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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, 2012
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
(State or other jurisdiction of
incorporation or organization)
77-0019522
(I.R.S. Employer
Identification No.)
345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices and zip code)
(408) 536-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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 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 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 checkmark 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 filer” and “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 registrant’s common stock, $0.0001 par value per share, held by non-affiliates of the registrant on June 1, 2012, the last
business day of the registrant’s most recently completed second fiscal quarter, was $12,526,183,922 (based on the closing sales price of the registrant’s common
stock on that date). Shares of the registrant’s common stock held by each officer and director and each person who owns 5% or more of the outstanding common
stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes. As of January 18, 2013, 498,790,943 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 2013 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal
year ended November 30, 2012, 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
    ... 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 Common Stock, $0.0001 par value per share Name of...

  • Page 2
    ...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 ...123...

  • Page 3
    ...systems, devices and media. We market and license our software directly to enterprise customers through our sales force and to end users through app stores and our own website at www.adobe.com. We also distribute our products through a network of distributors, value-added resellers ("VARs"), systems...

  • Page 4
    ... and services. Creative Cloud members also get online services to sync, store, and share files, participate in creative communities, receive product training, as well as publish digital magazines to the iPad, develop mobile applications, and create and manage websites. We believe Creative Cloud is...

  • Page 5
    ... for web designers and an updated version of Adobe Acrobat. In addition, new products and capabilities were made available to Creative Cloud subscribers that were not made available to licensees of the perpetual products. Adobe Lightroom, our popular image editing and photo management tool, was...

  • Page 6
    ...marketplaces and app stores. Our customers can create and enhance content through integration with our CS6 tools to enable a complete workflow for the creation and delivery of content via our Content Viewer technology, which is utilized by users on tablets and smartphones. Analytics capabilities are...

  • Page 7
    ... span across our Digital Media and Digital Marketing business segments. In Digital Media, our video content creation solutions are centered around our Adobe Premiere Pro and Adobe After Effects products, and the Creative Suite Production Premium that contains these products plus other capabilities...

  • Page 8
    ... enables customers to share large files more easily rather than using email attachments. Acrobat.com provides services to customers so they can store their documents online and have access to them from virtually anywhere using a computer or mobile device. Combined, Acrobat and Acrobat cloud services...

  • Page 9
    ... as Adobe InDesign, to help customers accelerate app delivery to their readers through app stores. In the Fall of 2012, we delivered an update to our Digital Publishing Single Edition solution and made it generally available to all Creative Cloud subscribers. This significantly broadened the use of...

  • Page 10
    ... digital marketing solutions to drive awareness and customer conversion on our website. We believe Adobe.com will increasingly be the destination site where we engage individual and small business customers to sign up for and renew Creative Cloud subscriptions. We also will utilize channel partners...

  • Page 11
    ..., product development, marketing, pricing, manufacturing and inventory management. The interactive and measurable nature of internet activity also enables businesses to determine how customers arrived at their online destinations, such as through paid search, a display ad or a social media website...

  • Page 12
    ... analytic systems, new media buying systems and optimization systems to increase the effectiveness of their engagement with customers. Driving visitor traffic to websites, broadly defined as a customer's digital presence, including its traditional site, mobile site, pages and apps on social networks...

  • Page 13
    ... Android. Adobe Access is also an UltraViolet approved Digital Rights Management ("DRM") technology. It extends audience reach and enables a variety of business models for media companies, including rental, subscription, and electronic sell-through. Our Adobe Auditude solution is a video advertising...

  • Page 14
    .... This solution enables premium video providers to give customers a superior viewing experience through seamless dynamic ad insertion into any content type, whether linear, live or on-demand across Web-connected devices, and was integral in many global media companies making the 2012 Olympic games...

  • Page 15
    ... drive higher conversion rates on their websites. Our solution enables digital marketers to create, dynamically serve, and continually optimize personalized messages through the use of integrated products such as Adobe Test&Target, Adobe Recommendations and Adobe Search&Promote. With Adobe Target...

