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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 28, 2014
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)
(408) 536-6000
(Registrant’s 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 check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark 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 Web site, 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 check mark 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 May 30, 2014, the last
business day of the registrant’s most recently completed second fiscal quarter, was $24,153,080,560 (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 16, 2015, 498,314,061 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 registrant’s 2015 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of
the fiscal year ended November 28, 2014, 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
    ... Park Avenue, San Jose, California 95110-2704 (Address of principal executive offices) (408) 536-6000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.0001 par value per share Name of Each Exchange...

  • Page 2
    ..., 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 ...108...

  • Page 3
    ... directly to enterprise customers through our sales force and to end-users through app stores and our own website at www.adobe.com. We offer many of our products via a Software-as-a-Service ("SaaS") model or a managed services model (both of which are referred to as a hosted or cloud-based model) as...

  • Page 4
    ...Adobe Acrobat. Creative Cloud members can also access online services to sync, store, and share files, participate in our Behance community of more than four million creative professionals, publish and deliver digital content via app stores, develop mobile apps, and create and manage websites. Adobe...

  • Page 5
    ...; using promotions to attract customers to the offering; expanding our go-to-market reach through channel partners to reach new customers; and utilizing Creative Cloud for teams and Creative Cloud for enterprise offerings to drive broad adoption with customers who license our products in volume...

  • Page 6
    ... revenue from ad sales and subscriptions, while lowering operating costs. In addition to CMOs and digital marketers, users of our Adobe Marketing Cloud solutions include marketing professionals such as search engine marketers, media managers, media buyers and marketing research analysts. Customers...

  • Page 7
    ...increase the utilization of Creative Cloud capabilities beyond the use of our desktop applications. New services include: Content, which provides users easy access to stock content; Libraries, an asset management service; and Creative Talent Search, connecting users with job opportunities and hiring...

  • Page 8
    ... partners also license Creative Cloud with annual team subscriptions to small or medium-sized businesses, or to workgroups in enterprises. With larger enterprise customers, our direct sales force utilizes enterprise term license agreements ("ETLAs"), for volume-based agreements often for multi-year...

  • Page 9
    ... to help users create responsive layouts and visual designs with CSS; Edge Web Fonts, a free web font service for using a growing library of open source fonts on websites and in apps; Typekit, a service that gives designers and developers access to a library of hosted, high-quality fonts to use on...

  • Page 10
    ...a set of a cloud-based document and collaboration subscription services which provide simple PDF creation, centralized online file sharing and storage capabilities, and document/contract signing solutions. These services include Adobe CreatePDF, Adobe ExportPDF and Adobe EchoSign for safe electronic...

  • Page 11
    ... and cost-effective basis, meet changing customer needs, provide best-in-class information security to build customer confidence and combat cyber-attacks, extend our core technology into new applications and anticipate and respond to emerging standards, business models, software delivery methods...

  • Page 12
    ... and open source web-authoring tools. Our Flash technologies face competition from alternative approaches to building rich content and web applications such as JavaFX, HTML5, native OS application programming environments and Unity. The needs of digital imaging and video editing software users are...

  • Page 13
    ... property portfolio. OPERATIONS Marketing and Sales We market and license our products directly using our sales force and through our own website at www.adobe.com. We also market and distribute our products through sales channels, which include distributors, retailers, software developers, systems...

  • Page 14
    ... consulting fees, software maintenance and support fees and training fees. Services We have a global professional services team dedicated to designing, developing and implementing solutions for enterprise customers in key vertical markets and to transfer technical expertise to our solution partners...

  • Page 15
    ... how-to books published by Adobe Press pursuant to a joint publishing agreement with Peachpit Press. We sponsor workshops, work with professional associations and user groups, and conduct regular beta testing programs. We also provide fee-based education services to enhance our customers' use of our...

