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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 December 3, 2010
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 check mark 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 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 the
definitions of large accelerated filer, “accelerated filerand “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 registrants common stock, $0.0001 par value per share, held by non-affiliates of the registrant on June 4, 2010, the last
business day of the registrants most recently completed second fiscal quarter, was $13,532,884,642 (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 21, 2011, 504,728,145 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 2011 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal year
ended December 3, 2010, 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
    ... OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 3, 2010 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...

  • Page 2
    ... Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management' s Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data ...Changes in and...

  • Page 3
    ... creative, business, Web and mobile software and services used by creative professionals, knowledge workers, developers, marketers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with compelling content and experiences across multiple operating systems, devices...

  • Page 4
    ...mobile content, that is 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...

  • Page 5
    ... purchase license upgrades and new versions of these products when they buy new computers, or migrate to new or updated operating systems. In addition, knowledge workers in enterprises and government, educators and students in schools and universities, and hobbyists at home license our creative...

  • Page 6
    ..., operating systems, Web browsers and screen sizes. To address these challenges, we increased our investment during the year in support of formats and standards such as HTML and Adobe Flash. During fiscal 2010, we introduced new features across many of our products to support the newest version of...

  • Page 7
    ... downloads of the AIR developer tools used to create these applications. In October, we extended the capabilities of AIR to mobile devices with the delivery of AIR version 2.5 for televisions, tablets, smartphones and desktop operating systems. With this release, Adobe AIR now supports smartphones...

  • Page 8
    ... for professional page layout, image editing, vector illustration, print production, Website design/development, rich interactive content creation, visual effects and motion graphics, video capture/editing/production, DVD titling and digital audio production; includes Adobe Acrobat Pro, Adobe After...

  • Page 9
    ... graphics, sound, text and additional video functionality; solutions built with Adobe Flash Professional are deployed via the Web to browsers that run Adobe Flash Player, and to devices as installable applications using Adobe AIR. Adobe Ideas-new, vector-based sketching software application for...

  • Page 10
    ... Flex-a free, open source framework for building applications that deploy consistently on major browsers, desktops, and computer operating systems by leveraging the Adobe Flash Player and Adobe AIR runtimes. Creative and Interactive Solutions Products-Flash Media Server Products Adobe Flash Access...

  • Page 11
    ...design, user interface design and training. We believe the innovation and capabilities we deliver in our tools and solutions enable the future of digital media, and our imaging and video products are mission-critical for how creative professionals create their content. In addition, knowledge workers...

  • Page 12
    ... Websites. We believe professional videographers are upgrading their systems to support HD video content creation, enhancement and delivery. We also believe hobbyists will use, with more frequency, digital imaging and digital video software and online hosted software services as they purchase...

  • Page 13
    ...new trial and new subscription-based licensing models to attract new and price-sensitive customers to adopt our products; and, increasing our focus on addressing piracy problems with the inclusion of more advanced anti-piracy enhancements in the product line. In video and rich media content creation...

  • Page 14
    ... Suite Production Premium-an integrated software solution that provides creative professionals a complete post-production solution consisting of video, audio and design tools that can be utilized to create and deliver content to film, video, DVD, Blu-ray Disc, the Web and mobile devices; combines...

  • Page 15
    ... reliable Adobe PDF documents that can be viewed, printed or interacted with utilizing the free Adobe Reader. Available in different versions which target a variety of user needs, Adobe Acrobat provides essential electronic document capabilities and services to help knowledge workers accomplish...

  • Page 16
    .... Knowledge Worker Products Adobe Acrobat.com-an online collaboration suite which provides simple Web conferencing, centralized online file sharing and storage capabilities, and online collaborative applications like a word processor and a spreadsheet authoring tool. Adobe Acrobat Standard-software...

  • Page 17
    ... communicate, visualize and document architectural and manufacturing designs using 3D data; allows users to insert and 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...

  • Page 18
    ... Adobe Flash Player client on PCs, as well as through smartphone and tablet device applications running natively on operating systems such as Apple iOS and Google Android. By offering Web conferencing services as part of our enterprise family of products, we believe we can extend adoption of Web...

