Adobe 2007 Annual Report Download - page 52

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52
See Item 7A, Quantitative and Qualitative Disclosures About Market Risk regarding foreign currency risks.
Product Backlog
With regard to our product backlog, the actual amount of backlog at any particular time may not be a meaningful
indicator of future business prospects due to, for example, the fluctuations associated with the finalization and release of new
products. Our backlog of unfulfilled orders at the end of fiscal 2007, other than those associated with new product releases,
those pending credit review and those not shipped due to the application of our global inventory policy, was approximately
7% of fourth quarter fiscal 2007 revenue. The comparable backlog at the end of the third quarter of fiscal 2007 and the fourth
quarter of fiscal 2006 were approximately 6% of third quarter fiscal 2007 revenue and 2% of fourth quarter fiscal 2006
revenue, respectively.
Cost of Revenue
Fiscal
2007
% Change
2007 to 2006
Fiscal
2006
% Change
2006 to 2005
Fiscal
2005
Product............................. $ 270.8 20% $ 226.5 152 % $ 90.0
Percentage of total revenue........... 9% 9% 5%
Services and support.................. 83.9 27% 66.0 192 % 22.6
Percentage of total revenue........... 3% 3% 1%
Total cost of revenue................ $ 354.7 $ 292.5 $ 112.6
Product
Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization
related to localization costs and acquired technologies and the costs associated with the manufacturing of our products.
Cost of product revenue fluctuated due to the following:
% Change
2007 to 2006
% Change
2006 to 2005
Increased (decreased) localization costs related to our product launches. . 10 % (3)%
Increased royalties for licensed technologies ........................ 8 1
Increased (decreased) excess and obsolete inventory ................. 3 (2)
(Decreased) increased amortization of purchased technology .......... (4 ) 151
Increased cost of sales associated with shrink-wrap .................. — 3
Various individually insignificant items............................ 3 2
Total change................................................ 20 % 152%
Localization costs increased during fiscal 2007 as compared to fiscal 2006 primarily due to the release of the localized
versions of our CS3 family of products and the Acrobat 8 family of products.
Royalty costs increased during fiscal 2007 as compared to fiscal 2006 primarily due to an increase in the number of
licensed technology agreements during the year coupled with a legal settlement in the fourth quarter of fiscal 2007.
Amortization expense decreased during fiscal 2007 as compared to fiscal 2006 due to the decrease in the Macromedia
purchased technology amortization during the third quarter of fiscal 2007 offset in part by an increase due to charges incurred
in connection with certain technology licensing arrangements entered into during the second quarter of fiscal 2007.
Amortization expense increased during fiscal 2006 as compared to fiscal 2005 due to the purchased technology amortization
associated with the Macromedia acquisition.
Services and Support
Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to
provide consulting services, training and product support.