers and enterprises for creating, managing, delivering and engaging with compelling content and experiences across multiple operating systems, devices and media. We...

  • Page 70
    ... determine the fair values, we use the market approach based on comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical and forecasted revenue, operating costs and other...

  • Page 71
    ...related factors. We record the estimated costs of providing free technical phone support to customers for our software products. We recognize OEM licensing revenue, primarily royalties, when OEM partners ship products incorporating our software, provided collection of such revenue is deemed probable...

  • Page 72
    ... the right to the specified free upgrade expires. Services and support revenue Our services and support revenue is composed of consulting, training and maintenance and support, primarily related to the licensing of our Enterprise and Developer Solutions and Mobile and Device Solutions products. Our...

  • Page 73
    ... (e.g., trade receivables and accounts payable) are recorded each period as a component of other income in the consolidated statements of operations. Foreign exchange forward contracts hedging forecasted non-functional currency denominated forecasted product licensing revenue, are designated as cash...

  • Page 74
    ... In the fiscal year ended November 30, 2007, we adopted the recognition and disclosure elements of SFAS 158 which did not have a material effect on our consolidated financial position, results of operations or cash flows. In addition, we will adopt the measurement elements of SFAS 158 in fiscal 2009...

  • Page 75
    ... and purchased and other intangibles. Fiscal 2006 Acquisitions During fiscal 2006, we completed the acquisition of Macromedia, a provider of software technologies that enables the development of a wide range of Internet and mobile application solutions. The acquisition of Macromedia accelerated...

  • Page 76
    ...and $186.9 million in deferred tax liabilities. Deferred revenue-Macromedia' s deferred revenue was derived from licenses, maintenance and support, hosting and consulting contracts. We recorded an adjustment to reduce Macromedia' s carrying value of deferred revenue by $49.1 million to $14.9 million...

  • Page 77
    .... We classify all of our cash equivalents and short-term investments as "available-for-sale". These investments are free of trading restrictions or become free of trading restrictions within one year. We carry these investments at fair value, based on quoted market prices or other readily available...

  • Page 78
    ... Unrealized Losses Estimated Fair Value Classified as current assets: Cash ...Cash equivalents: Money market mutual funds ...Bank time deposits ...State and municipal bonds and notes...Corporate bonds ...Total cash equivalents ...Total cash and cash equivalents...Short-term investments: State and...

  • Page 79
    ... the investment portfolio. There was one security which had a market value less than amortized cost. This security was an obligation of a foreign government. It is our policy to review our marketable equity securities classified as short-term investments on a regular basis to evaluate whether or not...

  • Page 80
    ...Purchased and Other Intangibles Below is our goodwill reported by business segment, as of November 30, 2007: 2006 (1) Acquisitions Other 2007 Creative Solutions ...Knowledge Worker Solutions ...Enterprise and Developer Solutions...Mobile and Device Solutions ...Other ...Print and Classic Publishing...

  • Page 81
    ... venture capital firm and sole general partner of Adobe Ventures. Adobe Ventures carries its investments in equity securities at estimated fair value and investment gains and losses are included in our consolidated statements of income. The stock of a number of technology investments held by...

  • Page 82
    ... fair value of these investments held by Adobe Ventures, as well as our direct investments, on a regular basis. This evaluation includes, but is not limited to, reviewing each company' s cash position, financing needs, earnings and revenue outlook, operational performance, management and ownership...

  • Page 83
    ...60,167 (23,028) (7,068) 66,966 146,142 82,852 $ 223,383 $ 173,918 $ 162,937 Certain employee stock plan benefits in fiscal 2007 and 2006 associated with the acquisition of Macromedia reduced goodwill. See Note 5 for further information. Total income tax expense differs from the expected tax expense...

  • Page 84
    2007 2006 Deferred tax assets: Acquired technology...Reserves and accruals...Deferred revenue...Unrealized losses on investments...FAS 123R stock compensation ...Net operating loss of acquired companies ...Credits...Depreciation and amortization...Other ...Total gross deferred tax assets......

  • Page 85
    ... and 2007 and the cumulative costs incurred through November 30, 2007 for each major type of cost associated with the restructuring plan: Total Costs Incurred To Date 2006 Cash Payments Adjustments 2007 Termination benefits ...Cost of closing redundant facilities. Cost of contract termination...

  • Page 86
    ..., related to long-term facilities obligations recorded in accrued restructuring, non-current in the accompanying consolidated balance sheets. Note 10. Benefit Plans Pretax Savings Plan In 1987, we adopted an Employee Investment Plan, qualified under Section 401(k) of the Internal Revenue Code, which...

