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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 28, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-15175
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
77-0019522
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices and zip code)
(408) 536-6000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by 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
registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of large accelerated filer, “accelerated filer and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer
Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the registrants common stock, $0.0001 par value per share, held by non-affiliates of the registrant on May 30, 2008, the last
business day of the registrants most recently completed second fiscal quarter, was $20,399,247,623 (based on the closing sales price of the registrants common stock
on that date). Shares of the registrants common stock held by each officer and director and each person who owns 5% or more of the outstanding common stock of the
registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for
other purposes. As of January 16, 2009, 524,035,626 shares of the registrants common stock, $0.0001 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2009 Annual Meeting of Stockholders (the Proxy Statement), to be filed within 120 days of the end of the fiscal year
ended November 28, 2008, 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
    ..., 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 Each Exchange...

  • Page 2
    ... 11. Item 12. Item 13. Item 14. PART IV Item 15. Exhibits, Financial Statement Schedules ...116 117 119 120 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain...

  • Page 3
    ... multiple operating systems, devices and media. We distribute our products through a network of distributors, value-added resellers ("VARs"), systems integrators, independent software vendors ("ISVs") and OEMs, direct to end users and through our own Web site at www.adobe.com. We also license our...

  • Page 4
    ...created by multimedia, film, television, audio and video producers who work in advertising, Web design, music, entertainment, corporate and marketing communications, product design, user interface design, sales training, printing, architecture and fine arts. Knowledge workers, hobbyists and high end...

  • Page 5
    ... imaging and digital video software and online hosted software services as they purchase more affordable digital cameras and digital video cameras. Creative Solutions Business Summary In fiscal 2008, we maintained our focus on driving adoption of our creative products which achieved record revenue...

  • Page 6
    ...revenue growth and increasing market share of our products through the delivery of comprehensive software solutions that meet the evolving needs of our customers. To help drive this strategy, we will continue to market the benefits of our Creative Suite family of products while our engineering teams...

  • Page 7
    ... and effects processing capabilities. Adobe Creative Suite Design Premium-an integrated software solution that creative professionals can use as a platform for print, Web and mobile content publishing; combines Adobe Acrobat Pro, Adobe Dreamweaver, Adobe Flash Professional, Adobe Illustrator, Adobe...

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

  • Page 9
    ..., motion graphics, sound, text and additional video functionality; solutions built with Adobe Flash Professional are deployed via the Web to browsers and to devices that run Adobe Flash Player. Adobe Graphics Server-imaging server software used to create and maintain digital graphics and images on...

  • Page 10
    ... users. Adobe Visual Communicator-software used to create newscast-style video presentations that can be delivered via email, CD, DVD, PowerPoint or live over the Internet. Flash Video Streaming Service-either through direct sales, or together with leading CDN providers, Adobe offers hosted services...

  • Page 11
    ..., partners and customers. We also believe businesses will increasingly utilize Web conferencing to improve how they train, market, sell and support their products and solutions to their customers. Our Adobe Acrobat Connect Pro product provides capabilities via Adobe Flash Player for live Web...

  • Page 12
    ... PDF creation, an online word processor called Buzzword and personal Web conferencing services with Adobe ConnectNow that is based on our Acrobat Connect Pro Web conferencing solution. Adobe Acrobat Connect Pro-a rich Web-based communication system which enables organizations to reduce the costs...

  • Page 13
    ...publish 3D designs from major CAD applications in Adobe PDF documents that can easily be shared with suppliers, partners and customers using the free Adobe Reader software; Acrobat Pro Extended also: allows users to easily add audio, video and quizzes to PowerPoint slides to create rich, interactive...

  • Page 14
    ... software with the reach and ease of deployment of the Web and the processing power of desktop computers. This combination enables the delivery of more complex interactions than are currently supported by the Web browser model. Flex applications extend the server-based object model to client systems...

