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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
________________
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 2, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number: 0-15175
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 77-0019522
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices and zip code)
(408) 536-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X] 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 [X]
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 [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as
defined in Rule 12b-2 of the Act). Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
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 3, 2005, the last business day of the registrant’s most recently completed second fiscal quarter, was
$14,128,765,011 (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 27, 2006, 599,810,697 shares of the registrant’s
common stock, $.0001 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2006 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120
days of the end of the fiscal year ended December 2, 2005, 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) 77-0019522 (I.R.S. Employer Identification No.) 345 Park Avenue, San Jose, California 95110-2704 (Address of...

  • Page 2
    ... About Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ...Controls and Procedures...Other Information...Business ...Risk Factors...Unresolved Staff Comments ...Properties ...Legal Proceedings...

  • Page 3
    ... powerful graphic design, publishing, animation and imaging software for print, Web and video production and by delivering ubiquitous platforms, we help people express, share, manage and collaborate on their ideas in imaginative and meaningful new ways. For businesses, we provide solutions to...

  • Page 4
    ... Creative Professional software application products (Illustrator, InCopy, InDesign and GoLive, as well as Photoshop from our Digital Imaging and Video business segment) in the second quarter. These new releases combined to achieve record Creative Suite and Creative Professional revenue for Adobe...

  • Page 5
    ...workgroups to manage a range of essential business activities such as assembling documents from multiple sources, creating intelligent forms and more securely collaborating on projects. In addition, the new Acrobat 7.0 family of products offers new functionality to address specific customer workflow...

  • Page 6
    ...who work in advertising, Web design, music, entertainment, corporate and marketing communications, product design, user interface design, sales training, printing, architecture, and fine arts. As technology continues to improve, the market dynamics for these creative professionals continue to evolve...

  • Page 7
    ... file management and integration technology called Version Cue and a new navigational control center called Adobe Bridge. Adobe Creative Suite Standard Edition - an integrated software solution that creative professionals can use as a platform to modify and enhance digital images, create graphics...

  • Page 8
    ... beta version software that addresses the unique photography workflow needs of professional photographers; enables users to easily import, develop, enhance, and showcase large volumes of digital images. Adobe Photoshop - provides photo design, enhancement and editing capabilities for print, the Web...

  • Page 9
    ... Creative Suite 2 features for timesaving workflow features such as Adobe Dynamic Link and Adobe Bridge. Macromedia Dreamweaver - a professional software development application used by designers and developers to create a broad range of Web solutions for publishing online commerce, customer service...

  • Page 10
    ... application source type. Users can collaborate on documents with electronic comments and tailor the security of a file in order to distribute reliable Adobe PDF documents. We offer three versions of Acrobat to meet the needs of our customers: • Acrobat Elements ― a low-cost version of Acrobat...

  • Page 11
    ... via email, Web, or fax; allows users to preview their documents on-screen, crop or rotate pages, and add electronic annotations. Adobe Acrobat Standard - creates secure, reliable and compact Adobe PDF files from desktop authoring applications such as Microsoft Office software, graphics applications...

  • Page 12
    ... Adobe Reader LE which will provide the ability for viewing of, and interaction with, PDF-based content. Mobile and Device Solutions Products Adobe Reader LE - a version of the Adobe Reader specifically developed for mobile phones that renders PDF documents on small-sized devices. Macromedia Flash...

  • Page 13
    ... and business process requirements. Our Enterprise and Developer Solutions currently offer several families of products that we market to these customers: • Adobe LiveCycle - provides document services to automate paper-based processes, leveraging the ubiquitous Adobe Reader for viewing, printing...

  • Page 14
    ...are sets of technologies that create, integrate and manage intelligent documents, and leverage the use of our Adobe Reader software for our customers' constituents to interact with data within the document. Document services that we currently provide include: • Document generation - enables users...

  • Page 15
    ... checks for delivery via Adobe PDF, the Web, e-mail, fax, or print; works with Adobe Output Designer, which is a companion tool used to create sophisticated document templates. Adobe Document Server - a server-based software application for the creation, manipulation and assembly of customized Adobe...

