Adobe 2006 Annual Report Download - page 50

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50
Cost of product revenue fluctuated primarily due to the acquisition of Macromedia in the following areas:
% Change
2006 to 2005
% Change
2005 to 2004
Increased (decreased) amortization of purchased technology.....................
.
151 % (8)%
Increased cost of sales due to shrink-wrap revenue ....................................
.
3 5
Decreased localization costs related to our product launches .....................
.
(3) —
Increased royalties for licensed technologies..............................................
.
1 2
(Decreased) increased excess and obsolete inventory.................................
.
(2) 1
Increased localization costs related to our product launches.......................
— 3
Various individually insignificant items .....................................................
.
2 1
Total change............................................................................................
.
152 % 4%
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 2006 as compared to fiscal 2005, due to
compensation and related benefits and travel expenses as a result of higher headcount related to increases in
services and support activities. Included in compensation costs for fiscal 2006 are compensation and related
benefits, including amortization of deferred compensation, for former Macromedia employees and stock-based
compensation costs as a result of adopting SFAS 123R at the beginning of fiscal 2006. See Note 11 of our
Consolidated Financial Statements for further information regarding the impact of SFAS 123R. Cost of services
and support revenue also increased due to costs associated with our Expert Support program.
Cost of services and support revenue increased during fiscal 2005 as compared to fiscal 2004 primarily due to
increases in headcount related expenses, including higher compensation and related benefits, as well as
outsourced consulting fees.
Operating Expenses
Research and Development
Fiscal
2006
% Change
2006 to 2005
Fiscal
2005
% Change
2005 to 2004 Fiscal
2004
Expenses.................................... $ 539.9 48% $ 365.3 17% $ 311.3
Percentage of total revenues .. 21% 19% 19%
Research and development expenses consist of salary and benefit expenses for software developers,
contracted development efforts, related facilities costs and expenses associated with computer equipment used in
software development.