  • Page 16
    ...keying and warping tools, and more than 250 additional visual and additional audio effects. Adobe Anywhere-hosted software which enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity. 16

  • Page 17
    ..., enabling members to easily access and share their work; it also includes the ability to publish websites using our Business Catalyst hosting service, and the ability to publish mobile apps using our DPS, Single Edition and PhoneGap Build services. Adobe Creative Suite Design & Web Premium-an...

  • Page 18
    ... or AIR. Adobe Illustrator-a vector-based illustration design tool used to create compelling graphic artwork for print publications, websites and video production. Adobe InCopy-a professional writing and editing solution that tightly integrates with Adobe InDesign software to enable an efficient...

  • Page 19
    ...iPad and Android tablet app; enables users to edit images and apply professional effects using core Photoshop features, and then digitally share the results through social networking sites like Facebook. Digital Media-Developer and Platform Products Adobe AIR-client software and packaging technology...

  • Page 20
    ... recent versions of Adobe Acrobat and Adobe Reader software, create dynamic HTML and PDF forms with Adobe FormsCentral that is included with Acrobat Pro, ad hoc form distribution and data collection, and create Adobe PDF documents that enable Adobe Reader users to digitally sign Adobe PDF documents...

  • Page 21
    ... targeted ad delivery for data optimized advertising. It includes the following key product components: Adobe AdLens-a cloud-based, unified ad management system for digital marketing efforts across search, display, and social media channels; offers insight, control, and automation for cross-channel...

  • Page 22
    ...their customers, either on websites or through email campaigns. Adobe Search&Promote-hosted software which enables marketers to optimize how visitors browse, find, compare, and select relevant products and content on web and mobile sites; marketers can easily promote priority items based on business...

  • Page 23
    ... enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity. As more and more premium video delivery has migrated to the web, Adobe has built out solutions in our Digital Marketing business...

  • Page 24
    ...online training, marketing events, sales meetings and collaborative web conferencing solutions which are instantly accessible by customers, partners and employees using Adobe Flash Player; consists of a core Adobe Connect Events Server or hosted service, and modules that provide specific application...

  • Page 25
    .... Adobe LiveCycle Rights Management-server-based software application that helps organizations manage information access securely with dynamic, persistent document control; allows for access control and auditing of Adobe PDF, Microsoft Word, Microsoft Excel, Microsoft PowerPoint, PTC Pro/ENGINEER...

  • Page 26
    ... adding intelligence to documents, such as business and routing logic, and binding form fields to arbitrary XML schemes for seamless integration with enterprise applications. Adobe Output Designer-a design tool that allows users to create electronic document templates for use with Adobe solutions...

  • Page 27
    ...Windows HTML Help ("CHM"), AIR Help, PDF, eBook, and native mobile apps. Adobe Shockwave Player-a rich media player used for deploying multimedia content for use in internet solutions including education, training, games and commerce. Adobe Technical Communication Suite-an integrated set of software...

  • Page 28
    ...point offerings, free products and downloadable apps. For instance, Aviary provides for a free set of online, cloud-based creative tools via its partners' websites and mobile applications. Its tools run inside web browsers and mobile applications and include an image editor, a vector graphics editor...

  • Page 29
    ... and as applications across PC and mobile device platforms such as iOS and Android, is a key differentiation when compared to the capabilities of alternate solutions, especially for gaming and premium video delivery use cases. The needs of digital imaging and video editing software users are...

  • Page 30
    ... with our other products to create a broad digital video publishing platform for our customers. With our Acrobat business, we continue to face competition from Microsoft. Their widely used Office product offers a feature to save Microsoft Office documents as PDF documents, which competes with...

  • Page 31
    ... customers that use Acrobat as part of document collaboration and document process management solutions, where electronic document delivery, exchange, collaboration, security and archival needs exist, our Acrobat product family faces competition from entrenched office applications such as Microsoft...

  • Page 32
    ... has added Office Forms Services which extends their forms to users as MS Outlook e-mail messages or to web browsers rather than the InfoPath client. They also continue to offer their Windows Rights Management Services in their Windows Server product which is designed to allow corporate networks to...

  • Page 33
    ...OEM and hardware bundle customers. We also market and license our products directly using our sales force and through our own website at www.adobe.com. We support our end users through local field offices and our worldwide distribution network, which includes locations in Australia, Austria, Belgium...

