Adobe 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 Adobe annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 139

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139

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 27, 2009
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
(Registrants 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 check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes No
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrants 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, a non-accelerated filer or a smaller reporting company. See the
definitions of large accelerated filer, “accelerated filerand “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
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 registrants common stock, $0.0001 par value per share, held by non-affiliates of the registrant on May 29, 2009, the last
business day of the registrants most recently completed second fiscal quarter, was $12,843,687,113 (based on the closing sales price of the registrants common stock
on that date). Shares of the registrants 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 15, 2010, 524,119,635 shares of the registrants common stock, $0.0001 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2010 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal year
ended November 27, 2009, 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
    ... to Commission file number: 0-15175 ADOBE SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 345 Park Avenue, San Jose, California 95110-2704 (Address of principal executive offices and zip code) (408...

  • Page 2
    ...130 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence...Principal Accounting Fees and Services...

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

  • Page 4
    ...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...

  • Page 5
    ... year books. Educators utilize our solutions to educate future creative professionals, as well as create their course content and online eLearning-based lessons. Hobbyists use our tools to create distinctive online communications and photo albums, community newsletters, Web blogs, animations, videos...

  • Page 6
    ... media player development that can be used to create and deliver custom online media players. OSMF enables developers using Flash technologies to quickly and easily add rich functionality such as advertising, user measurement and tracking, and social network integration into new custom video players...

  • Page 7
    .... 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 Pro, Adobe Dreamweaver, Adobe Flash Professional, Adobe Illustrator, Adobe InDesign and Adobe Photoshop...

  • Page 8
    ... and Adobe PDF workflows; combines Adobe Acrobat Pro, Adobe Illustrator, Adobe InDesign and Adobe Photoshop technologies, Version Cue, Adobe Bridge, Adobe Device Central and Adobe Acrobat Connect Web conferencing software. Adobe Creative Suite Master Collection-an integrated software solution which...

  • Page 9
    ...via the Web to browsers and to devices that run Adobe Flash Player. Adobe Illustrator-a vector-based illustration design tool used to create compelling graphic artwork for print publications, Websites and video production. Adobe InCopy-an editorial tool for collaboration between writers, editors and...

  • Page 10
    ...that can be used to create and deliver custom online media players for content owners; enables developers using Flash technologies to quickly and easily add rich functionality such as advertising, user measurement and tracking, and social network integration into new custom video players that can be...

  • Page 11
    ... free Adobe Reader to digitally sign documents, participate in shared document reviews and save forms locally. These enhanced capabilities helped to continue the increase of our penetration of Acrobat desktop licenses in enterprises. During the year, continued adoption of our Creative Suite products...

  • Page 12
    ...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; Acrobat Pro Extended also: allows users to easily add audio, video and quizzes to PowerPoint slides to create rich, interactive...

  • Page 13
    ... real-time communication to improve how they train, market, sell and support their products and solutions to their customers. For this reason, we now include our Adobe Acrobat Connect Pro product line as part of our CIS offerings. Connect Pro provides capabilities via Adobe Flash Player for live Web...

  • Page 14
    ..., PDF document creation, document security and process management. In fiscal 2009, we also increased our focus on the Web conferencing market opportunity with our Acrobat Connect Pro product line, which is licensed by customers as on-premise server-based software or as a hosted service. Revenue grew...

  • Page 15
    ... 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 Connect Events Server or hosted service, and modules that...

  • Page 16
    ...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 PDF Generator 3D ES2-server-based software...

  • Page 17
    ... 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 ES2-desktop software application which simplifies the creation and maintenance of intelligent XML based forms...

  • Page 18
    ...include Web content editors, Web analysts and Web production managers. These customers often are involved in workflows which utilize other Adobe products, such as our creative professional tools and our Adobe Flash Platform client technologies. We believe there are several key market trends creating...

  • Page 19
    ...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 Online Marketing Suite consists of an open business analytics platform and an integrated set of optimization applications for visitor acquisition...

  • Page 20
    ... order value; helps retailers grow their online business by improving shoppers' ability to find and select products, as well as promoting products based on business goals and metrics. Omniture Publish-an on-demand Web content management solution that enables business users to easily create, manage...

