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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 2, 2011
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
(State or other jurisdiction of
incorporation or organization)
77-0019522
(I.R.S. Employer
Identification No.)
345 Park Avenue, San Jose, California 95110-2704
(Address of 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 on Which Registered
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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
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 filer” and “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 registrant’s common stock, $0.0001 par value per share, held by non-affiliates of the registrant on June 3, 2011, the last
business day of the registrant’s most recently completed second fiscal quarter, was 15,056,458,705 (based on the closing sales price of the registrant’s common
stock on that date). Shares of the registrant’s common stock held by each officer and director and each person who owns 5% or more of the outstanding common
stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes. As of January 20, 2012, 493,802,690 shares of the registrant’s common stock, $0.0001 par value per share, were issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2012 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal
year ended December 2, 2011, 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
    ...Avenue, San Jose, California 95110-2704 (Address of principal executive offices and zip code) (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 on Which...

  • Page 2
    ... Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 122 122 122...

  • Page 3
    ... in two strategic growth areas: Digital Media-providing tools and solutions that enable individuals, small businesses and enterprises to create, publish, promote and monetize their content anywhere. Our customers include traditional content creators, web application developers and digital media...

  • Page 4
    ...customers. PRODUCTS AND SERVICES OVERVIEW Entering fiscal 2011, we organized our products and services into the following businesses: Creative and Interactive Solutions, Digital Media Solutions, Digital Enterprise Solutions, Omniture, and Print and Publishing. We reported our financial results based...

  • Page 5
    ... to all enterprise customers. Our Digital Publishing solution combines hosted services, flexible ecommerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces, and analytics capabilities based on our Adobe Digital Marketing Suite. Content is created and...

  • Page 6
    ... improved features that improve user productivity, streamline document reviews, collect data in fillable PDF forms, protect PDF documents and other content, and share PDF documents with others. The product also extends the value proposition for knowledge workers to communicate and collaborate more...

  • Page 7
    ...the release of our Adobe FormsCentral solution and Export PDF, enables us to increase the value of document exchange services that we offer to our knowledge worker customers and thus increase the potential addressable market for our knowledge worker offerings. Enterprise Fiscal 2011 Business Summary...

  • Page 8
    ... 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, educators, hobbyists and high end consumers also use our creative products to create and...

  • Page 9
    ... premium video content and entertainment is delivered over the internet to PC, smartphone and tablet screens, as well as internet-connected TVs, media companies are looking to create new revenue streams through subscription services and ad-based revenue models to supplement their historical forms...

  • Page 10
    ... Pro, After Effects, and the Creative Suite Production Premium Suite that contains them plus other capabilities, Adobe is a leader for video and special effects editing. With our Adobe Media Server and Adobe Pass solutions, we enable video delivery capabilities to stream video over the internet...

  • Page 11
    ...platform or application source type. Users can collaborate on documents with electronic comments and tailor the security of a file in order to distribute reliable Adobe PDF documents that can be viewed, printed or interacted with utilizing the free Adobe Reader. Available in different versions which...

  • Page 12
    ...optimizing multi-channel and auction-based digital advertising across search, display and social media. Customers use these products and services to manage and optimize online, offline, digital and multi-channel business initiatives. The Adobe Digital Marketing Suite is a collection of web analytics...

  • Page 13
    ...search engine marketers, media managers, media buyers and marketing research analysts. Customers also include web content editors, web analysts and web marketing managers. These customers often are involved in workflows that utilize other Adobe products, such as our digital media tools and our video...

  • Page 14
    ... video delivery and monetization platform. Digital Enterprise Solutions Strategy Our Adobe LiveCycle and Adobe Connect products help customers automate paper intensive processes, improve collaboration, provide better customer service and reduce costs. We believe our offerings can transform customer...

  • Page 15
    ... software solution that creative professionals can use as a platform for print, web and mobile content publishing; combines Acrobat Pro, Dreamweaver, Flash Catalyst, Flash Professional, Illustrator, InDesign and Photoshop Extended technologies with a file management and control center called Adobe...

  • Page 16
    ... Connect software. Adobe Creative Suite Master Collection-an integrated software solution which provides all the tools creative professionals require to create content for every design discipline in one offering; provides capabilities for professional page layout, image editing, vector illustration...

  • Page 17
    ...publishing and web-based design solutions. Adobe Muse-new offering in beta release which allows web designers to design and publish HTML5 websites without writing HTML code. Adobe Photoshop-provides photo design, enhancement and editing capabilities for print, the web and multimedia; used by graphic...