  • Page 15
    ... ES products leverage our Adobe Reader software-with more than 500 million distributed copies of Adobe Reader, we have created a platform for extending high value business processes to a wide variety of end users. Adobe Reader is available on the most common operating system platforms free of...

  • Page 16
    ... ES-server-based software application that organizations can use to cost-effectively and securely extend their core business processes beyond their enterprise system; enables customers to create and deploy XMLbased form templates as PDF, SWF, or HTML for use with Adobe Reader or Adobe Flash Player...

  • Page 17
    ... electronic document template using a powerful processing engine to dynamically generate electronic documents such as purchase orders, invoices, statements and 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...

  • Page 18
    ...PDF file; these features include review and markup tools that normally are not present in the standard Adobe Reader product. Adobe Web Output Pak-a server-based software application for document generation; creates documents in PDF and HTML for presentation on the Web and in Wireless Markup Language...

  • Page 19
    ... seamlessly across all browsers and operating systems. With the release of Adobe AIR version 1 in early 2008, our Flex Builder revenue grew during the year as more developers utilized it to create Adobe Flash and Adobe AIR based applications. Our ColdFusion product line provides fast and easy ways...

  • Page 20
    ... and device browsers. Adobe Flash Player-the most widely distributed rich client software on PCs and consumer electronic devices, Adobe Flash Player provides a runtime environment for text, graphics, animations, sound, video, application forms and two-way communications. Adobe Flex-a free, open...

  • Page 21
    ... the content in Adobe Flash and other formats; the content can be created without any programming or multi-media skills and can be published to CD/DVDs and Learning Management Systems used in training, sales, marketing and customer support applications; often used in combination with Acrobat 21

  • Page 22
    ... Web-based applications; utilizes support for HTML, PDF import/export, team authoring capabilities, as well as JavaHelp. Adobe Shockwave Player-a rich media player used for deploying multimedia content for use in Internet solutions including education, training, games and commerce. Adobe Technical...

  • Page 23
    ... Web software to users in markets it dominates. These target customers include users of Microsoft Office, Microsoft Windows operating system, the Microsoft Internet Explorer Web browser and Microsoft Visual Studio. The needs of digital imaging and video editing software users are constantly evolving...

  • Page 24
    ... digital imaging, software applications compete based on product features, brand awareness and price sensitivity. In addition to competition with Microsoft' s Expression Design product, our Adobe Photoshop and Adobe Photoshop Lightroom products face direct and indirect competition from a number...

  • Page 25
    ... for free, on the Web. For customers that use Adobe Acrobat as part of document collaboration and document process management solutions, where electronic document delivery, exchange, collaboration, security and archival needs exist, our Acrobat product family faces competition from entrenched office...

  • Page 26
    ..., cellular phones and consumer electronic devices. We also believe our robust programming model and developer tools used to create video output for the Flash Player and the large Flash developer community and ecosystem which utilize our tools, are key assets in our ability to effectively compete in...

  • Page 27
    ... languages based on the PostScript language standard, including Global Graphics and Xionics. In addition, as previously discussed, Microsoft has shipped its next generation operating system called Windows Vista. It includes a new document format called XPS which competes with Adobe PDF and our Adobe...

  • Page 28
    ... solutions. We provide product support through a combination of outsourced vendors and internal support centers. We also offer Developer Support to partners and developer organizations. The Adobe Partner Connection Program focuses on providing developers with high-quality tools, software development...

  • Page 29
    ... specific security and confidentiality constraints. Our products are generally licensed to end users on a "right to use" basis pursuant to a license that restricts the use of the products to a designated number of devices. We also rely on copyright laws and on "shrink wrap" and electronic licenses...

  • Page 30
    ..., Creative Solutions Business Unit Senior Vice President, Business Productivity Solutions Senior Vice President, Worldwide Field Operations Vice President, Principal Accounting Officer Mr. Narayen currently serves as Adobe' s President and Chief Executive Officer. Mr. Narayen joined Adobe in...