  • Page 16
    ... to digitally sign and certify PDF files, validate digital signatures, and encrypt/decrypt PDF documents; safeguards information when it leaves a company's network and integrates with existing public key infrastructures. Adobe LiveCycle Policy Server - a server-based software application that helps...

  • Page 17
    ... of providing a single ubiquitous Adobe Engagement Platform solution that combines Adobe Reader and Flash Player capabilities. Platform Products Adobe Reader ― software for reliable reviewing and printing of Adobe PDF files on a variety of hardware and operating system platforms; when used with...

  • Page 18
    ..., technical manuals and reports; provides users a way to publish their content to multiple output formats, including print, Adobe PDF, HTML, XML and Microsoft Word. Adobe PageMaker - software used to create high-quality documents simply and reliably with robust page layout tools, templates and stock...

  • Page 19
    ...to deploy applications for functions such as online banking and customer service. Macromedia RoboHelp - an authoring tool used by developers and technical writers to create professional help systems and documentation for desktop and Web-based applications; utilizes support for XML, PDF import/export...

  • Page 20
    ... and Adobe GoLive products. Microsoft's new operating system, Windows Vista, which is expected to ship in late 2006, will also include some features in its Presentation Foundation that will compete with Macromedia Flash. We believe our Adobe Creative Suite products and our Macromedia Studio product...

  • Page 21
    ... in late 2006. Windows Vista will include a proprietary digital rights management technology and a new document format, called XML Paper Specification ("XPS"), which will compete with Adobe PDF. In addition, Microsoft has announced that the next version of its widely used Office product, which also...

  • Page 22
    ...cost, or for free, on the Web. For customers that use Adobe Acrobat Standard and Adobe Acrobat Professional as part of document collaboration and document process management solutions, where electronic document delivery, exchange, collaboration, security and archival needs exist, our Acrobat product...

  • Page 23
    ... Information File Format ("TIFF") and various XML-based formats for electronic document distribution provide alternate solutions to customers, and indirectly compete with our enterprise server products and the use of Adobe PDF. Our Macromedia Flex server product provides a solution for Java, C++ and...

  • Page 24
    expected to ship in late 2006. Windows Vista will include a new document format called XPS, which will compete with Adobe PDF. Certain aspects of XPS may also compete with our Adobe PostScript technologies and solutions. In e-learning content authoring, our Authorware product faces competition from ...

  • Page 25
    ..., creative professionals and business users. Our service and support revenue consists primarily of consulting fees, software maintenance and support fees, and training fees. Services We have a global Adobe Consulting team dedicated to developing and implementing solutions for enterprise customers in...

  • Page 26
    ... to provide Adobe products and services. The partnerships are managed by Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures. We intend to continue investing in new technologies. PRODUCT DEVELOPMENT Since the personal computer and enterprise software...

  • Page 27
    ... Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our Investor Relations Web site at www.adobe.com as soon as reasonably practicable after we electronically file...

  • Page 28
    ... was promoted to President and Chief Operating Officer of Adobe. 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. and held various senior manager positions at...

  • Page 29
    ... of product and service offerings where we have a limited operating history. This makes it difficult to predict revenues. For example, we intend to expand the use of our Mobile and Device Solutions by licensing our products for use in mobile phones, settop boxes, game devices, personal digital...

  • Page 30
    ... and other malicious software programs that attack our products. Nevertheless, actual or perceived security vulnerabilities in our products could harm our reputation and lead some customers to seek to return products, to reduce or delay future purchases, to use competitive products or to make claims...

  • Page 31
    ... in our product development and loss of critical data and could prevent us from fulfilling our customers' orders. Our corporate headquarters, a significant portion of our research and development activities, and certain other critical business operations are located in San Jose, California, which is...

  • Page 32
    ...we periodically provide operating model targets. These targets reflect a number of assumptions, including assumptions about product pricing and demand, economic and seasonal trends, manufacturing costs and volumes, the mix of shrink-wrap and licensing revenue, full and upgrade products, distribution...

  • Page 33
    • accounting for business combinations and related goodwill In particular, the FASB recently issued SFAS 123R which requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in ...

  • Page 34
    ... applicable) for all facilities, excluding those assumed in the acquisition of Macromedia, is currently approximately $49.7 million and is subject to annual adjustments as well as changes in interest rates. Approximate Square Footage Location North America: 345 Park Avenue San Jose, California, USA...