  • Page 34
    ... that can help deploy Adobe solutions. This approach not only creates value for our customers and partners, but also creates a large and productive go-to-market channel for our sales teams. Support A significant portion of our support revenue is composed of our extended enterprise maintenance and...

  • Page 35
    ... fee-based incidents to annual support contracts. Additionally, we provide extensive self-help and online technical support capabilities via the web which allows customers quick and easy access to possible solutions. As a registered owner of the current version of an Adobe desktop product, customers...

  • Page 36
    Table of Contents (2) We also offer products under a SaaS or on-demand model, where hosted software is provided on demand to customers, generally through a web browser. The use of these products is generally governed by terms of use associated with these products. Policing unauthorized use of ...

  • Page 37
    ...founded and was VP of Engineering at iHarvest, a content management company that was acquired by Interwoven and worked at Oracle in their database tools division. Richard T. Rowley 56 Vice President, Corporate Controller and Principal Accounting Officer Mr. Rowley joined Adobe in November 2006 as...

  • Page 38
    ...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 methods and other...

  • Page 39
    .... Subscription pricing allows customers to use our products at a lower initial cost when compared to the sale of a perpetual license. Although the subscription model is designed to increase the number of customers who purchase our products and services and create a recurring revenue stream that...

  • Page 40
    ... subscription sales model could result in decreased revenues over the short term if they are offset by a decline in sales from perpetual license customers. Additionally, in connection with our sales efforts to enterprise customers and our introduction of enterprise term license agreements, a number...

  • Page 41
    ... from terminated employees, customers, former stockholders or other third parties; incurring significant exit charges if products or services acquired in business combinations are unsuccessful; potential inability to assert that internal controls over financial reporting are effective; potential...

  • Page 42
    ... could disrupt our business and expose us to increased liability. On behalf of certain of our customers using some of our services, we collect and store information derived from the activities of website visitors, which may include anonymous and/or personal information. This enables us to provide...

  • Page 43
    ... of business and services, including our online store at adobe.com, our Creative Cloud offering, our hosted Digital Media offerings and our Adobe Marketing Cloud offerings, rely on services hosted and controlled directly by us or by third parties. Because we hold large amounts of customer data, some...

  • Page 44
    ...we could lose customers. 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 one distributor...

  • Page 45
    ... 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 third-party data center...

  • Page 46
    ...effect on our business. As a global business that generates approximately 50% of our total revenue from sales to customers outside of the Americas, we are subject to a number of risks, including foreign currency fluctuations; changes in government preferences for software procurement; international...

  • Page 47
    ... SEC and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. For example, the U.S.-based Financial Accounting Standards...

  • Page 48
    ..., our business may be harmed. Effective succession planning is also a key factor for our long-term success. Our failure to enable the effective transfer of knowledge and facilitate smooth transitions with regards to our key employees could adversely affect our long-term strategic planning and...

  • Page 49
    ... properties used by Adobe during fiscal 2012. We lease or sublease all of these properties with the exception of our property in Noida, India where we own the building and lease the land, our corporate offices in San Jose where we own the land and lease the buildings, and in San Francisco on...

  • Page 50
    ... Contents Location Approximate Square Footage Use...Research and product development 71,000 Research and product development 49,000 Product development, sales, marketing and administration 36,000 Research and product development...business and are operating at an average capacity of approximately...

  • Page 51
    ... liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or...

  • Page 52
    ... number of stockholders represented by these record holders. Dividends We did not declare or pay any cash dividends on our common stock during fiscal 2012 or fiscal 2011. Under the terms of our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless payment...

  • Page 53
    ... a summary of stock repurchases for the three months ended November 30, 2012. See Note 13 of our Notes to Consolidated Financial Statements for information regarding our stock repurchase programs. Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value that May...

  • Page 54
    Table of Contents ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data (presented in thousands, except per share amounts and employee data) is derived from our consolidated financial statements. As our operating results are not necessarily indicative of future operating...

  • Page 55
    ...systems, devices and media. We market and license our software directly to enterprise customers through our sales force and to end users through app stores and our own website at www.adobe.com. We also distribute our products through a network of distributors, value-added resellers ("VARs"), systems...