  • Page 19
    ...online training and Webinars. LiveCycle ES2.5 is an integrated J2EE server solution that blends data capture, process management, information security, document generation and content services to help create and deliver rich and engaging applications that reduce paperwork, accelerate decision-making...

  • Page 20
    ... to leverage the online channel as the most cost-effective marketing vehicle to engage customers and prospects to increase competitive advantage and drive revenue; acquired as part of our acquisition of Day. Adobe CRX-an open, standards-based Enterprise Content Management ("ECM") platform, built on...

  • Page 21
    ... and increase the effectiveness of 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 Connect Events Server or hosted service, and modules that...

  • Page 22
    ... 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 sophisticated document templates. Adobe LiveCycle Designer-desktop software application...

  • Page 23
    ..., 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 24
    ...online purchases. Online businesses utilize a large and growing number of complex and diverse advertising and communication channels to market to customers, including display advertising, paid and natural search advertising, e-mail, social media marketing, affiliate marketing, blogs, podcasts, video...

  • Page 25
    ...&Promote-new, hosted Website search and merchandising application that helps marketers anticipate visitor search intent and promote the most relevant products and content across Web and mobile site searches; provides flexible search and navigation interfaces, social browsing, sort and filter options...

  • Page 26
    ... by providing new features and platform reach for eLearning content delivery with our set of offerings. In the third quarter of fiscal 2010, we delivered version 2 of our Adobe eLearning Suite, which is a complete set of tools for creating professional eLearning courseware. The new release enables...

  • Page 27
    ... 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 Adobe Connect, Adobe Captivate provides a robust technology solution to...

  • Page 28
    ... students and educators. Adobe Type Sets-various collection packages of Adobe' s best-selling typefaces; makes it easy to create beautiful text for print, Web and video projects. FreeHand MX-a professional vector graphics tool designers and illustrators use to create high quality images that can be...

  • Page 29
    ... of Flash and Flash Player, such as the ability to create and display rich advertising and play video natively within the browser. We are working to implement support for HTML5 in our creative product solutions, and we believe we will provide the widest array of support and tooling for HTML5 content...

  • Page 30
    ... its feature sets, particularly in market areas like online gaming, Web applications and RIAs, 3D-based content, and premium online video delivery, advertising and security. We believe demand for authoring new HTML5 features will intensify the competition in the professional Web page layout market...

  • Page 31
    ...software channel and strong feature sets. Adobe After Effects is a leader in professional compositing and visual effects due to its strong feature set and its integration with our other products that helps create a broad video editing platform for our customers. In professional digital video editing...

  • Page 32
    ... 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 applications...

  • Page 33
    ... their products or services at or below market prices. In addition, large software, Internet and database management companies have entered the market and enhanced their Web analytics capabilities, either by developing competing services or by acquiring existing competitors or strategic partners of...

  • Page 34
    ..., software developers, systems integrators, ISVs and VARs, as well as through 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...

  • Page 35
    ... 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 36
    ... Adobe software classes. We sponsor workshops, work with professional associations and user groups, and conduct regular beta testing programs. We also provide paid education services to enhance our customers' use of our Omniture solutions, including a wide range of traditional and online training...

  • Page 37
    ... Chief Financial Officer of the Software Group of EMC Corporation, a products, services and solutions provider for information management and storage, from June 2004 to January 2007, his most recent position since EMC' s acquisition of Documentum, Inc., an enterprise content management company, in...

  • Page 38
    ...and General Manager of the Creative and Interactive Solutions business unit, Mr. Wadhwani leads Adobe' s development of end-to-end solutions for content publishers and application developers. He oversees the Creative Suite family of products, our Flash products, and our digital publishing, media and...

  • Page 39
    ...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 40
    If we fail to successfully manage transitions to new business models and markets, our results of operations could be negatively impacted. We plan to release numerous new product and service offerings and employ new software delivery methods in connection with our diversification into new business ...

  • Page 41
    ... to, issues with the acquired company' s intellectual property, product quality or product architecture, data back-up and security, privacy practices, revenue recognition or other accounting practices, employee, customer or partner issues or legal and financial contingencies; unexpected changes in...