  • Page 35
    ... B. Dufresne filed suit against Adobe, Microsoft Corporation, Macromedia, Inc. and Trellix Corporation in the U.S. District Court, District of Massachusetts, alleging infringement of U.S. Patent No. 5,835,712, entitled "Client-Server System Using Embedded Hypertext Tags for Application and Database...

  • Page 36
    ... high and low sales price per share of our common stock and the cash dividends paid per share, for the periods indicated. All per share amounts in the following table have been adjusted to reflect the two-for-one stock split in the form of a stock dividend effected May 23, 2005. Price Range High Low...

  • Page 37
    ... information regarding our stock repurchase programs. Average Price Per Share Maximum Number of Shares that May Yet be Purchased Plan/Period Stock Repurchase Program I Beginning shares available to be repurchased as of September 2, 2005 September 3 - 30, 2005 From employees(2) October 1 - 28, 2005...

  • Page 38
    ... this document. ACQUISITION OF MACROMEDIA On December 3, 2005, we completed the acquisition of Macromedia for approximately $3.4 billion. We expect the acquisition to have a significant impact on our consolidated financial position, results of operations and cash flows. We expect our revenues, cost...

  • Page 39
    ... of creative, business and mobile software and services used by high-end consumers, creative professionals, designers, knowledge workers, OEM partners, developers and enterprises for creating, managing, delivering and engaging with compelling content and experiences across multiple operating systems...

  • Page 40
    ... the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of income. In April 2005, the SEC announced that the accounting provisions of SFAS 123R...

  • Page 41
    ..., professional Web page layout, graphic and illustration creation, technical document publishing and business publishing. Additionally, this segment includes Photoshop and Acrobat Professional as part of its Adobe Creative Suite products. The Intelligent Document segment provides electronic document...

  • Page 42
    ... in revenues from our digital imaging software products as a result of new releases of our Adobe Photoshop Elements product as well as the new software bundle that combines our Adobe Photoshop Elements and Adobe Premiere Elements products. Revenue from our Creative Professional segment increased...

  • Page 43
    by decreases in revenues in our business and technical page layout software products due to product lifecycle timing. Revenue from our Intelligent Document segment increased during fiscal 2004 as compared to fiscal 2003 primarily due to a 17% increase in revenues from our Acrobat desktop products as...

  • Page 44
    ... a decrease in overall material costs. Services and Support Cost of services and support revenue is composed primarily of employee-related costs and related costs incurred to provide consulting services, training and product support. Cost of services and support revenue increased during fiscal 2005...

  • Page 45
    ... for our sales, marketing, customer support, order management and global 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...

  • Page 46
    ... and accounting fees, provision for bad debts, and expenses associated with computer equipment and software used in the administration of the business. General and administrative expenses fluctuated due to the following: % Change % Change 2005 to 2004 2004 to 2003 Compensation and related benefits...

  • Page 47
    ... by our international trading company which are taxed at a lower statutory rate. EMPLOYEE AND DIRECTOR STOCK OPTIONS Option Program Description Our stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and...

  • Page 48
    ... than 1%. * For additional information about our employee stock option plan activity and pro forma earnings presentation as if we had accounted for our grant of employee stock options using the fair value method of accounting under Statement of Financial Accounting Standards No. 123 ("SFAS No. 123...

  • Page 49
    ...,354 The following table sets forth a comparison, as of December 2, 2005, of the number of shares subject to our options whose exercise prices were at or below the closing price of our common stock on December 2, 2005 ("Inthe-Money" options) to the number of shares subject to options whose exercise...

  • Page 50
    ... revenue. The primary uses of cash are payroll (salaries, bonuses, and benefits), general operating expenses (marketing, travel, office rent) and cost of product revenue. Another source of cash is proceeds from the exercise of employee options and another use of cash is our stock repurchase program...

  • Page 51
    ... and purchases of computer systems for research and development, sales and marketing, product support, and administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase programs and strategically acquire software companies, products or technologies that...

  • Page 52
    ... cash generated from operations will be sufficient to meet these cash outlays. Stock Repurchase Program I - On-going Dilution Coverage To facilitate our stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we repurchase shares in the open...