  • Page 31
    ... of Business Development and Channels for the Software Group of EMC Corporation, a products, services and solutions provider for information management and storage, from December 2003 to April 2007. Previously, Mr. Tarkoff was Executive Vice President and Chief Strategy Officer for Documentum...

  • Page 32
    ...delay in the development, production, marketing or distribution of a new product or upgrade to an existing product could cause a decline in our revenue, earnings or stock price and could harm our competitive position. We offer our desktop application-based products primarily on Windows and Macintosh...

  • Page 33
    ... documents as PDF files through a freely distributed plug-in, competes with Adobe PDF creation (Microsoft has announced that it will add support for PDF directly in its Office products beginning in 2009 via SP2 for Office 2007). Microsoft Expression Studio competes with our Adobe Creative Suite...

  • Page 34
    ...source code. The loss of future trade secret protection could make it easier for third parties to compete with our products by copying functionality, which could adversely affect our revenue and operating margins. We also seek to protect our confidential information and trade secrets through the use...

  • Page 35
    ... future purchases, to use competitive products or to make claims against us. Also, with the introduction of hosted services with some of our product offerings, our customers may use such services to share confidential and sensitive information. If a breach of security occurs on these hosted systems...

  • Page 36
    ...new and upgraded products. Catastrophic events may disrupt our business. We are a highly automated business and rely on our network infrastructure and enterprise applications, internal technology systems and our Web site for our development, marketing, operational, support, hosted services and sales...

  • Page 37
    ... with international operations which may harm our business. We generate over 50% of our total revenue from sales to customers outside of the Americas. Sales to these customers subject us to a number of risks, including foreign currency fluctuations; changes in government preferences for software...

  • Page 38
    ... of all stock-based compensation 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. The adoption of SFAS 123R has had, and will continue to have, a significant adverse effect on our...

  • Page 39
    ... with high growth potential. We recently announced the Open Screen Project. As part of the project, we will be removing the license fees on the next major releases of Adobe Flash Player and Adobe AIR for devices. Accordingly, we would expect revenue from this segment to decrease beginning in the...

  • Page 40
    ... market for the technologies or products these companies have under development is typically in the early stages and may never materialize. Our investment activities can impact our net income. Future price fluctuations in these securities and any significant long-term declines in value of any of our...

  • Page 41
    ... sets forth the location, approximate square footage and use of each of the principal properties used by Adobe during fiscal 2008. We lease or sublease all of these properties with the exception of our property in India, where we own the building and lease the land, and San Francisco where we own...

  • Page 42
    ... at an average capacity of approximately 85%. ITEM 3. LEGAL PROCEEDINGS 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 copyright infringers. Such...

  • Page 43
    ... or fiscal 2007. 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 or one currently exists. The following table sets forth the high and low sales price per share of our common stock for the...

  • Page 44
    ... of Equity Securities Below is a summary of stock repurchases for the quarter ended November 28, 2008. See Note 12 of our Notes to Consolidated Financial Statements for information regarding our stock repurchase programs. Maximum Number of Shares that May Yet Be Purchased Under the Plan Plan/Period...

  • Page 45
    ..., with reinvestment of dividends. For each reported year, our reported dates are the last trading dates of our fiscal year which ends on the Friday closest to November 30. 2004 2005 2006 2007 2008 Adobe Systems ...$ S&P 500 Index ...S&P 500 Software & Services Index 152.59 $ 114.56 118.75 169.57...

  • Page 46
    ... regarding our Macromedia acquisition and stockbased compensation, respectively. On March 16, 2005, our Board of Directors approved a two-for-one stock split, in the form of a stock dividend, of our common stock payable on May 23, 2005 to stockholders of record as of May 2, 2005. Per share data, for...

  • Page 47
    ...software and services used by creative professionals, designers, knowledge workers, high-end consumers, OEM partners, developers and enterprises for creating, managing, delivering and engaging with compelling content and experiences across multiple operating systems, devices and media. We distribute...