  • Page 42
    ...and our customers. Hackers may develop and deploy viruses, worms, and other malicious software programs that are designed to attack our products and systems, including our internal network. Although this is an industry-wide problem that affects computers and products across all platforms, it affects...

  • Page 43
    .... Furthermore, our ability to collect and report data may be delayed or interrupted by a number of factors, including access to the Internet, the failure of our network or software systems, security breaches or significant variability in visitor traffic on customer Websites. In addition, computer...

  • Page 44
    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, Ingram Micro, Inc., ...

  • 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 thirdparty data center...

  • Page 46
    ... company, we are subject to varied and complex laws, regulations and customs domestically and internationally. These laws and regulations relate to a number of aspects of our business, including trade protection, import and export control, data and transaction processing security, records management...

  • Page 47
    ...-process research and development, the accounting for acquisition-related restructuring liabilities, the treatment of acquisition-related transaction costs and the recognition of changes in the acquirer' s income tax valuation allowance. The revised standards for business combinations were effective...

  • Page 48
    ... securities, U.S. agency securities, municipal securities, corporate bonds and foreign government securities. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards...

  • Page 49
    ... 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 longterm declines in value of any of our...

  • Page 50
    ... properties used by Adobe during fiscal 2010. 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, our corporate offices in San Jose where we own the land and lease the buildings, and in San Francisco on Townsend...

  • Page 51
    ...Product development, sales and marketing 77,000 Research and product development 36,000 Research and product development 44,000 Research and product development 22,000 Product development, sales... In general, all facilities are in good condition and are operating at an average capacity of approximately...

  • Page 52
    ... 2009, Eolas Technologies Incorporated filed a complaint against us and 22 other companies for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that a number of our Web pages and products infringe two patents owned...

  • Page 53
    ... AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock Our common stock is traded on the NASDAQ Global Select Market under the symbol "ADBE." The following table sets forth the high and low sales price per share of our common stock for the periods indicated. Price Range High...

  • Page 54
    Issuer Purchases of Equity Securities Below is a summary of stock repurchases for the three months ended December 3, 2010. See Note 14 of our Notes to Consolidated Financial Statements for information regarding our stock repurchase programs. Total Number of Shares Purchased as Part of Publicly ...

  • Page 55
    ... 2007 2008 2009 2010 Adobe System s S&P 500 Index S&P 500 Softw are & Services _____ (*) The material in this report is not deemed "filed" with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934...

  • Page 56
    ... financial statements and notes thereto, and with Item 7, Management' s Discussion and Analysis of Financial Condition and Results of Operations. 2010 2009(1) Fiscal Years 2008 2007 2006 Operations: Revenue ...Gross profit ...Income before income taxes ...Net income ...Net income per share: Basic...

  • Page 57
    ... creative, business, Web and mobile software and services used by creative professionals, knowledge workers, developers, marketers, enterprises and consumers for creating, managing, delivering, optimizing and engaging with compelling content and experiences across multiple operating systems, devices...

  • Page 58
    ... the licensing of software products, associated software maintenance and support plans, custom software development and consulting services and training. To a lesser extent our revenue includes non-software related hosting services, custom hosting development and consulting services, and technical...

  • Page 59
    ..., custom hosting development and consulting services, and technical support and training for hosting services. Given the nature of our transactions, which are primarily software and software-related, our go-to-market strategies and our pricing practices, total net revenue as reported during the year...

  • Page 60
    ... option pricing model to determine the fair value of stock options and employee stock purchase plan ("ESPP") shares. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number...

  • Page 61
    ... 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 projects when completed...

  • Page 62
    ... OPERATIONS Overview of 2010 Effective in the first quarter of fiscal 2010, to better align our marketing efforts and go-to-market strategies, we moved management responsibility for the Connect Solutions product line from our Knowledge Worker segment to our Enterprise segment. Prior year information...

  • Page 63
    ... management responsibility for the Adobe Connect product line from our Knowledge Worker segment to our Enterprise segment. • Creative Solutions-Our Creative Solutions segment focuses on delivering a complete professional line of integrated tools for a full range of creative and developer tasks...

  • Page 64
    ...of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains our Adobe Acrobat family of products. • Enterprise-Our Enterprise segment provides server-based CEM solutions to enterprise and government customers to...