  • Page 53
    ...58.4 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 these indemnification provisions have not...

  • Page 54
    ... long term investment exposures. Economic Hedging - Hedges of Forecasted Transactions We use option foreign exchange contracts to hedge certain operational ("cash flow") exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, may...

  • Page 55
    ... the effects of changes in foreign exchange rates. As a general rule, we do not use financial instruments to hedge local currency denominated operating expenses in countries where a natural hedge exists. For example, in many countries revenue from the local currency product licenses substantially...

  • Page 56
    ... whether or not each security has experienced an other-than-temporary decline in fair value. Our policy includes, but is not limited to, reviewing each company's cash position, earnings/revenue outlook, stock price performance over the past six months, liquidity and management/ownership. If we...

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

  • Page 58
    ... controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were sufficiently effective to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported...

  • Page 59
    ...express an opinion on management's assessment and an opinion on the effectiveness of the internal control over financial reporting of Adobe Systems Incorporated based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States...

  • Page 60
    ... regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements...

  • Page 61
    ...section of our Proxy Statement here by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER ...ACCOUNTING FEES AND SERVICES You will find this information in the section captioned "Principal Accounting Fees and Services," in the Proxy Statement...

  • Page 62
    ...ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Page (a) Documents filed as part of this report 1. Financial statements • • Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets December 2, 2005 and December 3, 2004 Consolidated Statements of Income Years Ended...

  • Page 63
    ... conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Adobe Systems Incorporated's internal control over financial reporting as of December 2, 2005...

  • Page 64
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) December 2, 2005 ASSETS Current assets: Cash and cash equivalents ...Short-term investments...Trade receivables, net of allowances for doubtful accounts of $5,376 and $6,191, respectively ...Other ...

  • Page 65
    ... INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Years Ended December 3, 2004 December 2, 2005 Revenue: Products...Services and support...Total revenue ...Costs of revenue: Products...Services and support...Total cost of revenue...Gross profit ...Operating...

  • Page 66
    ...Other comprehensive loss, net of taxes ...Total comprehensive income, net of taxes ...Tax benefit from employee stock option plans...Issuance of compensatory stock...Dividends declared...Purchase of treasury stock...Re-issuance of treasury stock under employee stock purchase and stock option plans...

  • Page 67
    ... ...Tax benefit from employee stock option plans ...Retirements of property and equipment...Net (gains) losses on sales and impairments of investments...Non-cash restructuring and other charges...Changes in operating assets and liabilities: Receivables ...Other current assets ...Trade and other...

  • Page 68
    ... share data) Note 1. Significant Accounting Policies Operations Founded in 1982, Adobe Systems Incorporated offers a line of creative, business and mobile software and services used by high-end consumers, creative professionals, designers, knowledge workers, OEM partners, developers and enterprises...

  • Page 69
    ... or not any security has experienced an other-than-temporary decline in fair value. Our policy includes, but is not limited to, reviewing the cash position, earnings/revenue outlook, stock price performance over the past six months, liquidity and management/ownership of each company we invest in...

  • Page 70
    ...equity securities at estimated fair market value and unrealized gains and losses are included in investment gain (loss) on our consolidated statements of income. The stock of a number of technology investments held by Adobe Ventures at December 2, 2005 and December 3, 2004 is not publicly traded and...

  • Page 71
    ... returns, inventory levels in the distribution channel and other related factors. We record the estimated costs of providing free technical phone support to customers for our software products. We record OEM licensing revenue, primarily royalties, when OEM partners ship products incorporating Adobe...

  • Page 72
    Stock-Based Incentive Compensation We account for our fixed stock option plans and our employee stock purchase plan under APB 25, using the intrinsic value method. The following table sets forth the pro forma amounts of net income and net income per share that would have resulted if we had accounted...

  • Page 73
    ... income (expense) in the consolidated statements of operations. Forward foreign exchange contracts hedging forecasted non-functional currency denominated forecasted product licensing revenue, are designated as cash flow hedges under SFAS 133, with gains and losses recorded net of tax, as a component...

  • Page 74
    ... process management with core applications. Goodwill was allocated to our Intelligent Document segment. Purchased technology is being amortized to cost of product revenue over its estimated useful life of three years. The consolidated financial statements include the operating results of Q-Link...