  • Page 18
    ... users to transform images using core Photoshop features in an app custom-built for tablets. Adobe Proto-new touch-based tablet app; enables web designers to create interactive wireframes and prototypes of websites and mobile apps on tablets. Digital Media-Developer and Platform Products Adobe AIR...

  • Page 19
    ... data collection, and create Adobe PDF documents that enable Adobe Reader users to digitally sign Adobe PDF documents, participate in a shared review and fill and save in forms. Adobe Acrobat Suite-a suite of software for business professionals which combines Acrobat X Pro, Photoshop and rich media...

  • Page 20
    ... customers to electronically sign documents via a simple cloud-based service. Digital Marketing Suite Products We offer the Adobe Digital Marketing Suite, our suite of products, solutions and services used to manage and enhance online, offline and multi-channel business initiatives, which we host...

  • Page 21
    ... changing point-of-sale, kiosk and inventory data; helps users correlate data to online interactions for a deeper understanding of customer responses across multiple channels. Digital Marketing Suite Platform Adobe CRX-an open, standards-based Enterprise Content Management ("ECM") platform, built on...

  • Page 22
    ...free Adobe Reader, users have access to tools that normally would not be available in Adobe Reader, such as reviewing and commenting functions, signatures to digitally sign PDF documents, embedding file attachments, enabling database and web service capabilities, and the ability to fill in form data...

  • Page 23
    .... Adobe LiveCycle Rights Management-server-based software application that helps organizations manage information access securely with dynamic, persistent document control; allows for access control and auditing of Adobe PDF, Microsoft Word, Microsoft Excel, Microsoft PowerPoint, PTC Pro/ENGINEER...

  • Page 24
    ... for print, the web, digital video or electronic documents; also includes Adobe Type Manager which makes it easy to create beautiful text for print, web and video projects. Adobe JRun-a legacy application server solution based on the J2EE specification; integrates with our development tool offerings...

  • Page 25
    ...'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 scaled; supports developing images for print, the web and Adobe Flash Player...

  • Page 26
    ... its feature sets on PC-based systems, particularly in use cases such as online gaming, web applications and RIAs, 3D-based content, and premium online video delivery. Given Apple's considerable market share with smartphones and tablets, and Apple's decision to not support Adobe Flash Player on its...

  • Page 27
    ... platform for Ajax developers. With our Adobe Media Server solution, we face competition from Microsoft with its Windows Media Server for Windows Media and Silverlight, as well as Apple, Move Networks, Real Networks, Wowza Media Systems and others. Our tools used to create applications for PCs and...

  • Page 28
    ... with our other products to create a broad digital video publishing platform for our customers. With our Acrobat business, we continue to face competition from Microsoft. Their widely used Office product offers a feature to save Microsoft Office documents as PDF documents, which competes with...

  • Page 29
    ...multi-brand, multilanguage websites, our superior user experience, tools for building multi-screen, multi-channel applications, standards-based architecture, scalability and performance and leadership in industry standards efforts. Our web conferencing solution, Adobe Connect, faces competition from...

  • Page 30
    ... forms to users as MS Outlook e-mail messages or to web browsers rather than the InfoPath client. They also continue to offer their Windows Rights Management Services in their Windows Server product which is designed to allow corporate networks to manage and enforce restrictions built into documents...

  • Page 31
    ... 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 distribution network, which includes locations in Australia, Austria...

  • Page 32
    ...basic "how to" help in using our products We offer a range of support programs, from fee-based incidents to annual support contracts. Additionally, we provide extensive self-help and online technical support capabilities via the web which allows customers quick and easy access to possible solutions...

  • Page 33
    ...programs as trade secrets and make source code available to third parties only under limited circumstances and subject to specific security and confidentiality constraints. Our products are generally licensed to end users under one of the following two methods: (1) We offer many products on a "right...

  • Page 34
    ... Sales and Field Operations and from April 1994 to January 1998 as Vice President, Worldwide Professional Services. David Wadhwani 40 Senior Vice President and General Manager, Digital Media Business Unit Mr. Wadhwani serves as Senior Vice President and General Manager of Adobe's Digital Media...

  • Page 35
    ... customer needs, extend our core technology into new applications, and anticipate and respond to emerging standards, business models, software delivery methods and other technological changes, such as the evolution and emergence of digital application marketplaces as a direct sales and software...