  • Page 48
    ... service period, which is generally the vesting period. We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The determination of the fair value of stock-based awards on the date of grant using an option pricing...

  • Page 49
    ...the option pricing model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate prevesting option forfeitures and record stock-based compensation expense only...

  • Page 50
    ... fiscal 2008 as compared to fiscal 2007, with revenue exceeding $250 million. We also continued to grow our Acrobat Connect Pro business which provides real-time collaboration capabilities via the Web utilizing our Adobe Flash Player. Our Mobile and Device Solutions segment achieved greater than 100...

  • Page 51
    ...non-PC devices such as cellular phones, consumer devices and Internet connected hand-held devices. The Platform segment provides developer solutions and technologies, including Adobe Flash Player, Adobe AIR and Flex Builder which are used to build rich application experiences. Finally, the Print and...

  • Page 52
    ... Screen Project. Platform revenue increased by $37.6 million during fiscal 2008 as compared to fiscal 2007 primarily due to increased revenue related to Flash Player and the launch of Adobe AIR which resulted in increased revenue from our developer tools. Revenue in our Print and Publishing business...

  • Page 53
    ... of fiscal 2007 and increased revenue from the Acrobat 8 family of products. Revenue in EMEA increased during fiscal 2007 as compared to fiscal 2006 due to the release of localized versions of our CS3 family of products and increases in revenue from the Acrobat Pro products. Additionally, revenue in...

  • Page 54
    ...consulting services, training and product support. Cost of services and support revenue increased during fiscal 2008 as compared to fiscal 2007, primarily due to increases in compensation and related benefits driven by increases in headcount related to product support and utilization by customers of...

  • Page 55
    ... and are directly related to continued timely development of new and enhanced products. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our desktop application and server-based software products. Sales and...

  • Page 56
    ... to 2007 % Change 2007 to 2006 Allocation of costs associated with acquired rights to use technology ...Compensation and related benefits associated with headcount growth ...Charitable contributions ...Compensation associated with incentive compensation and stock-based compensation ...Professional...

  • Page 57
    ... revenue ... $ 68.2 2% (6)% $ 72.4 2% 4% $ 69.9 3% As a result of our acquisition of Macromedia in fiscal 2006, we acquired purchased intangibles which are amortized over their estimated useful lives of two to four years. In addition, during fiscal 2008 we completed one business combination...

  • Page 58
    ...to the following: 2008 2007 2006 Net gains (losses) related to our investments in Adobe Ventures and cost method investments . . Gains from sale of equity investments ...Write-downs due to other-than-temporary declines in value of our marketable equity securities...Losses on stock warrants ...Total...

  • Page 59
    ... and service revenue due to strong upgrade plan sales in the fourth quarter of fiscal 2007 for our CS3 family of products and related individual creative products. The decrease in trade receivables was due to collections in the first quarter of fiscal 2007 related to high Acrobat 8 sales at the end...

  • Page 60
    ...-term and long-term investments and purchases of computer systems for research and development, sales and marketing, product support and administrative staff. Furthermore, cash may be used to repurchase stock under our stock repurchase programs and strategically acquire software companies, products...

  • Page 61
    ... from time to time. As part of this program, on April 17, 2005, the Board of Directors approved the use of an additional $1.0 billion for stock repurchases commencing upon the close of the Macromedia acquisition. This additional $1.0 billion in stock repurchases was completed by the third quarter of...

  • Page 62
    ... cost ..._____ (1) $ $ $ The repurchases from employees represent shares cancelled when surrendered in lieu of cash payments for the option exercise price or withholding taxes due. Stock repurchase agreements executed with large financial institutions. See "Stock Repurchase Program I" and "Stock...

  • Page 63
    ... long-term liabilities and prepaid rent was $2.6 million. Indemnifications In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs...

  • Page 64
    ...and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. As part of our limited partnership interests in Adobe...

  • Page 65
    ... 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. We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income (loss), until the...