  • Page 75
    ... securities. Cash, cash equivalents and short-term investments consisted of the following as of December 3, 2004: Carrying Value Classified as current assets: Cash...$ Cash equivalents: Money market mutual funds ...Bank time deposits...United States Treasury notes...Corporate bonds ...Total cash...

  • Page 76
    ...for our policy on recording other-than-temporary declines in our marketable equity securities. We recognize realized gains and losses upon sale of investments using the specific identification method. See Note 6 for net realized gains from the sale of our short-term investments and losses related to...

  • Page 77
    ..."GoLive") and Inscriber Technology Corporation. As required by SFAS 142, we have allocated goodwill to our reportable segments. Below is our goodwill reported by segment as of December 2, 2005 and December 3, 2004: 2005 Digital Imaging and Video ...$ 14,112 Creative Professional ...4,650 Intelligent...

  • Page 78
    ... and 2003. 2005 Net losses related to our investments in Adobe Ventures and cost method investments...$ (1,021) Write-downs due to other-than-temporary declines in value of our marketable equity securities ...(558) Gains from sale of short-term investments ...104 Gains on stock warrants ...153 Other...

  • Page 79
    ...for fiscal 2005, 2004 and 2003: 2005 Current: United States federal...Foreign ...State and local ...Total current...Deferred: United States federal...Foreign ...State and local ...Total deferred ...Charge in lieu of taxes attributable to employee stock plans...$ 63,932 18,550 4,671 87,153 (7,653) 93...

  • Page 80
    ...193,484 Add: Current year liability ...87,153 15,135 Less: Payments and reclassifications...(78,537) (62,706) Ending balance...$ 154,529 $ 145,913 Note 9. Benefit Plans Pretax Savings Plan In 1987, we adopted an Employee Investment Plan, qualified under Section 401(k) of the Internal Revenue Code...

  • Page 81
    ... in the rules applicable to issuers traded on the Nasdaq Stock Market. The Directors Plan provides for the granting of nonqualified stock options to non-employee directors. Option grants are limited to 25,000 shares per person in each fiscal year, except for a new non-employee director to whom...

  • Page 82
    ... and Restricted Stock Plan ("the Restricted Stock Plan") provides for the granting of restricted stock and/or performance awards to officers and key employees. As of December 2, 2005, we had reserved 16.0 million shares of our common stock for issuance under the Plan. Restricted shares issued under...

  • Page 83
    ...each offering period. Employees purchase shares in each purchase period at 85% of the market value of our common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower. As of December 2, 2005, we had reserved 76.0 million shares of our common...

  • Page 84
    ... to certain business and cash flow requirements. We have not made any purchases under this 10.0 million share repurchase program. The authorization for this program expired in September 2005. Note 12. Comprehensive Income Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting...

  • Page 85
    ... 2, 2005, December 3, 2004 and November 28, 2003, options to purchase approximately 11.6 million, 14.0 million and 33.4 million shares, respectively, of common stock with exercise prices greater than the annual average fair market value of our stock of $30.33, $22.23 and $16.98, respectively, were...

  • Page 86
    ...,333 5,681 $ 49,652 $ 39,376 6,962 $ 32,414 We occupy three office buildings in San Jose, California where our corporate headquarters are located. We reference these office buildings as the "Almaden tower" and the "East and West towers." In December 2003, upon completion of construction, we began...

  • Page 87
    ... with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue. Royalty expense, which was recorded under our cost of products revenue on our consolidated statements of income, was approximately...

  • Page 88
    ... B. Dufresne filed suit against Adobe, Microsoft Corporation, Macromedia, Inc. and Trellix Corporation in the U.S. District Court, District of Massachusetts, alleging infringement of U.S. Patent No. 5,835,712, entitled "Client-Server System Using Embedded Hypertext Tags for Application and Database...

  • Page 89
    ... 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 hedge accounting. As of December 2, 2005, our cash equivalents, short-term investments, and marketable equity securities, are...

  • Page 90
    .... We enter into these foreign exchange contracts to hedge forecasted product licensing revenue in the normal course of business, and accordingly, they are not speculative in nature. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge...