  • Page 56
    .... Revenue Recognition Our revenue is derived from the licensing of perpetual and time-based software products, associated software maintenance and support plans, non-software related hosting services, consulting services, training and technical support. We recognize revenue when all four revenue...

  • Page 57
    ... cost for fiscal 2012 and are expected to have a material impact to stock-based compensation cost until the majority of stock options are fully vested. We currently use the Black-Scholes option pricing model to determine the fair value of employee stock purchase plan ("ESPP") shares. This fair value...

  • Page 58
    ... to future expected cash flows from software license sales, subscriptions, support agreements, consulting contracts and acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the...

  • Page 59
    ... to market and license a broad portfolio of products and solutions. In May 2012, we launched Adobe Creative Suite 6 ("CS6") which is at the center of Adobe Creative Cloud, our new subscription-based offering for creating and publishing content and applications that was also released in May 2012. The...

  • Page 60
    ... define ARR as the sum of: • • the number of paid, active subscribers, multiplied by the average subscription price paid per user per month, multiplied by twelve months; plus, twelve months of contract value of Enterprise Term License Agreements ("ETLAs") where the revenue is ratably recognized...

  • Page 61
    ...• Digital Media-Our Digital Media segment provides tools and solutions that enable individuals, small businesses and enterprises to create, publish, promote and monetize their digital content anywhere. Our customers include traditional content creators, web application developers and digital media...

  • Page 62
    ...Suite editions and CS point products as well as the recently released Creative Cloud, decreased slightly during fiscal 2012 as compared to fiscal 2011 due to higher than expected customer adoption of Creative Cloud and point product subscriptions. We anticipate accelerated adoption of Creative Cloud...

  • Page 63
    ...to strong adoption of our Acrobat X product, which was released in the fourth quarter of fiscal 2010. During fiscal 2011 as compared to fiscal 2010, unit average selling prices for Document Services increased and the number of units licensed remained relatively stable. Digital Marketing Revenue from...

  • Page 64
    ...to be insignificant in future periods. Cost of Revenue (dollars in millions) Fiscal 2012 Fiscal 2011 Fiscal 2010 % Change 2012-2011 % Change 2011-2010 Product ...$ Percentage of total revenue...Subscription ...Percentage of total revenue...Services and support ...Percentage of total revenue...Total...

  • Page 65
    ... related expenses of network operations, implementation, account management and technical support personnel, amortization of intangible assets and allocated overhead. We enter into contracts with third-parties for the use of their data center facilities and our data center costs largely consist of...

  • Page 66
    ... supply chain management personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. Sales and marketing expenses increased due to the following: % Change 2012-2011...

  • Page 67
    ... for further information regarding our restructuring plans. Amortization of Purchased Intangibles During the last several years, we have completed a number of business combinations and asset acquisitions including Macromedia in fiscal 2006, Omniture in fiscal 2009, Day in fiscal 2010, eight smaller...

  • Page 68
    ...) related to our direct and indirect investments in privately held companies ...$ Gains from sale of marketable equity securities...Write-downs due to other-than-temporary declines in value of our marketable equity securities...Net gains related to our trading securities ...Total investment gains...

  • Page 69
    ... related to the expiration of the U.S. research and development credit, as well as tax benefits associated with a favorable state income tax ruling and tax costs associated with licensing acquired company assets to Adobe's trading companies. Our effective tax rate increased by approximately two...

  • Page 70
    ...in activity for both upgrade plans with support and site and term licenses largely associated with our Digital Media and Digital Marketing enterprise license agreements. The decrease in trade receivables is primarily related to an increase in revenue linearity and improved collections in our Digital...

  • Page 71
    ... 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 program and to strategically acquire companies, products or technologies that are complementary to our business...

  • Page 72
    ...during fiscal 2012. The fixed income portfolio is primarily invested in corporate bonds and commercial paper, foreign government securities, money market mutual funds and repurchase agreements, municipal securities, U.S. agency securities and U.S. Treasury securities. Stock Repurchase Program During...

  • Page 73
    ... shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock...