  • Page 65
    ...in Knowledge Worker decreased $200.1 million during fiscal 2009 as compared to fiscal 2008 for similar reasons as Creative Solutions in addition to a decrease in the licensing of our Acrobat family of products. We attribute the decline in revenue to lower volume licensing by our enterprise customers...

  • Page 66
    ... those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy. Our shippable backlog at the end of the fourth quarter of fiscal 2010 was approximately 5% of fourth quarter fiscal 2010 revenue. We had minimal...

  • Page 67
    ...related to historical use of licensing rights which was expensed as cost of sales and the residual of $16.8 million for fiscal 2008 was expensed as general and administrative costs. In connection with these licensing arrangements, we have the ability to acquire additional rights to use technology in...

  • Page 68
    ...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. Given the strength of our business during the first half of fiscal 2010...

  • Page 69
    ...related to historical use of licensing rights which was expensed as cost of sales and the residual of $16.8 million for fiscal 2008 was expensed as general and administrative costs. In connection with these licensing arrangements, we have the ability to acquire additional rights to use technology in...

  • Page 70
    ... activities under this program. We vacated approximately 89,000 square feet of research and development and sales facilities in the U.S., the United Kingdom and Canada. We accrued $8.5 million for the fair value of our future contractual obligations under these operating leases using our credit...

  • Page 71
    ... result of the completion in the fourth quarter of fiscal 2010 of a U.S. income tax examination covering fiscal years 2005 through 2007 and stronger international profits, partially offset by the expiration of the research and development credit on December 31, 2009. Our effective tax rate increased...

  • Page 72
    ... and office rent; and cost of product revenue. Other sources of cash are proceeds from the exercise of employee options and participation in ESPP. Another use of cash is our stock repurchase program, which is described below. Cash flows from operating activities For fiscal 2010, net cash provided by...

  • Page 73
    ...other assets and one business combination offset in part by proceeds from the sale of other investments in equity securities. The uses associated with the purchase of long-term investments and other assets related primarily to cash paid for future licensing rights acquired through certain technology...

  • Page 74
    ... stock under our stock repurchase program and to strategically acquire companies, products or technologies that are complementary to our business. Acquisition of Day On October 28, 2010, we completed our acquisition of Day, a provider of WCM solutions that leading global enterprises rely on for Web...

  • Page 75
    ...U.S. agency securities, municipal securities, corporate bonds and foreign government securities. Stock Repurchase Program I 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 market and...

  • Page 76
    ... Financial Statements for further discussion of our stock repurchase programs. See Item 5, Market for Registrant' s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for share repurchases during the quarter ended December 3, 2010. Stock Repurchase Program...

  • Page 77
    ... and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue. Guarantees The lease agreements for our corporate headquarters provide for residual value guarantees. The fair value of a residual value guarantee...

  • Page 78
    ... of forecasted international revenue with purchased option contracts and forward contracts. Our revenue hedging policy is intended to help mitigate the impact on our forecasted revenue due to foreign currency exchange rate movements. As of December 3, 2010, the total absolute value of outstanding...

  • Page 79
    ...our hedging program and may as part of this review determine to change our hedging program. See Note 5 of our Notes to Consolidated Financial Statements for information regarding our hedging activities. Interest Rate Risk Short-Term Investments and Fixed Income Securities At December 3, 2010, we had...

  • Page 80
    ...accuracy of the data received from these companies. See Note 4 and Note 8 of our Notes to Consolidated Financial Statements for information regarding our limited partnership interest in Adobe Ventures. Short-Term Investments and Marketable Equity Securities We are exposed to equity price risk on our...

  • Page 81
    ... of Cash Flows ...Notes to Consolidated Financial Statements ...Report of KPMG LLP, Independent Registered Public Accounting Firm ... 82 83 84 85 86 127 All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient...

  • Page 82
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) December 3, 2010 November 27, 2009 ASSETS Current assets: Cash and cash equivalents ...$ Short-term investments ...Trade receivables, net of allowances for doubtful accounts of $15,233 and $15,225, ...