  • Page 21
    ... a beta version of Flash Player 10.1 in November of 2009. In concert with the availability of new versions of our Flash server products, the newest Flash Player adds improved video capabilities such as HTTP streaming, content protection, peer-to-peer support, and enhanced digital video recorder...

  • Page 22
    ...the AIR developer tools used to create these applications. Companies such as eBay, DirecTV, The NASDAQ Stock Market, FOX News, Salesforce.com, The New York Times, AOL, Atlantic Records and the BBC have already deployed commercial applications based on Adobe AIR. As the adoption of our Flash Platform...

  • Page 23
    ... create and print visually rich documents with total precision; licensed to printing equipment and workflow software manufacturers for integration into their printing products. Adobe PDF Print Engine-a new, next-generation printing platform that enables complete, end-to-end PDF-based workflows using...

  • Page 24
    ...to-use authoring tool used by developers and technical writers to create professional help systems and documentation for desktop and Web-based applications; utilizes support for HTML, PDF import/export, team authoring capabilities, as well as JavaHelp. Adobe Shockwave Player-a rich media player used...

  • Page 25
    ...selling typefaces; makes it easy to create beautiful text for print, Web and video projects. 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 Adobe Flash Player. See Note...

  • Page 26
    ...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 constantly evolving due to rapid technology and hardware advancements in digital...

  • Page 27
    ... the Web. For customers that use Adobe 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...

  • Page 28
    ... server product family competes favorably against these companies and formats in terms of the combined benefits of superior functionality, cross-platform visual page fidelity/reliability, multi-platform capability, file compression, printing and security of documents expressed using Adobe PDF...

  • Page 29
    ... programming model and developer tools used to create video output for the Flash Player, the large Flash developer community and ecosystem which utilize our tools, and the growth of companies who have joined the OSP to utilize the Flash Platform as a basis for rich content and application delivery...

  • Page 30
    ... of products, the level of customization and integration with other Web content management 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 Adobe Contribute...

  • Page 31
    ...to the right to receive product upgrades and enhancements during the term of the maintenance and support period, which is typically one year. Regional Support Centers are charged with providing timely, high quality technical expertise on Enterprise and Knowledge Worker products and solutions to meet...

  • Page 32
    ...-help and online technical support capabilities via the Web which allows customers quick and easy access to possible solutions. We provide product support through a combination of outsourced vendors and internal support centers. We also offer Developer Support to partners and developer organizations...

  • Page 33
    ..., 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...

  • Page 34
    ..., 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...

  • Page 35
    ... ability to enhance our existing products and services, introduce new products and services 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 35

  • Page 36
    ... save Microsoft Office documents as PDF files, which competes with Adobe PDF creation. Microsoft Expression Studio competes with our Adobe Creative Suite family of products and Microsoft Silverlight and Visual Studio, Web development tools for RIAs, compete with Adobe Flash, Adobe Flex and Adobe AIR...

  • Page 37
    ... a limited history of licensing products and offering services in certain markets such as the government and enterprise market and may experience a number of factors that will make our revenue less predictable, including longer than expected sales and implementation cycles, decision to open source...

  • Page 38
    ... the acquired company's intellectual property, product quality or product architecture, data back-up and security, revenue recognition or other accounting practices, employee, customer or partner issues or legal and financial contingencies; exposure to litigation or other claims in connection with...

  • Page 39
    ...various license arrangements and service agreements. In addition, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these could seriously harm our business. We may not be able to protect our intellectual property rights...

  • Page 40
    ... regulatory action. Failure to manage our sales and distribution channels and third-party customer service and technical support providers effectively could result in a loss of revenue and harm to our business. A significant amount of our revenue for application products is from two distributors...

  • Page 41
    ... and enterprise applications, internal technology systems and our Website for our development, marketing, operational, support, hosted services and sales activities. In addition, some of our businesses rely on third-party hosted services and we do not control the operation of thirdparty data center...

  • Page 42
    ...as a global company, we are subject to varied and complex laws, regulations and customs domestically and internationally. These laws and regulations relate to a number of aspects of our business, including trade protection, import and export control, data and transaction processing security, records...

  • Page 43
    ...software and subscription revenue recognition; accounting for stock-based compensation; accounting for income taxes; and accounting for business combinations and related goodwill. In December 2007, the Financial Accounting Standards Board ("FASB") issued revised standards for business combinations...