  • Page 16
    ...practicable after we electronically file such material with, or furnish it to, the SEC. The information posted on our website is not incorporated into this report. EXECUTIVE OFFICERS Adobe's executive officers as of January 16, 2015 are as follows: Name Age Positions Shantanu Narayen 51 President...

  • Page 17
    ... and Publishing Business Unit and Managing Director, Adobe India Dr. Gupta currently serves as Senior Vice President of Print and Publishing and Managing Director of Adobe India. Dr. Gupta joined Adobe in 1996 as a member of the Corporate Research group. He was promoted to Managing Director of Adobe...

  • Page 18
    ..., emerging business and distribution models, disruptive technology developments, short product and service life cycles, price sensitivity on the part of customers, and frequent new product introductions, including alternatives with limited functionality available at lower costs or free of charge...

  • Page 19
    ... or use downloaded software for a specified subscription period. This cloud strategy requires continued investment in product development and cloud operations, and may give rise to a number of risks, including the following: • • if customers desire only perpetual licenses or to purchase or...

  • Page 20
    ...revenue and operating results. The hosted business model we utilize in our Adobe Marketing Cloud offerings typically involves selling services on a subscription basis pursuant to service agreements that are generally one to three years in length. Our individual Creative Cloud subscription agreements...

  • Page 21
    ... to liability and harm our business and reputation. Some of our lines of business and services, including our online store at adobe.com, Creative Cloud, other hosted Digital Media offerings and our Adobe Marketing Cloud solutions, rely on hardware and services hosted and controlled directly by us or...

  • Page 22
    ...we do business slows, customers may delay or reduce technology purchases, advertising spending or marketing spending. This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price competition. Our customers include...

  • Page 23
    ... or product architecture, data back-up and security (including security from cyber-attacks), privacy practices, revenue recognition or other accounting practices, employee, customer or partner issues or legal and financial contingencies; exposure to litigation or other claims in connection with...

  • Page 24
    ... relationships or results of operations. 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. We contract with a number of software distributors, none of which...

  • Page 25
    ...customer service and technical support providers, our reputation may be harmed and we could lose customers and associated revenues. Certain of our enterprise offerings have long and complex sales cycles. Sales cycles for some of our enterprise offerings, including our Adobe Marketing Cloud Solutions...

  • Page 26
    ... of our business, including trade protection, import and export control, data and transaction processing security, payment card industry data security standards, records management, user-generated content hosted on websites we operate, privacy practices, corporate governance, employee and third...

  • Page 27
    ... of our internal policies. Any such violation, even if prohibited by our internal policies, could have an adverse effect on our business. As a global business that generates approximately 44% of our total revenue from sales to customers outside of the Americas, we are subject to a number of risks...

  • Page 28
    ... to applicable cure periods, any outstanding indebtedness may be declared immediately due and payable. In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities, as well as the potential costs associated with...

  • Page 29
    ... strategic planning and execution. We believe that a critical contributor to our success to date has been our corporate culture, which we have built to foster innovation, teamwork and employee satisfaction. As we grow, including from the integration of employees and businesses acquired in connection...

  • Page 30
    ..., sales, technical support and administration Research, product development, sales, marketing and administration Research, product development, sales, marketing and administration Sales and marketing Sales and marketing Research, product development, sales, marketing and administration Data center...

  • Page 31
    ... is subleased. In fiscal 2014, we initiated our Fiscal 2014 Restructuring Plan which included a plan to vacate our research and product development facility in China during fiscal 2015. See Note 10 of our Notes to Consolidated Financial Statements for further information regarding our restructuring...

  • Page 32
    ... damages, treble damages, costs and attorneys fees. All defendants deny the allegations and that they engaged in any wrongdoing of any kind. On October 24, 2013, the court certified a class of all persons who worked in the technical, creative, and/or research and development fields on a salaried...

  • Page 33
    ... 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 Low...

  • Page 34
    ... Securities Below is a summary of stock repurchases for the three months ended November 28, 2014. See Note 13 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...