  • Page 74
    ... or cash in the coming fiscal year or restrict our ability to execute our business plan. Our Notes do not contain any financial covenants. Under the terms of our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless payment would trigger an event of default...

  • Page 75
    ... forward exchange contracts which hedged our balance sheet exposures and purchased put option contracts which hedged our forecasted revenue. As of November 30, 2012, all contracts were set to expire at various times through June 2013. The bank counterparties in these contracts expose us to credit...

  • Page 76
    ... 30, 2012. 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 77
    ...and accuracy of the data received from these companies. Marketable Equity Securities We have immaterial exposure to equity price risk on our portfolio of marketable equity securities. As of November 30, 2012, our total equity holdings in publicly traded companies were valued at $0.2 million compared...

  • Page 78
    Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Consolidated ... Registered Public Accounting Firm... 79 80 81 82 83 122 All financial statement schedules have been omitted, since the required information is not applicable or...

  • Page 79
    Table of Contents ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) November 30, 2012 December 2, 2011 ASSETS Current assets: Cash and cash equivalents...$ Short-term investments ...Trade receivables, net of allowances for doubtful accounts of $12,643 and $15,...

  • Page 80
    ... of Contents ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Years Ended November 30, 2012 December 2, 2011 December 3, 2010 Revenue: Products ...$ Subscription ...Services and support ...Total revenue...Cost of revenue: Products ...Subscription...

  • Page 81
    ... of treasury stock under stock compensation plans...Tax benefit (detriment) from employee stock plans ...Purchase of treasury stock ...Equity awards assumed for acquisition ...Stock-based compensation...Value of shares in deferred compensation plan ...Balances at November 30, 2012 ... 600,834...

  • Page 82
    Table of Contents ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended November 30, 2012 December 2, 2011 December 3, 2010 Cash flows from operating activities: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: ...

  • Page 83
    ...systems, devices and media. We market and license our software directly to enterprise customers through our sales force and to end users through app stores and our own website at www.adobe.com. We also distribute our products through a network of distributors, value-added resellers ("VARs"), systems...

  • Page 84
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Multiple Element Arrangements We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades, maintenance and support, hosting services, and ...

  • Page 85
    ..., resellers and/or end-user customers. We estimate and record reserves for these programs as an offset to revenue and accounts receivable. Below is a summary of each of the general provisions in our contracts: • • Distributors are allowed limited rights of return of products purchased during...

  • Page 86
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Although our subscription contracts are generally non-cancelable, a limited number of customers have the right to cancel their contracts by providing prior written notice to us of their intent to ...

  • Page 87
    ...date, software development costs incurred between completion of a working prototype and general availability of the related product have not been material. Internal Use Software We capitalize costs associated with customized internal-use software systems that have reached the application development...

  • Page 88
    ... in our Consolidated Statements of Income. Foreign exchange forward and option contracts hedging forecasted non-functional currency product licensing revenue, are designated as cash flow hedges under accounting for derivative instruments and hedging activities, with gains and losses recorded net of...

  • Page 89
    ... on the resale of the product or on the collection of payments from their customers. We also purchase credit insurance to mitigate credit risk in some foreign markets where we believe it is warranted. If we license our software or provide SaaS services to a customer where we have a reason to...

  • Page 90
    ... completed our acquisition of Day Software Holding AG ("Day"), a provider of web content management solutions that many leading global enterprises rely on for Web 2.0 content application and content infrastructure. Day was based in Basel, Switzerland and Boston, Massachusetts. Following the closing...

  • Page 91
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash, cash equivalents and short-term investments consisted of the following as of November 30, 2012 (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current ...

  • Page 92
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash, cash equivalents and short-term investments consisted of the following as of December 2, 2011 (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current ...

  • Page 93
    ...The following table summarizes the cost and estimated fair value of short-term fixed income securities classified as shortterm investments based on stated effective maturities as of November 30, 2012 (in thousands): Amortized Cost Estimated Fair Value Due within one year...$ Due between one and two...

  • Page 94
    ...of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of our financial assets and liabilities at November 30, 2012 was determined using the following inputs (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices in Active...

  • Page 95
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of our financial assets and liabilities at December 2, 2011 was determined using the following inputs (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices in Active...