  • Page 44
    ...the license fees on the next major releases of Adobe Flash Player and Adobe AIR for devices. Revenue from this segment has begun to decrease. Although we would expect this decrease to be offset in time by an increased demand for tooling products, server technologies, hosted services and applications...

  • Page 45
    ... 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 of our...

  • Page 46
    ... following table sets forth the location, approximate square footage and use of each of the principal properties used by Adobe during fiscal 2009. We lease or sublease all of these properties with the exception of our property in India, where we own the building and lease the land, and San Francisco...

  • Page 47
    ... defendants as the Miner Lawsuit, and also names Snowbird Acquisition Corporation as an additional defendant. Subsequently, on September 24, 2009, the plaintiff in the Barrell Lawsuit filed an amended complaint, which added allegations that the Schedule 14D-9 Solicitation/Recommendation Statement...

  • Page 48
    ..., claims and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment and other matters. In accordance with GAAP, Adobe makes a provision for a liability when it is both probable...

  • Page 49
    ..., we are unable to estimate the total number of stockholders represented by these record holders. We did not declare or pay any cash dividends on our common stock during fiscal 2009 or fiscal 2008. Under the terms of our credit agreement and lease agreements, we are not prohibited from paying...

  • Page 50
    ...to business conditions and cash flow requirements as determined by our Board of Directors from time to time. All shares were purchased as part of publicly announced plans. Additional 109.0 million shares were issued for the acquisition of Macromedia which accounted for the majority of the repurchase...

  • Page 51
    ... Return Comparison The line graph below compares the cumulative stockholder return on our common stock with the cumulative total return of the Standard & Poor's 500 Index ("S&P 500") and the S&P 500 Software & Services Index for the five fiscal year periods ending November 27, 2009. The stock price...

  • Page 52
    ... Operations. 2009 2008 Fiscal Years 2007 2006 2005 Operations: Revenue ...Gross profit ...Income before income taxes ...Net income(1) ...Net income per share(1), (2) Basic...Diluted ...Cash dividends declared per common share ...Financial position: Cash, cash equivalents and short-term investments...

  • Page 53
    ..., business, Web and mobile software and services used by creative professionals, knowledge workers, consumers, OEMs, developers and enterprises for creating, managing, delivering, optimizing and engaging with compelling content and experiences across multiple operating systems, devices and media...

  • Page 54
    ... returns and price protection reserves would change, which would impact the total net revenue we report. We recognize revenues for hosting services that are based on a committed number of transactions, including implementation and set-up fees, ratably beginning on the date the customer commences use...

  • Page 55
    ...trade name and trademarks will continue to be used in the combined company's product portfolio; and discount rates. In connection with the purchase price allocations for our acquisitions, we estimate the fair value of the deferred revenue obligations assumed. The estimated fair value of the support...

  • Page 56
    ... a year-over-year basis. Our Business Productivity Solutions business declined 19% in fiscal 2009 when compared to fiscal 2008. A decline in demand primarily due to the macro-economic environment with our Acrobat product family - which makes up the majority of revenue in our Knowledge Worker segment...

  • Page 57
    ... 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 segment provides server-based enterprise interaction solutions...

  • Page 58
    ...unit selling prices have remained relatively consistent. Revenue in our Knowledge Worker segment decreased $187.9 million during fiscal 2009 as compared to fiscal 2008 for similar reasons as Creative Solutions in addition to a decrease in the licensing of our Acrobat family of products. We attribute...

  • Page 59
    ... revenue related to Flash Player and the launch of Adobe AIR which resulted in increased revenue from our developer tools. Revenue in our Print and Publishing business increased by $5.9 million during fiscal 2008 as compared to fiscal 2007, driven by ongoing adoption of our eLearning solutions...

  • Page 60
    ... revenue is primarily comprised of employee-related costs and associated costs incurred to provide consulting services, training and product support. Cost of services and support revenue decreased during fiscal 2009 as compared to fiscal 2008, due to decreases in compensation and related benefits...

  • Page 61
    ... timely development of new and enhanced products. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our desktop application and server-based software products. Sales and Marketing Fiscal 2009 % Change 2009 to...

  • Page 62
    ... business, charitable contributions and various forms of insurance. General and administrative expenses decreased due to the following: % Change 2009 to 2008 % Change 2008 to 2007 Allocation of costs associated with acquired rights to use technology ...Compensation and related benefits associated...