  • Page 83
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Years Ended November 27, 2009 December 3, 2010 November 28, 2008 Revenue: Products ...$ Subscription ...Services and support ...Total revenue ...Cost of revenue: Products ...Subscription ...Services...

  • Page 84
    ... stock under stock compensation plans ...Tax benefit from employee stock option plans...Purchase of treasury stock ...Equity awards assumed for acquisition ...Stock-based compensation ...Value of shares in deferred compensation plan ...Balances at December 3, 2010 ... Common Stock Shares Amount...

  • Page 85
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended November 27, 2009 December 3, 2010 November 28, 2008 Cash flows from operating activities: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, ...

  • Page 86
    ...SIGNIFICANT ACCOUNTING POLICIES Operations Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world. We offer a line of creative, business, Web and mobile software and services used by creative professionals, knowledge workers, developers...

  • Page 87
    ... quarter of 2010 on a prospective basis for applicable transactions originating or materially modified after November 27, 2009. Our revenue from sales containing non-software related hosting services, custom hosting development and consulting services, and related technical support and training are...

  • Page 88
    ...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 OEMs ship products incorporating our software, provided collection of such...

  • Page 89
    ...between the old and new price of a software product on inventory held by the distributor prior to the effective date of the decrease. • • Although our subscription contracts are generally non-cancelable, a limited number of customers have the right to cancel their contracts by providing prior...

  • Page 90
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands) 2010 2009 2008 Beginning balance...$ Increase due to acquisition ...Charged to operating expenses ...Preference claim, charged (credited) to operating expense ...Deductions(*) ...Ending balance ...$ ...

  • Page 91
    ...taxes collected from customers against those remitted to government authorities in our financial statements. Accordingly, taxes collected from customers are not reported as revenue. Treasury Stock We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher...

  • Page 92
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We mitigate concentration of risk related to foreign currency hedges through a policy that establishes counterparty limits. The bank counterparties in these contracts expose us to credit-related losses in the event of...

  • Page 93
    ... solutions to create, manage, deliver and optimize content. Following the closing, we integrated Day as a product line within our Enterprise segment for financial reporting purposes. We have included the financial results of Day in our Consolidated Financial Statements beginning on the acquisition...

  • Page 94
    ... customers that resell Omniture' s services to end users. Contract backlog relates to subscription contracts and professional services. We amortize the fair value of the contract backlog based on the pattern in which the economic benefits will be consumed. Trademarks include the Omniture trade name...

  • Page 95
    ...the results of operations that would have been achieved if the acquisition had taken place on November 29, 2008 or of results that may occur in the future. The following pro forma financial information for fiscal 2009 and 2008 combines the historical results for Adobe for the years ended November 27...

  • Page 96
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) recognized when realized in our Consolidated Statements of Income. When we have determined that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is...

  • Page 97
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category that have been in a continuous unrealized loss position for less ...

  • Page 98
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4. FAIR VALUE MEASUREMENTS We measure certain financial assets and liabilities at fair value on a recurring basis. The fair value of our financial assets and liabilities at December 3, 2010 was determined using ...

  • Page 99
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of our financial assets and liabilities at November 27, 2009 was determined using the following inputs (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices Significant in Active...

  • Page 100
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A reconciliation of the beginning and ending balances for investments of limited partnership using significant unobservable inputs (Level 3) as of December 3, 2010 and November 27, 2009 was as follows (in thousands): ...

  • Page 101
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) insignificant for fiscal 2010, 2009 and 2008. The time value of purchased derivative instruments is recorded in interest and other income, net in our Consolidated Statements of Income. Balance Sheet Hedging-Hedging of...

  • Page 102
    ...and activity for the years ended November 27, 2009 and December 3, 2010 was as follows (in thousands): 2008 Acquisitions Other(1) 2009 Acquisitions Other(2) 2010 Creative Solutions ...$ 956,011 $ 253,463 $ Knowledge Worker ...408,318 - Enterprise ...298,039 - Omniture ...- 1,108,034 Platform ...265...

  • Page 103
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchased and other intangible assets, net by reportable segment as of December 3, 2010 and November 27, 2009 were as follows (in thousands): 2010 2009 Creative Solutions ...$ Knowledge Worker ...Enterprise ......