  • Page 66
    .... Short-Term Investments and Marketable Equity Securities We are exposed to equity price risk on our portfolio of marketable equity securities. As of November 28, 2008, our total equity holdings in publicly traded companies were valued at $3.0 million compared to $20.8 million at November 30, 2007...

  • Page 67
    ... INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Consolidated Balance Sheets ...Consolidated Statements of Income ...Consolidated Statements of Stockholders' Equity and Comprehensive Income . . Consolidated Statements of Cash Flows ...Notes to Consolidated Financial Statements ...Report of KPMG LLP...

  • Page 68
    ... liabilities ...Long-term liabilities: Debt ...Deferred revenue ...Accrued restructuring ...Income taxes payable ...Deferred income taxes ...Other liabilities ...Total liabilities ...Commitments and contingencies Stockholders' equity: Preferred stock, $0.0001 par value; 2,000 shares authorized...

  • Page 69
    ... per share data) November 28, 2008 Years Ended November 30, 2007 December 1, 2006 Revenue: Products ...Services and support ...Total revenue ...Total cost of revenue: Products ...Services and support ...Total cost of revenue ...Gross profit ...Operating expenses: Research and development ...Sales...

  • Page 70
    ... ...Re-issuance of treasury stock under stock compensation plans ...Tax benefit from employee stock option plans ...Purchase of treasury stock ...Stock-based compensation ...Adjustment to the valuation of Macromedia assumed options ...Balances at November 30, 2007 ...Comprehensive income: Net income...

  • Page 71
    ...: Purchase of treasury stock ...Proceeds from issuance of treasury stock...Excess tax benefits from stock-based compensation ...Proceeds from borrowings on credit facility ...Repayments of borrowings on credit facility ...Net cash used for financing activities ...Effect of foreign currency exchange...

  • Page 72
    ...software and services used by creative professionals, designers, knowledge workers, high-end consumers, OEM partners, developers and enterprises for creating, managing, delivering and engaging with compelling content and experiences across multiple operating systems, devices and media. We distribute...

  • Page 73
    ... determine the fair values, we use the market approach based on comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical and forecasted revenue, operating costs and other...

  • Page 74
    ... based upon historical rates of 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 recognize OEM licensing revenue, primarily royalties, when OEM partners...

  • Page 75
    ...Revenue Our services and support revenue is composed of consulting, training and maintenance and support, primarily related to the licensing of our Enterprise and Mobile and Device Solutions products. Our support revenue also includes technical support and developer support to partners and developer...

  • Page 76
    ... component of other income in the consolidated statements of operations. Foreign exchange forward and option contracts hedging forecasted non-functional currency product licensing revenue, are designated as cash flow hedges under SFAS 133, with gains and losses recorded net of tax, as a component of...

  • Page 77
    ... the useful life of recognized intangible assets under FASB Statement No. 142, "Goodwill and Other Intangible Assets." This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP...

  • Page 78
    ... and other intangibles. Fiscal 2006 Acquisitions During fiscal 2006, 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. The acquisition of Macromedia accelerated our strategy of...

  • Page 79
    ...combination of Macromedia' s processes, patents and trade secrets developed through years of experience in design and development of its products. We amortize the acquired product rights based on the pattern in which the economic benefits of the intangible asset is being consumed. Customer contracts...

  • Page 80
    ... of unvested options assumed was $146.2 million using the Black Scholes valuation model. The fair value of the unvested restricted stock of $4.8 million was based on the fair value of the underlying shares on the acquisition date. The stock-based compensation is being amortized to expense over the...

  • Page 81
    ... cash equivalents and short-term investments consisted of the following as of November 30, 2007: Carrying Value Unrealized Gains Unrealized Losses Estimated Fair Value Classified as current assets: Cash ...$ 111,702 Cash equivalents: Money market mutual funds ...778,259 Bank time deposits ...31,568...