  • Page 36
    ... from perpetual license sales and distribution of our software in favor of providing our customers the right to access certain of our software in a hosted environment or use downloaded software for a specified subscription period. If our customers' purchases trend away from perpetual licenses toward...

  • Page 37
    ... of operations. Subscription pricing allows customers to use our products at a lower initial cost when compared to the sale of a perpetual license. Although the subscription model is designed to increase the number of customers who purchase our products and services and create a recurring revenue...

  • Page 38
    ... 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 39
    ... customers including contractual provisions under various license arrangements and service agreements. In addition, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these occurrences could seriously harm our business...

  • Page 40
    ...our online store at adobe.com, our hosted Digital Media offerings and the Digital Marketing business unit, rely on services hosted and controlled directly by us or by third parties. Because we hold large amounts of customer data, some of which is hosted in third-party facilities, a security incident...

  • Page 41
    ...we could lose customers. 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...

  • Page 42
    ... 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 third-party data center...

  • Page 43
    ...we have no current plans to request any advances under this credit facility, we may use the proceeds of any future borrowing for general corporate purposes, or for future acquisitions or expansion of our business. This debt may adversely affect our financial condition and future financial results by...

  • Page 44
    ... of our future success depends on the continued service and availability of our senior management. These individuals have acquired specialized knowledge and skills with respect to Adobe. The loss of any of these individuals could harm our business. Our business is also dependent on our ability to...

  • Page 45
    ... our long-term strategic planning and execution. We believe that a critical contributor to our success to date has been our corporate culture, which we believe fosters innovation and teamwork. As we grow, including from the integration of employees and businesses acquired in connection with our...

  • Page 46
    ... sets forth the location, approximate square footage and use of each of the principal properties used by Adobe during fiscal 2011. 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...

  • Page 47
    Table of Contents Approximate Square Footage Location Use China: Block A, SP Tower, 11th, 19th, 21st & 22nd ... Research and product development 58,000 Research and product development 49,000 Product development, sales, marketing and administration 36,000 Research and product development The...

  • Page 48
    ... 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 49
    ... 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 50
    ... for the three months ended December 2, 2011. 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 Announced Plans Approximate Dollar Value that May Yet be Purchased Under the...

  • Page 51
    ...Shares used to compute diluted net income per share Cash dividends declared per common share Financial position:(2) Cash, cash equivalents and short-term investments Working capital Total assets Debt and capital lease obligations, non-current Stockholders' equity Additional data: Worldwide employees...

  • Page 52
    ...operating systems, devices and media. We market and license our software directly to enterprise customers through our sales force, and to end users through app stores and our own website at www.adobe.com. We also distribute our products through a network of distributors, value-added resellers ("VARs...

  • Page 53
    .... Revenue Recognition Our revenue is derived from the licensing of software products, associated software maintenance and support plans, custom software development, non-software related hosting services, consulting services, training and technical support. We recognize revenue when all four revenue...

  • Page 54
    ... hosting services that are based on a committed number of transactions ratably beginning on the date the customer commences use of our services and continuing through the end of the customer term. Over-usage fees, and fees billed based on the actual number of transactions from which we capture data...

  • Page 55
    ... 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; the acquired company's trade...

  • Page 56
    ... rates, by lapses of the availability of the U.S. research and development tax credit, or by changes in the valuation of our deferred tax assets and liabilities. Recent Accounting Pronouncements See Note 1 of our Notes to Consolidated Financial Statements for information regarding the effect of new...

  • Page 57
    ... Creative and Interactive Solutions and Digital Media Solutions. Creative and Interactive Solutions contains our Creative Suite family of products including our professional page layout and web layout products, whereas Digital Media Solutions contains our imaging and video products for professionals...

  • Page 58
    ...new SaaS and subscription models that will allow us to target new users. Our services and support revenue is comprised of consulting, training and maintenance and support, primarily related to the licensing of our enterprise, developer and platform products and the sale of our hosted online business...

  • Page 59
    ... in revenue associated with Adobe Creative Suite Production Premium. Photoshop point product revenue remained relatively stable in fiscal 2011 as compared to fiscal 2010. Both the overall number of units licensed and unit average selling prices for Digital Media Solutions remained relatively stable...

  • Page 60
    ...Contents Revenue from Print and Publishing increased $18.5 million during fiscal 2010 as compared to fiscal 2009 due to an improved economic environment in certain markets and geographies, the launch of new products, fees received for engineering services and royalties related to PostScript products...