  • Page 104
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. OTHER ASSETS Other assets as of December 3, 2010 and November 27, 2009 consisted of the following (in thousands): 2010 2009 Acquired rights to use technology ...Investments ...Security and other deposits ......

  • Page 105
    ...38,706 26,404 21,800 21,203 165,796 564,275 $ $ 164,352 32,774 28,233 11,879 1,355 181,053 419,646 Other primarily includes general corporate accruals for local and regional expenses and technical support. Other is also comprised of deferred rent related to office locations with rent escalations...

  • Page 106
    ...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 $50.2 million which have not been recorded in the financial statements pursuant to accounting standards related to stock-based compensation...

  • Page 107
    ... have an adverse effect on our operating results and financial position. In October 2010, a U.S. income tax examination covering our fiscal years 2005 through 2007 was completed. Our accrued tax and interest related to these years was $59 million and was previously reported in long-term income taxes...

  • Page 108
    ... activities under this program. We vacated approximately 89,000 square feet of research and development and sales facilities in the U.S., the United Kingdom and Canada. We accrued $8.5 million for the fair value of our future contractual obligations under these operating leases using our credit...

  • Page 109
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summary of Restructuring Plans The following table sets forth a summary of restructuring activities related to all of our restructuring plans described above during fiscal 2010 (in thousands): November 27, 2009 Costs ...

  • Page 110
    ...on issued shares have lapsed. Option vesting periods are generally four years for all of the Plans. Options granted under the Plans generally expire seven years from the effective date of grant. As of December 3, 2010, we had reserved 124.5 million and 4.4 million shares of common stock for issuance...

  • Page 111
    ...60% 1.70 - 3.50% 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: 2010 Fiscal Years 2009 2008 Expected term (in years) ...Volatility ...Risk-free interest rate...

  • Page 112
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summary of Stock Options Option activity under our stock option program for fiscal years 2010, 2009 and 2008 was as follows (shares in thousands): Outstanding Options Weighted Average Exercise Number of Shares Price ...

  • Page 113
    ... CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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...

  • Page 114
    ... FINANCIAL STATEMENTS (Continued) Information regarding restricted stock units outstanding at the end of fiscal 2010, 2009 and 2008 is summarized below: Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value(*) (millions) Number of Shares (thousands) 2010 Restricted stock...

  • Page 115
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Information regarding performance shares outstanding at December 3, 2010 and November 27, 2009 is summarized below: Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value(*) (millions) Number ...

  • Page 116
    ... follows (in thousands): Income Statement Classifications Cost of Revenue- Subscription Option Grants and Stock Purchase Rights(2) Cost of Revenue- Services and Support Research and Development Sales and Marketing General and Administrative Total(1) Fiscal 2010 ...$ Fiscal 2009 ...$ Fiscal 2008...

  • Page 117
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the taxes related to each component of OCI for fiscal 2010, 2009 and 2008 (in thousands): 2010 2009 2008 Available-for-sale securities ...$ Foreign currency translation adjustments ...$...

  • Page 118
    ... FINANCIAL STATEMENTS (Continued) The financial institutions agree to deliver 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...

  • Page 119
    ...utilized this type of financing in order to access bank-provided funding at the most favorable rates and to provide the lowest total cost of occupancy for the headquarter buildings. At the end of the lease term, we can extend the lease for an additional five year term, purchase the buildings for the...

  • Page 120
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes our non-cancellable unconditional purchase obligations, operating leases and capital leases for each of the next five years and thereafter as of December 3, 2010 (in thousands): ...

  • Page 121
    ... 2009, Eolas Technologies Incorporated filed a complaint against us and 22 other companies for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that a number of our Web pages and products infringe two patents owned...

  • Page 122
    ... year based on the same pricing grid. The facility is available to provide loans to us and certain of our subsidiaries for general corporate purposes. At November 27, 2009, the amount outstanding under the credit facility was $1.0 billion, which approximated fair value. On February 1, 2010, we paid...

  • Page 123
    ... needs of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains our Acrobat family of products. Enterprise-Our Enterprise segment provides server-based Customer Experience Management Solutions to enterprise and...