  • Page 35
    ...and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Fiscal Years 2014 2013 2012 2011 2010 Operations: Revenue ...Gross profit...Income before income taxes...Net income ...Net income per share:...Basic ...Diluted ...Shares used to compute basic net...

  • Page 36
    ... results. Revenue Recognition Our revenue is derived from the licensing of perpetual, time-based and subscription software products, associated software maintenance and support plans, non-software related hosted services, consulting services, training and technical support. We recognize revenue when...

  • Page 37
    ..., internal costs, gross margin objectives and pricing practices. Pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable and our price lists. We must estimate certain royalty revenue amounts due to the timing of securing information...

  • Page 38
    ... to future expected cash flows 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...

  • Page 39
    ...and applications. Creative Cloud, first delivered in May 2012, is our next-generation offering that supersedes our historical model of licensing our creative products with perpetual licenses. Creative Cloud delivers value through more frequent product updates, storage and access to user files stored...

  • Page 40
    ... market we use to license our creative software to targeted customers. Adoption of Creative Cloud has transformed our business model and we continue to expect this to drive higher long-term revenue growth through an expansion of our customer base by acquiring new users through a lower cost of entry...

  • Page 41
    ... of November 29, 2013. The change in our Digital Media ARR was primarily due to increases in the number of paid Creative Cloud individual and team subscriptions and adoption of our enterprise Creative Cloud offering through our ETLAs. Adobe Marketing Cloud revenue of $1.17 billion increased by $154...

  • Page 42
    ...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 Adobe Marketing Cloud services. Our support revenue also includes technical support and developer support to partners and developer...

  • Page 43
    ...migrating customers to our Creative Cloud Photography Plan is also contributing to the year-over-year decline in revenue. These decreases were offset in part by increases in revenue associated with our Digital Publishing Suite. For our creative offerings, the total number of perpetual units licensed...

  • Page 44
    ...party software downloads and our Digital Publishing Suite. These increases were partially offset by decreases in revenue associated with our Hobbyist products. For our creative offerings, the total number of perpetual units licensed decreased while the number of subscription units licensed increased...

  • Page 45
    ... balance sheet does not represent the total contract value of annual or multi-year, non-cancellable subscription agreements. Unbilled deferred revenue represents expected future billings which are contractually committed under our existing subscription, SaaS and managed services agreements...

  • Page 46
    ... rights to use technology in the future. Cost of sales primarily decreased due to a decline in the number of perpetual units sold and packaging costs associated with our CS6 products as we focus our creative development efforts on our Creative Cloud offering. Excess and obsolete inventory decreased...

  • Page 47
    ...intangibles. Hosted server costs increased primarily due to increases in data center costs related to higher transaction volumes in our Adobe Marketing Cloud and Creative Cloud services, depreciation expense from higher capital expenditures in prior years and compensation and related benefits driven...

  • Page 48
    ... costs and expenses associated with computer equipment used in software development. Research and development expenses increased due to the following: % Change 2014-2013 % Change 2013-2012 Compensation associated with cash and stock-based incentives...Compensation and related benefits associated...

  • Page 49
    ...computer equipment and software used in the administration of the business, charitable contributions and various forms of insurance. General and administrative expenses increased due to the following: % Change 2014-2013 % Change 2013-2012 Compensation associated with cash and stock-based incentives...

  • Page 50
    ... useful lives ranging from one to fourteen years. Amortization expense remained stable during fiscal 2014 as compared to fiscal 2013. Amortization expense increased 7% during fiscal 2013 as compared to fiscal 2012 primarily due to amortization expense associated with intangible assets purchased...

  • Page 51
    ... and stronger domestic profits for fiscal 2014. Our effective tax rate decreased by approximately seven percentage points during fiscal 2013 as compared to fiscal 2012. The decrease is primarily related to the reinstatement of the U.S. research and development credit and tax benefits recognized as...