  • Page 82
    ... to fair value. We record the related write-down as investment gains and losses on our consolidated statements of income for equity securities and as interest and other income for debt securities. See Note 6 and Note 17 for information regarding gains and losses on our long-term investments. Note...

  • Page 83
    ... and Other Intangibles Below is our goodwill reported by business segment, as of November 28, 2008: 2007 Acquisitions Other 2008 Creative Solutions ...Knowledge Worker ...Enterprise ...Mobile and Device Solutions ...Platform ...Print and Publishing ...Total ..._____ $ 964,635 $ 411,585 298...

  • Page 84
    ...amortization were as follows as of November 30, 2007: Cost Accumulated Amortization Net Purchased technology ...Localization ...Trademarks ...Customer contracts and relationships ...Other intangibles ...Total other intangible assets...Total purchased and other intangible assets ... $ 409,110 $ $ 45...

  • Page 85
    ... a Purchase and Sale Agreement, effective May 12, 2008, for the acquisition of real property located in Waltham, Massachusetts. We will purchase the property subject to completion of construction of an office building shell and core, parking structure and site improvements. The purchase price for...

  • Page 86
    ...,503 60,167 (23,028) Tax expense attributable to employee stock plans ...90,360 66,966 146,142 $ 206,694 $ 223,383 $ 173,918 Certain employee stock plan benefits in fiscal 2008, 2007 and 2006 associated with the acquisition of Macromedia reduced goodwill. See Note 5 for further information regarding...

  • Page 87
    ... 30, 2007 are presented below: 2008 2007 Deferred tax assets: Acquired technology ...$ 4,497 $ 7,603 Reserves and accruals ...71,174 61,772 Deferred revenue ...46,200 38,663 Unrealized losses on investments ...10,350 18,756 FAS 123R stock compensation ...50,329 40,682 Net operating loss of acquired...

  • Page 88
    ... 2014 through 2029. The state tax credit carryforwards can be carried forward indefinitely. The net operating loss carryforward assets and certain 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...

  • Page 89
    ... be resolved within the next 12 months, based upon the current facts and circumstances, we cannot estimate the timing of such resolution or range of potential changes as it relates to the unrecognized tax benefits that are recorded as part of our financial statements. We do not expect any material...

  • Page 90
    ... each major type of cost associated with the restructuring plan: Total Costs Incurred To Date Total Costs Expected To Be Incurred November 30, 2007 Cash Payments Adjustments November 28, 2008 Termination benefits ...$ Cost of closing redundant facilities ...Cost of contract termination ...Other...

  • Page 91
    ... to long-term facilities obligations, recorded in accrued restructuring, noncurrent in the accompanying consolidated balance sheets. Adobe Restructuring Charges-In connection with the worldwide restructuring plan, we recognized costs related to (i) termination benefits for former Adobe employees...

  • Page 92
    ..., related to long-term facilities obligations recorded in accrued restructuring, non-current in the accompanying consolidated balance sheets. Note 10. Benefit Plans Pretax Savings Plan In 1987, we adopted an Employee Investment Plan, qualified under Section 401(k) of the Internal Revenue Code, which...

  • Page 93
    Note 11. Stock-based Compensation We have the following stock-based compensation plans and programs as described below. Stock Option Plans Our stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and ...

  • Page 94
    ... information regarding our stock repurchase programs. Valuation of Stock-Based Compensation Stock-based compensation cost is measured at the grant date based on the fair value of the award. We currently use the Black-Scholes option pricing model to determine the fair value of stock options and ESPP...

  • Page 95
    ...award agreements. The assumptions used in the valuation of equity awards in India are the same as those used for all of our equity awards as noted above. The recovery of fringe benefit tax is recorded as stock-based compensation cost in our consolidated statements of income. Summary of Stock Options...

  • Page 96
    ... value of our common stock on the date of grant. Options granted to directors for fiscal 2008, 2007 and 2006 are as follows: 2008 2007 2006 Options granted to existing directors ...Exercise price ...Options granted to new directors ...Exercise price ...Summary of Employee Stock Purchase Shares...