  • Page 124
    ... the new fiscal year. Effective in the first quarter of fiscal 2010, to better align our marketing efforts and go-to-market strategies, we moved management responsibility for the Connect Solutions product line from our Knowledge Worker segment to our Enterprise segment. Prior year information in the...

  • Page 125
    ...were as follows: 2010 2009 Ingram Micro ...NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (in thousands, except per share data) March 5 14 % 16 % 2010 Quarter Ended June 4 September 3 December 3 Revenue ...Gross profit ...Income before income taxes ...Net income ...Basic net income per...

  • Page 126
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in thousands, except per share data) February 27 2009 Quarter Ended May 29 August 28 November 27 Revenue ...Gross profit ...Income before income taxes ...Net income (loss) ...Basic net income (loss) per share ......

  • Page 127
    ... operations and their cash flows for each of the years in the three-year period ended December 3, 2010, 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...

  • Page 128
    ... 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 2011 Proxy Statement to be filed with the SEC in connection with...

  • Page 129
    ...ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item 14 of Form 10-K that is found in our 2011 Proxy Statement is incorporated by reference to our 2011 Proxy Statement. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. 2. Financial Statements. See "Index to...

  • Page 130
    ...agents, for such person in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys...

  • Page 131
    Signature Title Date /s/ MICHAEL R. CANNON Michael R. Cannon /s/ JAMES E. DALEY James E. Daley /s/ CAROL MILLS Carol Mills /s/ DANIEL L. ROSENSWEIG Daniel L. Rosensweig /s/ ROBERT SEDGEWICK Robert Sedgewick January 27, 2011 Director January 27, 2011 Director January 27, 2011 Director January 27,...

  • Page 132
    ...Acrobat ActionScript Adobe AIR Adobe Audition Adobe Premiere Adobe SiteSearch Adobe Type Manager After Effects AIR Authorware BusinessCatalyst Buzzword Captivate ColdFusion ColdFusion Builder Communiqué Contribute Creative Suite CS Live Director Dreamweaver Encore Fireworks Flash Flash Access Flash...

  • Page 133
    SUMMARY OF TRADEMARKS (Continued) Visual Communicator All other trademarks are the property of their respective owners. 133

  • Page 134
    ... Forms of Global Note for Adobe Systems Incorporated' s 3.250% Notes due 2015 and 4.750% Notes due 2020, together with Form of Officer' s Certificate setting forth the terms of the Notes Amended 1994 Performance and Restricted Stock Plan* Form of Restricted Stock Agreement used in connection...

  • Page 135
    ... Incorporated and Selco Service Corporation, dated March 26, 2007 Participation Agreement among Adobe Systems Incorporated, Selco Service Corporation, et al. dated March 26, 2007 Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan...

  • Page 136
    ...Description Form Incorporated by Reference** Date Number Filed Herewith 10.15 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...

  • Page 137
    ... Non-Plan Stock Option Agreement* 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 grants...

  • Page 138
    ... Number Filed Herewith 10.36 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 2003 Equity Incentive Plan* Adobe Systems Incorporated 2007 Performance Share Program...

  • Page 139
    ... Form Incorporated by Reference** Date Number Filed Herewith 10.42 Employment offer letter between Adobe Systems Incorporated and Richard Rowley, dated October 30, 2006* Employment offer letter between Adobe Systems Incorporated and Mark Garrett dated January 5, 2007* Credit Agreement...

  • Page 140
    ...as Administrative Agent 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...

  • Page 141
    Exhibit Number Exhibit Description Form Incorporated by Reference** Date Number Filed Herewith 10.55 Form of Stock Option Agreement under the Omniture 1999 Plan used for Named Executive Officers and NonEmployee Directors* Omniture, Inc. 2006 Equity Incentive Plan and related forms* Omniture, ...

  • Page 142
    ... the 2003 Equity Incentive 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 Award Agreement used in connection with the 2005...

  • Page 143
    ... Registered Public Accounting Firm, KPMG LLP Power of Attorney (set forth on the signature page to this Annual Report on Form 10-K) Certification of Chief Executive Officer, as required by Rule 13a14(a) of the Securities Exchange Act of 1934 Certification of Chief Financial Officer, as required...

  • Page 144
    ..., 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...