  • Page 52
    ... hosted services, offset in part by decreases in billings for our maintenance and Creative product software upgrade plans which we discontinued in January 2013. Accrued expenses increased primarily due to accruals for contract terminations and employee transition payments associated with business...

  • Page 53
    ... upgrade plans with support and site and term licenses largely associated with our Digital Media and Digital Marketing enterprise license agreements. The decrease in trade receivables is primarily related to an increase in revenue linearity and improved collections in our Digital Marketing portfolio...

  • Page 54
    ...Statements for additional information regarding our restructuring plans. Other Liquidity and Capital Resources Considerations Our existing cash, cash equivalents and investment balances may fluctuate during fiscal 2015 due to changes in our planned cash outlay, including changes in incremental costs...

  • Page 55
    ... Purchases of Equity Securities for share repurchases during the quarter ended November 28, 2014. Summary of Stock Repurchases for Fiscal 2014, 2013 and 2012 (in thousands, except average amounts) Board Approval Date Repurchases Under the Plan 2014 Shares Average Shares 2013 Average Shares 2012...

  • Page 56
    ... 28, 2014 was $148.8 million, exclusive of interest and penalties. The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet...

  • Page 57
    ... as of November 28, 2014. This sensitivity analysis 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 option pricing model was used. A 10% increase in the value of the U.S. Dollar and...

  • Page 58
    ... year ended November 28, 2014, net gains or losses recognized in other income relating to hedges of forecasted transactions that did not occur were insignificant. See Note 5 of our Notes to Consolidated Financial Statements for information regarding our hedging activities. Balance Sheet Hedging...

  • Page 59
    ... significant impact on our results of operations. As of November 28, 2014, the total carrying amount of the Notes was $1.5 billion and the related fair value based on inactive market prices was $1.6 billion. Other Market Risk Privately Held Long-Term Investments The privately held companies in which...

  • Page 60
    ... of Cash Flows ...Notes to Consolidated Financial Statements...Report of KPMG LLP, Independent Registered Public Accounting Firm ... 61 62 63 64 65 66 107 All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to...

  • Page 61
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) November 28, 2014 November 29, 2013 ASSETS Current assets: Cash and cash equivalents...$ Short-term investments ...Trade receivables, net of allowances for doubtful accounts of $7,867 and $10,228, respectively...

  • Page 62
    ... per share data) Years Ended November 28, 2014 November 29, 2013 November 30, 2012 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...

  • Page 63
    ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Years Ended November 28, 2014 November 29, 2013 Increase/(Decrease) November 30, 2012 Net income...$ Other comprehensive income, net of taxes: Available-for-sale securities: Unrealized gains / losses on ...

  • Page 64
    ...-issuance of treasury stock under stock compensation plans...Tax benefit from employee stock plans...Purchase of treasury stock ...Equity awards assumed for acquisition ...Stock-based compensation...Value of shares in deferred compensation plan...Balances at November 29, 2013 ...Net income ...Other...

  • Page 65
    ... cash equivalents at end of year ...Supplemental disclosures: Cash paid for income taxes, net of refunds...Cash paid for interest ...Non-cash investing activities: Investment in lease receivable applied to building purchase...Issuance of common stock and stock awards assumed in business acquisitions...

  • Page 66
    ... directly to enterprise customers through our sales force and to end-users through app stores and our own website at www.adobe.com. We offer many of our products via a Software-as-a-Service ("SaaS") model or a managed services model (both of which are referred to as a hosted or cloud-based model) as...

  • Page 67
    ..., internal costs, gross margin objectives and pricing practices. Pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable and our price lists. We must estimate certain royalty revenue amounts due to the timing of securing information...

  • Page 68
    ... specified free upgrade expires. Subscription and Services and Support Revenue We recognize revenue for hosted 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...