  • Page 97
    ...$39.8 million and $18.6 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares. Summary of Restricted Stock Restricted stock award activity for fiscal 2008, 2007 and 2006 is as follows: 2008 Non...

  • Page 98
    ... restricted stock units outstanding at the end of fiscal 2008 and 2007 is summarized below. Weighted Average Remaining Contractual Life Aggregate Intrinsic Value* (millions) Number of Shares 2008 Shares outstanding ...Shares vested and expected to vest ...2007 Shares outstanding ...Shares vested...

  • Page 99
    ...based compensation costs that have been included in our consolidated statements of income are as follows: Income Statement Classifications Cost of Revenue - Services and Support Research and Development Sales and Marketing General and Administrative Total Option Grants and Stock Purchase Rights...

  • Page 100
    ... being acquired by any person in a merger or business combination transaction. The rights are redeemable by Adobe prior to exercise at $0.01 per right and expire on July 23, 2010. Stock Repurchase Program I To facilitate our stock repurchase program, designed to return value to our stockholders and...

  • Page 101
    ... repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us. The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number...

  • Page 102
    ... tax effect relating to translation adjustments for undistributed foreign earnings ...Ending balance ...$ Note 14. Net Income Per Share 10,471 (19,461) 8,559 (431) $ 4,901 9,269 (3,699) $ 968 3,933 - $ 10,471 $ 4,901 Basic net income per share is computed using the weighted average number...

  • Page 103
    ... to purchase approximately 16.5 million, 10.4 million and 17.7 million shares, respectively, of common stock with exercise prices greater than the annual average fair market value of our stock of $37.07, $41.77 and $35.32, respectively, were not included in the calculation because the effect would...

  • Page 104
    ... 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 105
    ... Amendment to our Credit Agreement dated February 2007 (the "Amendment"), which increased the total senior unsecured revolving facility from $500.0 million to $1.0 billion. The Amendment also permits us to request one-year extensions effective on each anniversary of the closing date of the original...

  • Page 106
    ...for-sale fixed income and equity securities, other equity securities and foreign currency derivatives. The fair value of these financial assets and liabilities was determined using the following inputs at November 28, 2008: Fair Value Measurements at Reporting Date Using Significant Quoted Prices in...

  • Page 107
    ... $82.3 million in cash. Our carrying value was $13.2 million at the date of sale. See Note 6 for further information regarding our long-term investments and Adobe Ventures. Foreign currency derivatives include option and forward foreign exchange contracts primarily for the Japanese Yen and the Euro...

  • Page 108
    ... purchased derivative instruments is recorded in other income. A summary of the amounts included on the consolidated income statement due to occurrence of the hedged transaction and or time value degradation on open hedge transactions is as follows: 2008 Revenue Other Income (Loss) Years Ended 2007...

  • Page 109
    ... risk in receivables is limited to OEM partners, dealers and distributors of hardware and software products to the retail market, and to customers whereby we license software directly. A credit review is completed for our new distributors, dealers and OEM partners. We also perform ongoing credit...

  • Page 110
    ...non-PC devices such as cellular phones, consumer devices and Internet connected hand-held devices. The Platform segment provides developer solutions and technologies, including Adobe Flash Player, Adobe AIR and Flex Builder which are used to build rich application experiences. Finally, the Print and...

  • Page 111
    ..., 2007 and 2006 are as follows: Creative Solutions Knowledge Worker Enterprise Mobile and Device Solutions Platform Print and Publishing Total Fiscal 2008 Revenue ...$ 2,072,835 $ 810,883 $ 252,976 $ 113,071 $ 118,487 $ Cost of revenue ...160,560 53,282 75,539 24,069 20,275 Gross profit ...$ 1,912...

  • Page 112
    ...net revenue for fiscal 2006 through 2008. As listed, our significant customers are distributors who sell products across our various segments. 2008 2007 2006 Ingram Micro ...18% Tech Data ...9% 21% 10% 24% 10% Receivables from our significant customers, as a percentage of gross trade receivables...