  • Page 63
    ... and other service contracts held by Omniture. These costs were recorded as a part of the purchase price allocation, as discussed in Note 2 of our Notes to Consolidated Financial Statements, and have been accrued for as of November 27, 2009. We expect to pay the termination benefits and facility...

  • Page 64
    ... lower foreign exchange losses. Interest and other income, net, decreased during fiscal 2008 as compared to fiscal 2007 primarily as a result of lower average invested balances due to cash used for our share repurchase programs, lower interest rates and increased hedging costs. Additionally, during...

  • Page 65
    ... related to our acquisition of Omniture. The charge was the tax cost of inter-company transactions necessary to license certain Omniture assets to Adobe's trading companies, so that Omniture's services can be offered to customers from Adobe companies. Our effective tax rate decreased approximately...

  • Page 66
    ... 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 ("ESPP"). Another use of cash is our stock repurchase program, which is described below. Cash flows from operating activities Net cash provided...

  • Page 67
    ...long-term investments, venture capital, facilities expansion 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...

  • Page 68
    ... in Web analytics and online business optimization based in Orem, Utah for approximately $1.8 billion. Under the terms of the agreement, we completed our tender offer to acquire all of the outstanding shares of Omniture common stock at a price of $21.50 per share, net to the seller in cash, without...

  • Page 69
    ... costs such as direct and integration costs related to the acquisition. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part I, Item 1A titled "Risk Factors." However, based on our current business plan and revenue...

  • Page 70
    ... Total shares ...Total cost ..._____ (1) The repurchases from employees represent shares cancelled when surrendered in lieu of cash payments for the option exercise price or withholding taxes due. Stock repurchase agreements executed with large financial institutions. See "Stock Repurchase Program...

  • Page 71
    ... long-term liabilities and prepaid rent was $1.3 million. Indemnifications In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third-parties arising from the use of our products. Historically, costs...

  • Page 72
    ...in other foreign currencies. These hedges are foreign currency forward exchange contracts which hedged our balance sheet exposures and purchased put option contracts which hedged our forecasted revenue. As of November 27, 2009, all contracts were set to expire at various times through July 2010. The...

  • Page 73
    ... 27, 2009. This sensitivity analysis was based on a modeling technique that measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S. dollar. For option contracts, the Black-Scholes equation model was used. For forward contracts, duration...

  • Page 74
    ... partnership interest in Adobe Ventures. Short-Term Investments and Marketable Equity Securities We are exposed to equity price risk on our portfolio of marketable equity securities. As of November 27, 2009, our total equity holdings in publicly traded companies were valued at $5.0 million compared...

  • Page 75
    ... ...Consolidated Statements of Cash Flows ...Notes to Consolidated Financial Statements ...Report of KPMG LLP, Independent Registered Public Accounting Firm ... 76 77 78 79 80 122 All financial statement schedules have been omitted, since the required information is not applicable or is not present...

  • Page 76
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) November 27, 2009 November 28, 2008 ASSETS Current assets: Cash and cash equivalents ...$ Short-term investments ...Trade receivables, net of allowances for doubtful accounts of $15,225 and $4,128, ...

  • Page 77
    ...: Products ...Services and support ...Total revenue ...Cost of revenue: Products ...Services and support ...Total cost of revenue ...Gross profit ...Operating expenses: Research and development ...Sales and marketing ...General and administrative ...Restructuring charges ...Amortization of purchased...

  • Page 78
    ... income, net of taxes ...Re-issuance of treasury stock under stock compensation plans ...Tax benefit from employee stock option plans ...Purchase of treasury stock...Equity awards assumed for acquisition . Stock-based compensation ...Balances at November 27, 2009 ... 600,834 600,834 600,834 600...

  • Page 79
    ...Issuance costs for credit facility ...Proceeds from sale of long-term investments ...Other ...Net cash (used for) provided by investing activities ...Cash flows from financing activities: Purchases of treasury stock ...Proceeds from issuance of treasury stock ...Excess tax benefits from stock-based...

  • Page 80
    ... and services used by creative professionals, knowledge workers, consumers, original equipment manufacturers ("OEMs"), developers and enterprises for creating, managing, delivering, optimizing and engaging with compelling content and experiences across multiple operating systems, devices and media...