  • Page 69
    ... factors as historical experience, credit-worthiness, the age of the trade receivable balances and current economic conditions that may affect a customer's ability to pay and we specifically reserve for those deemed uncollectible. (in thousands) 2014 2013 2012 Beginning balance ...Increase due to...

  • Page 70
    ... Software We capitalize costs associated with customized internal-use software systems that have reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees...

  • Page 71
    ... in additional paid-in-capital, the losses upon re-issuance of treasury stock are recorded as a component of retained earnings in our Consolidated Balance Sheets. Advertising Expenses Advertising costs are expensed as incurred. Advertising expenses for fiscal 2014, 2013 and 2012 were $87.9 million...

  • Page 72
    ... 2015. Following the closing, we intend to integrate Fotolia into our Digital Media reportable segment for financial reporting purposes. Fiscal 2013 Acquisitions Neolane On July 22, 2013, we completed our acquisition of privately held Neolane, a leader in cross-channel campaign management technology...

  • Page 73
    ... Financial Statements. Behance On December 20, 2012, we completed our acquisition of privately held Behance, an online social media platform to showcase and discover creative work. During the first quarter of fiscal 2013, we began integrating Behance into our Digital Media reportable segment...

  • Page 74
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash, cash equivalents and short-term investments consisted of the following as of November 28, 2014 (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current assets: Cash...$ 348...

  • Page 75
    ... available-for-sale securities, aggregated by investment category, that have been in an unrealized loss position for less than twelve months, as of November 28, 2014 and November 29, 2013 (in thousands): 2014 Fair Value Gross Unrealized Losses Fair Value 2013 Gross Unrealized Losses Corporate bonds...

  • Page 76
    ... 28, 2014, there were eight securities in an unrealized loss position for more than twelve months. As of November 29, 2013 there were no securities in an unrealized loss position for more than twelve months. The following table summarizes the cost and estimated fair value of short-term fixed income...

  • Page 77
    ... no transfers between fair value measurement levels during the year ended November 28, 2014. The fair value of our financial assets and liabilities at November 28, 2014 was determined using the following inputs (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices in Active...

  • Page 78
    ... available-for-sale securities consist of high quality, investment grade securities from diverse issuers with a minimum credit rating of BBB and a weighted average credit rating of AA-. We value these securities based on pricing from pricing vendors who may use quoted prices in active markets for...

  • Page 79
    ...LIBOR. Under the terms of the swaps, we will pay monthly interest at the one-month LIBOR rate plus a fixed number of basis points...balance sheet and measured on a recurring basis at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the contract...

  • Page 80
    ... hedges due to hedge ineffectiveness was insignificant for all fiscal years presented. The time value of purchased contracts is recorded in interest and other income (expense), net in our Consolidated Statements of Income. Balance Sheet Hedging-Hedging of Foreign Currency Assets and Liabilities We...

  • Page 81
    ...), net. Net gains (losses) recognized in interest and other income (expense), net relating to balance sheet hedging for fiscal 2014, 2013 and 2012 were as follows (in thousands): 2014 2013 2012 Gain (loss) on foreign currency assets and liabilities: Net realized gain (loss) recognized in other...

  • Page 82
    ... and equipment on our Consolidated Balance Sheets at $144.1 million, the lesser of cost or fair value, which represented the total purchase price plus other direct costs associated with the purchase. These buildings will be depreciated over their useful life of 40 years on a straight-line basis. See...

  • Page 83
    ... historical use of licensing rights and was expensed as cost of product revenue. In fiscal 2014, certain purchased intangibles associated with our acquisitions of Efficient Frontier and Day Software Holding AG became fully amortized and were removed from the Consolidated Balance Sheets. Amortization...

  • Page 84
    ... expenses as of November 28, 2014 and November 29, 2013 consisted of the following (in thousands): 2014 2013 Accrued compensation and benefits ...$ Sales and marketing allowances ...Accrued corporate marketing ...Taxes payable...Royalties payable...Accrued interest expense ...Other ...Accrued...