  • Page 113
    ... over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances...

  • Page 114
    ... Annual Report on Form 10-K was (i) recorded, processed, summarized and reported within the time periods specified in the SEC' s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions...

  • Page 115
    ... MATTERS You will find this information in the sections captioned "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in the Proxy Statement we will deliver to our stockholders in connection with our Annual Meeting of Stockholders to be held on...

  • Page 116
    ... 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. 2. Financial Statements. See "Index to Consolidated Financial Statements" in Part II, Item 8 of this Form 10-K. Exhibits. The exhibits listed in the accompanying "Index to Exhibits" are filed or incorporated by reference as part of this Form 10-K. 116

  • Page 117
    ... Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ JOHN E. WARNOCK John E. Warnock /s/ CHARLES M. GESCHKE Charles M. Geschke /s/ SHANTANU NARAYEN Shantanu...

  • Page 118
    Signature Title Date s/ JAMES E. DALEY James E. Daley /s/ CAROL MILLS Carol Mills /s/ COLLEEN M. POULIOT Colleen M. Pouliot /s/ DANIEL L. ROSENSWEIG Daniel L. Rosensweig /s/ ROBERT SEDGEWICK Robert Sedgewick /s/ DELBERT W. YOCAM Delbert W. Yocam January ...

  • Page 119
    ... Catalyst Flash Lite Flex Flex Builder Font Folio FrameMaker FreeHand Illustrator InCopy InDesign JRun Kuler Lightroom LiveCycle Macromedia MXML Ovation PageMaker Photoshop PostScript Reader RoboHelp Scene 7 Shockwave Soundbooth Ultra Version Cue Visual Communicator Vlog It! All other trademarks are...

  • Page 120
    ... to Fourth Amended and Restated Rights Agreement between Adobe Systems Incorporated and Computershare Investor Services, LLC 1984 Stock Option Plan, as amended* Amended 1994 Performance and Restricted Stock Plan* Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance...

  • Page 121
    ... restated* Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* Form of Indemnity Agreement* Forms of Retention Agreement* Second Amended and Restated Master Lease of Land and Improvements by and between SMBC Leasing and Finance, Inc. and Adobe Systems Incorporated...

  • Page 122
    ...Stock Plan* Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan* Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan* 2008 Executive Officer Annual Incentive Plan* 2005 Equity Incentive Assumption Plan, as amended* Form...

  • Page 123
    ...Option Plan* Live Software, Inc. 1999 Stock Option/Stock Issuance Plan* Macromedia, Inc. 1999 Stock Option Plan* Macromedia, Inc. 1992 Equity Incentive Plan* Macromedia, Inc. 2002 Equity Incentive Plan* Form of Macromedia, Inc. Stock Option Agreement* Middlesoft, Inc. 1999 Stock Option Plan* Form of...

  • Page 124
    ...** Date Number Filed Herewith 10.42 Form of Macromedia, Inc. Restricted Stock Purchase Agreement* Adobe Systems Incorporated Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan* Form of Award Grant Notice and Performance Share Award Agreement used in connection with...

  • Page 125
    ...** Date Number Filed Herewith 10.50 Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* Adobe Systems Incorporated...

  • Page 126
    Exhibit Number Exhibit Description Form Incorporated by Reference** Date Number Filed Herewith 10.56 Credit Agreement, dated as of February 16, 2007, among Adobe Systems Incorporated and Certain Subsidiaries as Borrowers; BNP Paribas, Keybank National Association, and UBS Loan Finance LLC as ...

  • Page 127
    ... Form Incorporated by Reference** Date Number Filed Herewith 10.60 Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* Form of Director Initial Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* Form...

  • Page 128
    Exhibit Number Exhibit Description Form Incorporated by Reference** Date Number Filed Herewith 32.2 Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†X _____ * Compensatory plan or arrangement. ** References to Exhibits 10.17 ...