  • Page 61
    ...party royalties, excess and obsolete inventory, amortization related to localization costs, purchased intangibles and acquired rights to use technology and the costs associated with the manufacturing of our products. Cost of product revenue decreased due to the following: % Change 2011-2010 % Change...

  • Page 62
    ... related data center costs. Also included in cost of subscription revenue for fiscal 2010 is $58.4 million of amortization expense related to intangible assets acquired in conjunction with this acquisition. Services and Support Cost of services and support revenue is primarily comprised of employee...

  • Page 63
    ... investments in the development of our application, tool and service offerings. Sales and Marketing Sales and marketing expenses consist primarily of salary and benefit expenses, sales commissions, travel expenses and related facilities costs for our sales, marketing, order management and global...

  • Page 64
    ... our Notes to Consolidated Financial Statements for further information regarding our restructuring plans. Amortization of Purchased Intangibles and Incomplete Technology During the last several years, we have completed a number of business combinations and asset acquisitions including Macromedia in...

  • Page 65
    ...due to the one-time tax costs of licensing acquired company assets to Adobe's trading companies. These costs were partially offset by tax benefits related to a favorable state income tax ruling and the reinstatement of the federal research and development tax credit. Our effective tax rate decreased...

  • Page 66
    ... overall increase in billing activity for maintenance and support/upgrade plans, hosted and professional services and site and term licenses. Accrued restructuring increased primarily due to recognition of liabilities related to employee termination and facility exit costs associated with the Fiscal...

  • Page 67
    ... related primarily to activity from our acquisition of Omniture, the related renewal of calendar-year based contracts in addition to increases in maintenance and support orders and royalty revenue deferrals related to changes in customer billing terms. The primary working capital uses of cash for...

  • Page 68
    ... expansion and purchases of computer systems for research and development, sales and marketing, product support and administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase program and to strategically acquire companies, products or technologies...

  • Page 69
    ... 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 of shares deliverable are: the total notional amount of the contract, the number of trading days in...

  • Page 70
    ....89 _____ 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 above. (2) Off-Balance Sheet...

  • Page 71
    ...and $0.7 million, respectively. 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 and from time to time, we are subject to claims...

  • Page 72
    ... technique that measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S. dollar. For option contracts, the Black-Scholes equation model was used. For forward contracts, duration modeling was used where hypothetical changes are made to...

  • Page 73
    ... 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 2, 2011, we had debt securities classified as short-term investments of $1,909...

  • Page 74
    ... of Cash Flows Notes to Consolidated Financial Statements Report of KPMG LLP, Independent Registered Public Accounting Firm 75 76 77 78 79 121 All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require...

  • Page 75
    Table of Contents ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) December 2, 2011 December 3, 2010 ASSETS Current assets: Cash and cash equivalents Short-term investments Trade receivables, net of allowances for doubtful accounts of $15,080 and $15,233, ...

  • Page 76
    ... per share data) Years Ended December 2, 2011 December 3, 2010 November 27, 2009 Revenue: Products Subscription Services and support Total revenue Cost of revenue: Products Subscription Services and support Total cost of revenue Gross profit Operating expenses: Research and development Sales and...

  • Page 77
    Table of Contents ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' ...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...Financial Statements. 77

  • Page 78
    ...-term investments Business acquisitions, net of cash acquired Purchases of property and equipment Proceeds from sale of property and equipment Purchases of long-term investments, intangibles and other assets Proceeds from sale of long-term investments Other Net cash used for investing activities...

  • Page 79
    ...operating systems, devices and media. We market and license our software directly to enterprise customers through our sales force, and to end users through app stores and our own website at www.adobe.com. We also distribute our products through a network of distributors, value-added resellers ("VARs...

  • Page 80
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Multiple Element Arrangements We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades, maintenance and support, hosting services, and ...

  • Page 81
    ... using a time and materials basis and is measured monthly based on input measures, such as hours incurred to date, with consideration given to output measures, such as contract milestones when applicable. Our maintenance and support offerings, which entitle customers to receive product upgrades...

  • Page 82
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) difference 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-...

  • Page 83
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) improvements are amortized using the straight-line method over the lesser of the remaining respective lease term or estimated useful lives ranging from 1 to 15 years. Goodwill, Purchased Intangibles ...

  • Page 84
    ... (e.g., trade receivables and accounts payable) are recorded each period as a component of interest and other income, net in our Consolidated Statements of Income. Foreign exchange forward and option contracts hedging forecasted non-functional currency product licensing revenue, are designated as...