  • Page 85
    ... the following (in thousands): 2014 2013 2012 Computed "expected" tax expense ...$ State tax expense, net of federal benefit ...Tax credits...Differences between statutory rate and foreign effective tax rate ...Change in deferred tax asset valuation allowance...Stock-based compensation (net of tax...

  • Page 86
    ... and foreign tax credits will expire in various years from fiscal 2015 through 2033. The state tax credit carryforwards can be carried forward indefinitely. The net operating loss carryforward assets and certain credits are subject to an annual limitation under Internal Revenue Code Section 382, but...

  • Page 87
    ... tax benefit was recorded in the third quarter of fiscal 2013. The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet...

  • Page 88
    ...Balance Sheets. We expect to pay accrued termination benefits through fiscal 2015 and facilities-related liabilities under contract through fiscal 2021 of which approximately 45% will be paid through 2016. NOTE 11. BENEFIT PLANS Retirement Savings Plan In 1987, we adopted an Employee Investment Plan...

  • Page 89
    ... these plans generally expire seven years from the effective date of grant. The Executive Compensation Committee of Adobe's Board of Directors eliminated the use of stock option grants for all employees in fiscal 2012. Stock option grants to non-employee directors were minimal in fiscal 2013, and...

  • Page 90
    ... 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 2014 2013 2012 Expected life (in years) ...Volatility...Risk free interest rate ... 0.5 - 2.0 26...

  • Page 91
    .... Information regarding restricted stock units outstanding at November 28, 2014, November 29, 2013 and November 30, 2012 is summarized below: Weighted Average Remaining Contractual Life (years) Number of Shares (thousands) Aggregate Intrinsic Value(*) (millions) 2014 Restricted stock units...

  • Page 92
    ...continued service to Adobe. The following table sets forth the summary of performance share activity under our 2010, 2011 and 2012 programs, based upon share awards actually achieved, for the fiscal years ended November 28, 2014, November 29, 2013 and November 30, 2012 (in thousands): 2014 2013 2012...

  • Page 93
    ...value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market values as of November 28, 2014, November 29, 2013 and November 30, 2012 were $73.68, $56.78 and $34.61, respectively. Summary of Employee Stock Purchase Plan Shares The weighted average subscription...

  • Page 94
    ...no stock option grants during fiscal 2014. Stock option activity under our stock option program for fiscal 2014, 2013 and 2012 was as follows (shares in thousands): Outstanding Options Weighted Average Exercise Price Number of Shares December 2, 2011...Granted ...Exercised ...Cancelled ...Increase...

  • Page 95
    ... STATEMENTS (Continued) Information regarding stock options outstanding at November 28, 2014, November 29, 2013 and November 30, 2012 is summarized below: Weighted Average Remaining Contractual Life (years) Number of Shares (thousands) Weighted Average Exercise Price Aggregate Intrinsic Value...

  • Page 96
    ... Income Statement Classifications Cost of Revenue- Subscription Option Grants and Stock Purchase Rights Cost of Revenue- Services and Support Research and Development Sales and Marketing General and Administrative Total(1) 2014...$ 2013...$ 2012...$ Restricted Stock and Performance Share Awards...

  • Page 97
    ... income (expense), net. Classified as revenue. The following table sets forth the taxes related to each component of other comprehensive income for fiscal 2014, 2013 and 2012 (in thousands): 2014 2013 2012 Available-for-sale securities: Unrealized gains / losses ...$ Reclassification adjustments...

  • Page 98
    ... fiscal 2012. For fiscal 2014, 2013 and 2012, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at the payment date, though only shares physically delivered to us by November 28, 2014, November 29, 2013 and November 30, 2012 were excluded from the computation of...

  • Page 99
    ... occupy three office buildings in San Jose, California where our corporate headquarters are located. We reference these office buildings as the Almaden Tower and the East and West Towers. In August 2014, we exercised our option to purchase the East and West Towers for a total purchase price of $143...