  • Page 96
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis We also have direct investments in privately held companies accounted for under the cost method, which are periodically assessed ...

  • Page 97
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) intended to offset gains and losses on the assets and liabilities being hedged. As of November 30, 2012, total notional amounts of outstanding contracts were $422.9 million which included the ...

  • Page 98
    ... by reportable segment and activity for the years ended November 30, 2012 and December 2, 2011 was as follows (in thousands): 2010 Acquisitions Other (1) 2011 Acquisitions Other (2) 2012 Digital Media...$1,799,514 Digital Marketing ...1,583,738 Print and Publishing ...258,592 Goodwill...$3,641...

  • Page 99
    ... December 2, 2011 were as follows (in thousands): 2012 Cost Accumulated Amortization Net Cost 2011 Accumulated Amortization Net Purchased technology...Customer contracts and relationships...Trademarks...Acquired rights to use technology...Localization ...Other intangibles ...Total other intangible...

  • Page 100
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. ACCRUED EXPENSES Accrued expenses as of November 30, 2012 and December 2, 2011 consisted of the following (in thousands): 2012 2011 Accrued compensation and benefits ...$ Sales and marketing...

  • Page 101
    ...tax expense, net of federal benefit ...11,320 8,436 13,444 (1,226) (30,283) (1,317) Tax credits...(122,999) (135,178) (129,063) Differences between statutory rate and foreign effective tax rate ...(2,144) (493) Change in deferred tax asset valuation allowance...1,408 Stock-based compensation (net of...

  • Page 102
    ... credits are subject 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 $45.0 million which have not been recorded in the financial statements pursuant to accounting standards...

  • Page 103
    ... better align our resources around our Digital Media and Digital Marketing strategies. During fiscal 2012, we continued to implement restructuring activities under this plan. We vacated approximately 64,000 square feet of sales and/or research and development facilities in Canada, the Czech Republic...

  • Page 104
    ..., performance-based and time-based restricted stock units, and directors' fees. Participants are able to elect the payment of benefits to begin on a specified date at least three years after the end of the plan year in which the election is made in the form of a lump sum or annual installments...

  • Page 105
    ... We use the Black-Scholes option pricing model to determine the fair value of stock options and ESPP shares. The determination of the fair value of stockbased 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...

  • Page 106
    ... 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: Fiscal Years 2012 2011 2010 Expected life (in years) ...Volatility...Risk free interest rate ... 0.5 - 2.0 30...

  • Page 107
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summary of Stock Options Option activity under our stock option program for fiscal years ended 2012, 2011 and 2010 was as follows (shares in thousands): Outstanding Options Weighted Average Exercise Price...

  • Page 108
    .... All stock options granted 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...

  • Page 109
    ... Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Information regarding restricted stock units outstanding at November 30, 2012, December 2, 2011 and December 3, 2010 is summarized below: Weighted Average Remaining Contractual Life (years) Number of Shares...

  • Page 110
    ... a non-employee director can elect to receive 100% options, 100% restricted stock units or 50% of each and shall have an aggregate value of $0.2 million as based on the average stock price over the 30 calendar days ending on the day before the date of grant. The target grant value converted to stock...

  • Page 111
    ... the fiscal years ended November 30, 2012, December 2, 2011 and December 3, 2010 were as follows (in thousands): Income Statement Classifications Cost of Revenue- Subscription Option Grants and Stock Purchase Rights Cost of Revenue- Services and Support Research and Development Sales and Marketing...

  • Page 112
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 13. STOCKHOLDERS' EQUITY Comprehensive Income The following table sets forth the activity for each component of comprehensive income, net of related taxes, for fiscal 2012, 2011 and 2010 (in ...

  • Page 113
    ... shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock...

  • Page 114
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Subsequent to November 30, 2012, as part of our $2.0 billion stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided...

  • Page 115
    ... ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) $126.8 million and $89.4 million, respectively. If we purchase the properties, the investments in the lease receivables may be credited against the purchase price. These two leases are both subject to standard...

  • Page 116
    ... liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or...

  • Page 117
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software Alliance, from time to time we undertake litigation against alleged ...