  • Page 85
    ...of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers. Our cash and investments are held and managed by recognized financial institutions...

  • Page 86
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fiscal 2010 Acquisitions Day Software Holding AG On October 28, 2010, we completed our acquisition of Day Software Holding AG ("Day"), a provider of web content management solutions that many leading...

  • Page 87
    ... enterprise and mid-market customers as well as partner 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...

  • Page 88
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Restructuring-$11.3 million of the overall purchase price was allocated to restructuring and related primarily to costs for severance and associated benefits, outplacement services, and cost of ...

  • Page 89
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash, cash equivalents and short-term investments consisted of the following as of December 2, 2011 (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current ...

  • Page 90
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash, cash equivalents and short-term investments consisted of the following as of December 3, 2010 (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current ...

  • Page 91
    Table of Contents 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 ...

  • Page 92
    Table of Contents 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. There have been no transfers between fair value measurement levels during the ...

  • Page 93
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of our financial assets and liabilities at December 3, 2010 was determined using the following inputs (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices in Active...

  • Page 94
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. During fiscal 2011...

  • Page 95
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of derivative instruments on our Consolidated Balance Sheets as of December 2, 2011 and December 3, 2010 was as follows (in thousands): 2011 Fair Value Asset (1) Derivatives Fair Value...

  • Page 96
    ... by reportable segment and activity for the years ended December 2, 2011 and December 3, 2010 was as follows (in thousands): 2009 Acquisitions Other (1) 2010 Acquisitions Other (2) 2011 Creative and Interactive Solutions Digital Media Solutions Knowledge Worker Enterprise Omniture Print and...

  • Page 97
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchased and other intangible assets, net by reportable segment as of December 2, 2011 and December 3, 2010 were as follows (in thousands): 2011 2010 Creative and Interactive Solutions Digital Media...

  • Page 98
    ...of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. OTHER ASSETS Other assets as of December 2, 2011 and December 3, 2010 consisted of the following (in thousands): 2011 2010 Investments Deferred compensation plan assets Prepaid land lease Security...

  • Page 99
    ... Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...allowance Stock-based compensation (net of tax deduction) Resolution of U.S. income tax exams Domestic manufacturing deduction benefit U.S. tax benefits related to state income tax ruling Tax charge for licensing acquired...

  • Page 100
    ...of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (...financial statements pursuant to accounting standards related to stock-based compensation. These amounts are no longer included in our gross or net deferred tax assets. Pursuant to these standards, the benefit...

  • Page 101
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A valuation allowance has been established for certain deferred tax assets related to the impairment of investments. Accounting for Uncertainty in Income Taxes During fiscal 2011 and 2010, our ...

  • Page 102
    ...Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During the fourth quarter of fiscal 2011, we vacated approximately 47,000 square feet of sales and/or research and development facilities in New Zealand and the U.S. We accrued $3.3 million for the fair value...

  • Page 103
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) facilities. We also recognized costs related to the cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by Macromedia. Total costs incurred...

  • Page 104
    ...Plan, respectively. Employee Stock Purchase Plan Our 1997 Employee Stock Purchase Plan ("ESPP") allows eligible employee participants to purchase shares of our common stock at a discount through payroll deductions. The ESPP consists of a twenty-four month offering period with four six-month purchase...

  • Page 105
    ...24% 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: Fiscal Years 2011 2010 2009 Expected life (in years) Volatility Risk free interest rate 105 0.5 - 2.0 30...

  • Page 106
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We recognize the estimated compensation cost of restricted stock awards and restricted stock units, net of estimated forfeitures, over the vesting term. The estimated compensation cost is based on ...

  • Page 107
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Information regarding stock options outstanding at December 2, 2011, December 3, 2010 and November 27, 2009 is summarized below: Weighted Average Exercise Price Weighted Average Remaining Contractual...

  • Page 108
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Information regarding restricted stock units outstanding at December 2, 2011, December 3, 2010 and November 27, 2009 is summarized below: Weighted Average Remaining Contractual Life (years) Aggregate...

  • Page 109
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the summary of performance share activity under our 2007, 2008 and 2010 programs, based upon share awards actually achieved, for the fiscal years ended December 2, 2011...

  • Page 110
    ... 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) 2011 2010 2009 Restricted Stock and Performance Share Awards(2) $ $ $ $ $ $ 936...

  • Page 111
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 14. STOCKHOLDERS' EQUITY Comprehensive Income The following table sets forth the activity for each component of comprehensive income, net of related taxes, for fiscal 2011, 2010 and 2009 (in ...