  • Page 87
    ...30, 2007, we recorded $3.1 million as a long-term liability to recognize undistributed deferred compensation due to employees. Note 11. Stock-based Compensation We have the following stock-based compensation plans and programs as described below. Stock Option Plans Our stock option program is a long...

  • Page 88
    ...-based compensation costs that have been included in our consolidated statements of income are as follows: Fiscal 2007: Option Grants and Stock Purchase Rights Restricted Stock and Performance Awards Income Statement Classifications Cost of revenue-services and support ...Research and development...

  • Page 89
    ... Cost of revenue-services and support...Research and development...Sales and marketing ...General and administrative ...Total... 8,180 63,950 66,792 27,121 $ 166,043 $ - 1,678 1,500 1,313 $ 4,491 $ Beginning in the first quarter of fiscal 2006, we account for stock-based compensation...

  • Page 90
    ... determine the fair value of stock options and employee stock purchase plan shares. The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective...

  • Page 91
    ... to value employee stock purchase rights were as follows: Fiscal Years 2006 2007 2005 Expected term (in years) ...Volatility ...Risk-free interest rate... 0.5-2.0 1.25 30.41-32.75% 30.30-35.02% 4.79-5.11% 4.32-5.26% 1.25 32-37% 3.03-3.58% The expected term of employee stock purchase plan shares...

  • Page 92
    ... granted to existing directors Exercise price...Options granted to new directors ...Exercise price... 250 $ 42.61 - - 200 $ 35.95 50 $ 35.25 400 $ 29.74 50 $ 26.83 The weighted average fair value of employee stock purchase shares granted during fiscal 2007, 2006 and 2005 was $12.03, $8.09 and...

  • Page 93
    ... restricted stock awards nor restricted stock units are considered outstanding in the computation of basic earnings per share. Summary of Performance Shares During fiscal 2007, we granted performance shares under the 2007 Program as shown in the table below. The fair value of this stock option...

  • Page 94
    ... our 2000 and 2005 stock splits each in the form of a dividend, each share of common stock now entitles the holder to one-quarter of such a purchase right. Each whole right still entitles the registered holder to purchase from Adobe a unit of preferred stock at $700. The rights become exercisable in...

  • Page 95
    ... in aggregate up to 20.0 million shares of our common stock. This program is in addition to our existing stock repurchase program designed to return value to our shareholders and offset dilution from employee stock programs. During fiscal 2007, we provided prepayments of $850.0 million under...

  • Page 96
    ...,921 35 18,114 508,070 $ 1.23 $ 1.19 For fiscal 2007, 2006 and 2005, options to purchase approximately 10.4 million, 17.7 million and 11.6 million shares, respectively, of common stock with exercise prices greater than the annual average fair market value of our stock of $41.77, $35.32 and $30.33...

  • Page 97
    ...2005 through fiscal 2007 were as follows: 2007 2006 2005 Rent expense ...Less: sublease income ...Net rent expense ... $ 90,553 9,406 $ 81,147 $ 74,629 3,556 $ 71,073 $ 58,215 4,995 $ 53,220 We occupy three office buildings in San Jose, California where our corporate headquarters are located. We...

  • Page 98
    ...is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue. Royalty expense, which was recorded under our cost of products revenue on our consolidated statements of income, was approximately $37.4 million, $19.1 million and $17.8 million in fiscal 2007, 2006 and...

  • Page 99
    ... changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. Economic Hedging-Hedges of Forecasted Transactions We use foreign exchange option contracts to hedge certain operational ("cash flow") exposures resulting...

  • Page 100
    ...Gain (loss) on completed hedge transactions: Net realized gain reclassified from other accumulated comprehensive income to revenue...Net realized loss from the cost of purchased options ...Gain (loss) on open hedge transactions: Net unrealized gain (loss) from the time value on open cash flow hedge...

  • Page 101
    ... and software products to 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...

  • Page 102
    ...needs of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains revenue generated by Adobe Acrobat Connect and our Acrobat family of products. Our Enterprise and Developer Solutions segment provides server-based...

  • Page 103
    ..., 2006 and 2005 are as follows: Other Creative Solutions Knowledge Worker Solutions Enterprise and Developer Solutions Mobile and Device Solutions Print and Classic Publishing Platform Total Fiscal 2007 Revenue...$ 1,898,924 $728,528 Cost of revenue...147,161 57,683 Gross profit ...$ 1,751,763...

  • Page 104
    ... our significant customers, as a percentage of gross trade receivables for fiscal 2007 and 2006 are as follows: 2007 2006 Ingram Micro...Tech Data...Note 20. Selected Quarterly Financial Data (unaudited) March 2 19% 10% 25% 11% 2007 Quarter Ended June 1 August 31 November 30 Revenue ...Gross...