  • Page 118
    ... segments. Effective in the first quarter of fiscal 2012, we modified our segments due to changes in how we operate our business. We combined our Creative and Interactive Solutions segment with our Digital Media Solutions segment and our Knowledge Worker segment, and named it Digital Media. We...

  • Page 119
    ...• Digital Media-Our Digital Media segment provides tools and solutions that enable individuals, small businesses and enterprises to create, publish, promote and monetize their digital content anywhere. Our customers include traditional content creators, web application developers and digital media...

  • Page 120
    Table of Contents 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 2012, 2011 and 2010 (in thousands). With the exception of property and equipment, we do not identify ...

  • Page 121
    ... program. On December 20, 2012, we acquired privately held Behance, an online social media platform to showcase and discover creative work, for approximately $130.0 million in merger consideration, including cash and the assumption of certain employee equity awards. The initial purchase accounting...

  • Page 122
    ... flows for each of the years in the three-year period ended November 30, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Adobe Systems Incorporated maintained, in all material respects, effective internal control over financial reporting as of November...

  • Page 123
    ... 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 this Item 10 of Form 10-K that is found in our 2013 Proxy Statement to be filed with the SEC in connection with...

  • Page 124
    ... by reference to our 2013 Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item 14 of Form 10-K is incorporated by reference to our 2013 Proxy Statement. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. 2. Financial Statements. See...

  • Page 125
    ... 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, 2013. ADOBE SYSTEMS INCORPORATED By: /s/ MARK GARRETT Mark Garrett Executive Vice President and Chief Financial Officer (Principal...

  • Page 126
    Table of Contents Signature Title Date /s/ ROBERT K. BURGESS Robert K. Burgess /s/ FRANK CALDERONI Frank Calderoni /s/ MICHAEL R. CANNON Michael R. Cannon /s/ JAMES E. DALEY James E. Daley /s/ LAURA DESMOND Laura Desmond /s/ DANIEL L. ROSENSWEIG ...

  • Page 127
    ... Adobe Type Manager After Effects AIR Auditude Authorware BusinessCatalyst Captivate ColdFusion ColdFusion Builder Contribute Creative Cloud Creative Suite CRX Director Dreamweaver EchoSign Encore Fireworks Flash Flash Builder Font Folio FrameMaker FreeHand Illustrator InCopy InDesign JRun Lightroom...

  • Page 128
    Table of Contents SUMMARY OF TRADEMARKS (Continued) SpeedGrade Test&Target Typekit Visual Communicator All other trademarks are the property of their respective owners. 128

  • Page 129
    ... setting forth the terms of the Notes 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 Plan, as amended* 1996 Outside Directors Stock Option Plan...

  • Page 130
    ... Master Amendment No. 2 among Adobe Systems Incorporated, Selco Service Corporation and KeyBank National Association dated October 31, 2011 Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* Form of Restricted Stock Unit Agreement...

  • Page 131
    ... 10.1 10.38 Purchase and Sale Agreement, by and between NP Normandy Overlook, LLC, as Seller and Adobe Systems Incorporated as Buyer, effective as of May 12, 2008 Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* Form of Director Initial...

  • Page 132
    ... Date Number Filed Herewith 10.41 Form of Director Annual Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* 2009 Executive Annual Incentive Plan* Omniture, Inc. 1999 Equity Incentive Plan, as amended (the "Omniture 1999 Plan")* Forms of Stock Option Agreement...

  • Page 133
    ... Plan* Fiscal Year 2010 Executive Annual Incentive Plan* Day Software Holding AG International Stock Option/Stock Issuance Plan* Day Interactive Holding AG U.S. Stock Option/ Stock Issuance Plan* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement used in connection...

  • Page 134
    Table of Contents Incorporated by Reference** Exhibit Number Exhibit Description Form Date Number Filed Herewith 10.73 Adobe Systems Incorporated 2011 Executive Severance Plan in the Event of a Change of Control* Award Calculation Methodology to the 2012 Performance Share Program pursuant to the ...

  • Page 135
    ..., 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 under the Securities Act of 1933, as...

  • Page 136
    ... 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 30, 2012. The stock price information shown on the graph...