  • Page 81
    ... 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 82
    ... the licensing of our Enterprise and Mobile and Device Solutions products. Our support revenue also includes technical support and developer support to partners and developer organizations related to our desktop products. We recognize revenue for hosting services that are based on a committed number...

  • Page 83
    ... our distributors, resellers and/or end-user customers. We estimate and record reserves for these programs as an offset to revenue. Below is a summary of each of the general provisions in our contracts: • Distributors are allowed limited rights of return of products purchased during the previous...

  • Page 84
    ... and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the variable interest entity. The provisions of the new standards are effective for annual reporting periods beginning after November 15, 2009 and interim periods within those fiscal years. These standards will...

  • Page 85
    ...that depending on the size and frequency of acquisitions, the adoption of these standards may have a material effect on our future consolidated financial statements as more costs associated with acquisitions will be required to be expensed rather than accounted for as part of the purchase price. 85

  • Page 86
    ... a price of $21.50 per share, net to the seller in cash, without interest. Acquiring Omniture accelerates our strategy of delivering more effective solutions for assembling, delivering, targeting and optimizing Web content and applications. The transaction was accounted for using the purchase method...

  • Page 87
    ... enterprise and mid-market customers as well as partner customers that resell Omniture's services to end users. Contract backlog relates to subscription contracts and professional services. We will amortize the fair value of the contract backlog based on the pattern in which the economic benefits...

  • Page 88
    ... when an enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that a product can be produced to meet its design specifications including functions, features, and technical performance requirements. The estimated fair value of $4.6 million...

  • Page 89
    ... or less at the date of purchase. We classify all of our cash equivalents and short-term investments as "available-for-sale." These investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information...

  • Page 90
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash, cash equivalents and short-term investments consisted of the following as of November 28, 2008 (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current assets: Cash ...Cash...

  • Page 91
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the cost and estimated fair value of debt securities classified as short-term investments based on stated maturities as of November 27, 2009 (in thousands): Amortized Cost Estimated Fair...

  • Page 92
    ... credit rating better than AA+. We value these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining...

  • Page 93
    ... instruments and hedging activities as either assets or liabilities in our Consolidated Balance Sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for...

  • Page 94
    ... to hedge ineffectiveness was insignificant for fiscal 2009, 2008 and 2007. The time value of purchased derivative instruments is recorded in interest and other income, net in our Consolidated Statements of Income. The effect of derivative instruments designated as cash flow hedges and of derivative...

  • Page 95
    ... 27, 2009 were as follows (in thousands): Fair Values of Derivative Instruments Asset Derivatives Liability Derivatives Balance Sheet Balance Sheet Location Fair Value Location Fair Value Derivatives designated as hedging instruments: Prepaid expense and other Foreign exchange option contracts...

  • Page 96
    .... NOTE 7. GOODWILL AND PURCHASED AND OTHER INTANGIBLES Goodwill by reportable segment, as of November 27, 2009 was as follows (in thousands): 2008 Acquisitions Other(*) 2009 Creative Solutions ...$ Knowledge Worker ...Enterprise ...Platform ...Print and Publishing ...Omniture ...Goodwill...

  • Page 97
    ... our acquisitions. Purchased and other intangible assets, net by reportable segment as of November 27, 2009 and November 28, 2008 were as follows (in thousands): 2009 2008 Creative Solutions ...$ Knowledge Worker ...Enterprise ...Platform ...Print and Publishing ...Omniture ... Purchased and...

  • Page 98
    ...for based on the cost method. We assess these investments for impairment in value as circumstances dictate. See Note 4 for further information regarding our cost method investments. We entered into a Purchase and Sale Agreement, effective May 12, 2008, for the acquisition of real property located in...

  • Page 99
    ... entry recorded as prepaid rent in other assets. The balance is being amortized to the Consolidated Statements of Income over the life of the leases. As of November 27, 2009 and November 28, 2008, the unamortized portion of the fair value of the residual value guarantees remaining in other long-term...

  • Page 100
    ... and November 27, 2009 are presented below (in thousands): 2009 2008 Deferred tax assets: Acquired technology ...$ Reserves and accruals ...Deferred revenue ...Unrealized losses on investments ...Stock-based compensation ...Net operating loss of acquired companies ...Credits ...Capitalized expenses...