  • Page 112
    ... 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 of shares deliverable are: the total notional amount of the contract, the number of trading days in...

  • Page 113
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) repurchase agreement, $225.0 million remains under our time-constrained dollar-based authority. See Note 21 for further discussion of our stock repurchase program. NOTE 15. NET INCOME PER SHARE Basic net...

  • Page 114
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) lease investment equity balance which is callable in the event of default. In October 2011, we exercised our option to renew the lease to March 2017. As of December 2, 2011, the carrying value of the...

  • Page 115
    ... 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 116
    ... for general corporate purposes, including repayment of any balance outstanding on our credit facility. Based on quoted market prices, the fair value of the Notes was approximately $1.6 billion as of December 2, 2011. We may redeem the Notes at any time, subject to a make whole premium. In addition...

  • Page 117
    ... of integrated tools for a full range of design and publishing and developer tasks to an extended set of customers. Digital Media Solutions-Our Digital Media Solutions segment contains our professional imaging and video products and focuses on many of the same creative professional customers as our...

  • Page 118
    ...of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) • • Omniture-Our Omniture segment provides web analytics and online business optimization products and services to manage and enhance online, offline and multi-channel marketing initiatives. Print and...

  • Page 119
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The tables below list our revenue and property and equipment, net, by geographic area for fiscal 2011, 2010 and 2009 (in thousands). With the exception of property and equipment, we do not identify ...

  • Page 120
    ... Digital Marketing reportable segment for financial reporting purposes beginning in the first quarter of fiscal 2012.The acquisition of Efficient Frontier adds cross-channel ad campaign forecasting, execution and optimization capabilities to our Digital Marketing Suite, along with a social marketing...

  • Page 121
    ... Committee of Sponsoring Organizations of the Treadway Commission (COSO). Adobe Systems Incorporated's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal...

  • Page 122
    ... 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 2012 Proxy Statement to be filed with the SEC in connection with the...

  • Page 123
    ... ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item 14 of Form 10-K is incorporated by reference to our 2012 Proxy Statement. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. Financial Statements. See Index to Consolidated Financial Statements in Part II...

  • Page 124
    ... the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 26, 2012. ADOBE SYSTEMS INCORPORATED By: /s/ MARK GARRETT Mark Garrett Executive Vice President and Chief Financial Officer (Principal...

  • Page 125
    Table of Contents Signature Title Date /s/ JAMES E. DALEY James E. Daley /s/ DANIEL L. ROSENSWEIG Daniel L. Rosensweig /s/ ROBERT SEDGEWICK Robert Sedgewick January 26, 2012 Director January 26, 2012 Director January 26, 2012 Director 125

  • Page 126
    ... Adobe SiteSearch Adobe Type Manager After Effects AIR Auditude Authorware BusinessCatalyst Captivate ColdFusion ColdFusion Builder Contribute Creative Cloud Creative Suite CRX CS Live Director Dreamweaver EchoSign Encore Fireworks Flash Flash Access Flash Builder Flash Catalyst Flash Lite Flex Font...

  • Page 127
    Table of Contents SUMMARY OF TRADEMARKS (Continued) PostScript Reader Revel RoboHelp Scene7 Shockwave SiteCatalyst SiteCatalyst NetAverages Soundbooth Test&Target TypeKit Visual Communicator All other trademarks are the property of their respective owners. 127

  • Page 128
    ... 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 with the Amended 1994 Performance and Restricted Stock Plan* 1997 Employee Stock Purchase Plan, as amended...

  • Page 129
    Table of Contents Incorporated by Reference** Exhibit Number Exhibit Description Form Date Number Filed Herewith 10.12 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 ...

  • Page 130
    Table of Contents Incorporated by Reference** Exhibit Number Exhibit Description Form Date Number Filed Herewith 10.30 Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2008 Performance Share Program pursuant to the...

  • Page 131
    ...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 132
    Table of Contents Incorporated by Reference** Exhibit Number Exhibit Description Form Date Number Filed Herewith 10.55 Visual Sciences, Inc. (formerly, WebSideStory, Inc.) 2004 Equity Incentive Award Plan (the "VS 2004 Plan") and Form of Option Grant Agreement* 10.56 Form of Restricted Stock Award ...

  • Page 133
    ... Independent 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 13a-14(a) of the Securities Exchange Act of 1934 Certification of Chief Financial Officer, as...

  • Page 134
    ..., 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...