  • Page 105
    Note 21. Subsequent Event Structured Stock Repurchase Agreements Subsequent to November 30, 2007, as part of Stock Repurchase Programs I and II, we entered into additional structured stock repurchase agreements with large financial institutions whereupon we provided the financial institutions with ...

  • Page 106
    ... have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Adobe Systems Incorporated's internal control over financial reporting as of November 30, 2007, based on the criteria established in Internal Control-Integrated Framework issued by the...

  • Page 107
    ... in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC' s rules and instructions, and (ii) information is accumulated and communicated to our management, including the Chief Executive Officer and...

  • Page 108
    ... opinion, Adobe Systems Incorporated maintained, in all material respects, effective internal control over financial reporting as of November 30, 2007, based on the criteria established in Internal Control-Integrated Framework issued by COSO. We also have audited, in accordance with the standards of...

  • Page 109
    ... in the sections captioned "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in the Proxy Statement we will deliver to our stockholders in connection with our Annual Meeting of Stockholders to be held on April 9, 2008. We are incorporating...

  • Page 110
    ... Shantanu Narayen and Mark Garrett, and each or any one of them, his or her lawful attorneys-in-fact and agents, for such person in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits thereto, and other documents in connection therewith...

  • Page 111
    /s/ MICHAEL R. CANNON Michael R. Cannon /s/ BRUCE R. CHIZEN Bruce R. Chizen /s/ JAMES E. DALEY James E. Daley /s/ CAROL MILLS Carol Mills /s/ COLLEEN M. POULIOT Colleen M. Pouliot /s/ ROBERT SEDGEWICK Robert Sedgewick /s/ DELBERT W. YOCAM Delbert W. Yocam January 24, 2008 Director January 24, 2008 ...

  • Page 112
    ...Form 10-K: Adobe Acrobat Acrobat Connect Acrobat Messenger ActionScript Adobe AIR Adobe Audition Adobe Encore Adobe OnLocation Adobe Premiere Adobe Type Manager After Effects Authorware Captivate ColdFusion Contribute Creative Suite Director Distiller Dreamweaver DV Rack Encore Fireworks Flash Flash...

  • Page 113
    Scene 7 Soundbooth Ultra Version Cue Visual Communicator Vlog It! All other trademarks are the property of their respective owners. 113

  • Page 114
    ... Investor Services, LLC 1984 Stock Option Plan, as amended* Amended 1994 Performance and Restricted Stock Plan* Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 1994 Stock Option Plan, as amended* 1997 Employee Stock Purchase Plan, as...

  • Page 115
    ... Compensation* Adobe Systems Incorporated 2006 Management Team Annual Incentive Plan * 2007 Executive Officer Annual Incentive Plan* 2005 Equity Incentive Assumption Plan* Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan* Allaire Corporation 1997 Stock...

  • Page 116
    ... Incentive Plan* Adobe Systems Incorporated Deferred Compensation Plan* Form of Maximum Award Grant Notice used in connection with grants under the Adobe Systems Incorporated 2006 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* Form of Performance Share...

  • Page 117
    ...Agreement used in connection with grants under the Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan* Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* Form of Form of Award...

  • Page 118
    ...are to filings made by Macromedia, Inc. †The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe Systems Incorporated...

  • Page 119
    ......Adobe Systems Norge AS ...Adobe Systems Romania SRL ...Adobe Systems s.r.o...Adobe Software Trading Company Limited ...Adobe Systems Software Ireland Limited...Allaire Europe Holdings BV ...Antepo SARL ...Frame Technology International Limited ...Iteration::Two Limited...Macromedia Europe Limited...

  • Page 120
    ... reporting as of November 30, 2007, appearing elsewhere in this Form 10-K. As discussed in Note 11 and Note 12 to the Consolidated Financial Statements, effective December 3, 2005, the Company adopted the provision of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based...

  • Page 121
    EXHIBIT 31.1 CERTIFICATION I, Shantanu Narayen, certify that: 1. 2. I have reviewed this report on Form 10-K of Adobe Systems Incorporated; 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 122
    ... the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant' s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who...

  • Page 123
    ... 18 U.S.C. SECTION 1350 In connection with the Annual Report of Adobe Systems Incorporated (the "Registrant") on Form 10-K for the annual period ended November 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Shantanu Narayen, certify, in accordance...

  • Page 124
    EXHIBIT 32.2 CERTIFICATION PURSUANT TO RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350 In connection with the Annual Report of Adobe Systems Incorporated (the "Registrant") on Form 10-K for the annual period ended November 30, 2007 as filed with the Securities and ...