  • Page 101
    ...to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized. In addition, we have been tracking certain deferred tax attributes of $82.8 million which have not been recorded in the financial statements pursuant to accounting standards related to stock-based...

  • Page 102
    ... $0.2 million in costs related to the cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by Omniture. Restructuring charges related to the Omniture acquisition were recorded as a part of the purchase price allocation, as discussed...

  • Page 103
    ...) The following table sets forth a summary of preliminary restructuring activities during fiscal 2009 (in thousands): November 28, 2008 Costs Recorded Cash Payments Other Adjustments November 27, 2009 Termination benefits ...$ Cost of closing redundant facilities...Contract termination ...Total...

  • Page 104
    ...as the Adobe 401(k) Retirement Savings Plan. Under the plan, eligible employees may contribute up to 65% of their pretax or after-tax salary, subject to the Internal Revenue Service annual contribution limits. In fiscal 2009, we matched 50% of the first 6% of the employee's eligible compensation. We...

  • Page 105
    .... NOTE 13. STOCK-BASED COMPENSATION We have the following stock-based compensation plans and programs: Stock Option Plans Our stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align...

  • Page 106
    ... information regarding our stock repurchase programs. Valuation of Stock-Based Compensation Stock-based compensation cost is measured at the grant date based on the fair value of the award. We currently use the Black-Scholes option pricing model to determine the fair value of stock options and ESPP...

  • Page 107
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The expected term of ESPP shares is the average of the remaining purchase periods under each offering period. The assumptions used to value employee stock purchase rights were as follows: 2009 Fiscal Years 2008 2007 ...

  • Page 108
    ... to current executive officers are made after a review by and with the approval of the Executive Compensation Committee of the Board of Directors. Summary of Employee Stock Purchase Plan Shares The weighted average subscription date fair value of shares under the ESPP during fiscal 2009, 2008 and...

  • Page 109
    ... of basic earnings per share. Restricted stock unit activity for fiscal years 2009, 2008 and 2007 was as follows (in thousands): 2009 2008 2007 Beginning outstanding balance...Awarded ...Released ...Forfeited ...Increase due to acquisition ...Ending outstanding balance ... 4,261 6,176 (1,162) (401...

  • Page 110
    ...'s continued service to Adobe. The following table sets forth the summary of performance share activity under our 2006 through 2008 programs, based upon share awards actually achieved, for fiscal 2009 and fiscal 2008 (in thousands): 2009 2008 Beginning outstanding balance ...Achieved ...Released...

  • Page 111
    ... preceding each of our next four annual meetings and have a ten-year term. Starting in fiscal 2009, the initial equity grant to a new non-employee director is a restricted stock unit award having an aggregate value of $0.5 million as based on the average stock price over the 30 calendar days ending...

  • Page 112
    ... of Directors or upon our being acquired by any person in a merger or business combination transaction. The rights are redeemable by Adobe prior to exercise at $0.01 per right and expire on July 23, 2010. Stock Repurchase Program I To facilitate our stock repurchase program, designed to return value...

  • Page 113
    ... the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount. During fiscal 2009, we repurchased approximately 15.2 million shares at an average price per share of $27.89 through structured repurchase agreements entered...

  • Page 114
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the taxes related for each component of other comprehensive income for fiscal 2009, 2008 and 2007 (in thousands): 2009 2008 2007 Available-for-sale securities ...$ Foreign currency ...

  • Page 115
    ... balance sheet. We utilized this type of financing in order to access bank-provided funding at the most favorable rates and to provide the lowest total cost of occupancy for the headquarter buildings. At the end of the lease term, we can extend the lease for an additional five year term, purchase...

  • Page 116
    ... in fiscal 2009, 2008 and 2007, respectively. Indemnifications In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third-parties arising from the use of our products. Historically, costs related to...

  • Page 117
    ... to legal proceedings, claims and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment and other matters. Adobe makes a provision for a liability when it is both probable that...

  • Page 118
    ... of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains revenue generated by Acrobat Connect and our Acrobat family of products. Our Enterprise segment provides server-based enterprise interaction solutions...

  • Page 119
    ... for the Connect Solutions product line from our Knowledge Worker segment to our Enterprise segment. We will adjust our reportable segments at the beginning of fiscal 2010 to reflect changes for how we manage our business as we enter the new fiscal year. We report segment information based on the...