  • Page 91
    ..., professional Web page layout, graphic and illustration creation, technical document publishing and business publishing. Additionally, this segment includes Photoshop and Acrobat Professional as part of its Adobe Creative Suite products. The Intelligent Document segment provides electronic document...

  • Page 92
    ...our 2006 fiscal year, we changed the reporting of our principal business segments to be aligned with our market opportunities and how we manage our combined businesses. Our new business segments are Creative Solutions, Knowledge Worker Solutions, Enterprise and Developer Solutions, Mobile and Device...

  • Page 93
    ... Data ...2004 26% 10% 21% 12% Note 17. Subsequent Events On December 3, 2005, we completed the acquisition of Macromedia, a provider of software technologies that enables the development of a wide range of internet and mobile application solutions, for approximately $3.4 billion. Under the terms...

  • Page 94
    ... value of Adobe common stock issued, stock options and restricted stock assumed, as well as estimated direct transaction costs. We derived this estimate using an average market price per share of Adobe common stock of $29.43, which was based on an average of the closing prices for a range of trading...

  • Page 95
    ..., on February 8, 2006. ADOBE SYSTEMS INCORPORATED By: /s/ Murray J. Demo Murray J. Demo, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 96
    ... in this Form 10-K: Adobe Acrobat Acrobat Capture Acrobat Messenger Adobe Audition Adobe Encore Adobe LiveCycle Adobe Premiere Adobe Type Manager After Effects Authorware Breeze Captivate ColdFusion Contribute Director Distiller Dreamweaver Fireworks Flash FlashCast Flash Lite Flex Flex Builder Font...

  • Page 97
    ...Certificate of Incorporation as filed with the Secretary of State of the State of Delaware Certificate of Designation of Series A Preferred Stock of Adobe Systems Incorporated Fourth Amended and Restated Rights Agreement between the Company and Computershare Investor Services, LLC Amendment No. 1 to...

  • Page 98
    ...* Adobe Systems Incorporated 2006 Management Team Annual Incentive Plan * 2005 Equity Incentive Assumption Plan* Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan* Allaire Corporation 1997 Stock Incentive Plan* Allaire Corporation 1998 Stock Incentive...

  • Page 99
    ... 2003 Equity Incentive Plan* Adobe Systems Incorporated 2006 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* Form of Maximum Award Grant Notice used in connection with grants under the Adobe Systems Incorporated 2006 Performance Share Program pursuant to...

  • Page 100
    ...are to filings made by Macromedia, Inc. †The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe Systems Incorporated...

  • Page 101
    ... International LLC Adobe Systems Brasil Limitada Fotiva, Inc. Accelio Corporation Adobe Systems Canada Inc. Q-Link Technologies, Inc. Okyz, Inc. Avner Acquisition Sub, Inc. Europe: Accelio France SA Accelio UK Ltd. Adobe Systems Benelux BV Adobe Systems Danmark ApS Adobe Systems Direct Ltd. Adobe...

  • Page 102
    ...2, 2005, management's assessment of the effectiveness of internal control over financial reporting as of December 2, 2005, and the effectiveness of internal control over financial reporting as of December 2, 2005, appearing elsewhere in this Form 10-K. /s/KPMG LLP Mountain View, California February...

  • Page 103
    EXHIBIT 31.1 CERTIFICATION I, Bruce R. Chizen, Chief Executive Officer of the registrant, certify that: 1. I have reviewed this annual report on Form 10-K of Adobe Systems Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a ...

  • Page 104
    (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 8, 2006 /s/ BRUCE R. CHIZEN Bruce R. Chizen Chief Executive Officer

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

  • Page 106
    (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 8, 2006 /s/ MURRAY J. DEMO Murray J. Demo Executive Vice President and Chief Financial Officer

  • Page 107
    ... the Annual Report of Adobe Systems Incorporated (the "Registrant") on Form 10-K for the annual period ended December 2, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bruce R. Chizen, Chief Executive Officer of the Registrant, certify, in accordance...

  • Page 108
    ... with the Annual Report of Adobe Systems Incorporated (the "Registrant") on Form 10-K for the annual period ended December 2, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Murray J. Demo, Executive Vice President and Chief Financial Officer of the...