  • Page 120
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The tables below list our revenue and property and equipment, net, by geographic area for fiscal 2009, 2008 and 2007 (in thousands). With the exception of property and equipment, we do not identify or allocate our ...

  • Page 121
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 21. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (in thousands, except per share data) February 27 2009 Quarter Ended May 29 August 28 November 27 Revenue ...Gross profit ...Income before income taxes ...Net ...

  • Page 122
    ... and an opinion on Adobe Systems Incorporated's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits...

  • Page 123
    As discussed in Note 10 to the consolidated financial statements, Adobe Systems Incorporated changed its method of accounting for uncertainty in income taxes in fiscal 2008 resulting from the adoption of new accounting pronouncements. /s/KPMG LLP Mountain View, California January 22, 2010 123

  • Page 124
    ... 27, 2009 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 of Form 10-K with...

  • Page 125
    ...You will find this information 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 16...

  • Page 126
    ...the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 22, 2010. ADOBE SYSTEMS INCORPORATED By: /s/ MARK GARRETT Mark Garrett, Executive Vice President and Chief Financial Officer (Principal...

  • Page 127
    Signature Title Date /s/ MICHAEL R. CANNON Michael R. Cannon s/ JAMES E. DALEY James E. Daley /s/ CAROL MILLS Carol Mills /s/ DANIEL L. ROSENSWEIG Daniel L. Rosensweig /s/ ROBERT SEDGEWICK Robert Sedgewick January 22, 2010 Director January 22, 2010 Director January 22, 2010 Director January 22, ...

  • Page 128
    ... Form 10-K: Adobe Acrobat Acrobat Connect ActionScript Adobe AIR Adobe Audition Adobe Premiere Adobe Type Manager After Effects AIR Authorware BusinessCatalyst Buzzword Captivate ColdFusion ColdFusion Builder Contribute Creative Suite Director Dreamweaver Encore Fireworks Flash Flash Access Flash...

  • Page 129
    SUMMARY OF TRADEMARKS (Continued) Visual Communicator All other trademarks are the property of their respective owners. 129

  • Page 130
    ... Adobe Systems Incorporated and Computershare Investor Services, LLC Specimen Common Stock Certificate Amended 1994 Performance and Restricted Stock Plan* Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 1997 Employee Stock Purchase...

  • Page 131
    ..., dated March 26, 2007 Participation Agreement among Adobe Systems Incorporated, Selco Service Corporation, et al. dated March 26, 2007 Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* S-8 6/16/00 4.8 10.6 S-8 10/29...

  • Page 132
    ... by Reference** Date Number Filed Herewith 10.16 Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan* Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan* 2008 Executive Officer Annual Incentive Plan* 2005 Equity...

  • Page 133
    ... Share Program pursuant to the 2003 Equity Incentive Plan* Adobe Systems Incorporated Deferred Compensation Plan* Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan* Form of Award Grant Notice and Performance Share Award Agreement used in connection...

  • Page 134
    ... Stock Plan* Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* Adobe Systems Incorporated Executive Cash Bonus Plan...

  • Page 135
    ...; Bank of America, N.A. as Administrative Agent and Swing Line Lender; the Other Lenders Party Thereto; and Banc of America Securities LLC and J.P. Morgan Securities Inc. as Joint Lead Arrangers and Joint Book Managers Amendment to Credit Agreement, dated as of August 13, 2007, among Adobe Systems...

  • Page 136
    ... Executive Annual Incentive Plan* Omniture, Inc. 1999 Equity Incentive Plan, as amended (the "Omniture 1999 Plan")* Forms of Stock Option Agreement under the Omniture 1999 Plan* Form of Stock Option Agreement under the Omniture 1999 Plan used for Named Executive Officers and Non-Employee Directors...

  • Page 137
    ... Avivo Corporation 1999 Equity Incentive Plan and Form of Option Grant Agreement* The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002* Forms of Agreements under The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002* Touch Clarity Limited 2006...

  • Page 138
    ...U.S. Stock Plan* Description of 2010 Director Compensation* Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm, KPMG LLP Power of Attorney (set forth on the signature page to this Annual Report on Form 10K) Certification of Chief Executive Officer, as required by...

  • Page 139
    ...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 under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as...