  • Page 100
    .... As of November 28, 2014 there was no remaining balance of the unamortized portion of the fair value of the residual value guarantee remaining on our Consolidated Balance Sheets. Royalties We have royalty commitments associated with the shipment and licensing of certain products. Royalty expense is...

  • Page 101
    ... damages, treble damages, costs and attorneys fees. All defendants deny the allegations and that they engaged in any wrongdoing of any kind. On October 24, 2013, the court certified a class of all persons who worked in the technical, creative, and/or research and development fields on a salaried...

  • Page 102
    ... to interest expense over the respective terms of the Notes using the effective interest method. The effective interest rate including the discount and issuance costs is 3.45% for the 2015 Notes and 4.92% for the 2020 Notes. Interest is payable semi-annually, in arrears, on February 1 and August...

  • Page 103
    ... 0.50% or (c) LIBOR plus 1.00% plus a margin, based on our debt ratings, ranging from 0.00% to 0.30%. Commitment fees are payable quarterly at rates between 0.08% and 0.20% per year also based on our public debt ratings. Subject to certain conditions stated in the Credit Agreement, we and any of our...

  • Page 104
    ... and solutions that enable individuals, small and medium businesses and enterprises to create, publish, promote and monetize their digital content anywhere. Our customers include traditional content creators, web application developers and digital media professionals, as well as their management in...

  • Page 105
    ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Our segment results for fiscal 2014, 2013 and 2012 were as follows (dollars in thousands): Digital Media Digital Marketing Print and Publishing Total Fiscal 2014 Revenue ...Cost of revenue...Gross profit...Gross ...

  • Page 106
    .... For fiscal 2012, Ingram Micro accounted for 11% of net revenue. In fiscal 2014 and 2013, no single customer was responsible for over 10% of our trade receivables. NOTE 19. SELECTED QUARTERLY FINANCIAL DATA (unaudited) 2014 (in thousands, except per share data) February 28 Quarter Ended May 30...

  • Page 107
    ... flows for each of the years in the three-year period ended November 28, 2014, 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 reporting as of November 28...

  • Page 108
    ... internal control over financial reporting. ITEM 9B. OTHER INFORMATION On January 14, 2015, Adobe issued a press release announcing that its Board of Directors has approved a new stock repurchase program granting the Company authority to repurchase up to $2.0 billion in common stock through the end...

  • Page 109
    ... required by this Item13 of Form 10-K is incorporated herein by reference to our 2015 Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item 14 of Form 10-K is incorporated herein by reference to our 2015 Proxy Statement. PART IV ITEM 15. EXHIBITS...

  • Page 110
    ...the Board of Directors January 20, 2015 Director, President and Chief Executive Officer (Principal Executive Officer) January 20, 2015 Executive Vice President and Chief Financial Officer (Principal Financial Officer) January 20, 2015 Vice President, Corporate Controller and Chief Accounting Officer...

  • Page 111
    ... /s/ DANIEL L. ROSENSWEIG Daniel L. Rosensweig /s/ ROBERT SEDGEWICK Robert Sedgewick January 20, 2015 Director January 20, 2015 Director January 20, 2015 Director January 20, 2015 Director January 20, 2015 Director January 20, 2015 Director January 20, 2015 Director January 20, 2015 Director 111

  • Page 112
    ... referenced in this Form 10-K: Acrobat Adobe Adobe Connect Adobe Muse Adobe Premiere After Effects Behance Creative Cloud Creative Suite Dreamweaver EchoSign Flash Illustrator InCopy InDesign Lightroom LiveCycle PhoneGap PhoneGap Build Photoshop PostScript Reader Typekit All other trademarks are the...

  • Page 113
    ... Plan* 1997 Employee Stock Purchase Plan, as amended* 10-Q 4/12/06 10.6 000-15175 S-8 6/16/00 4.8 333-39524 10.3 8-K 4/26/11 10.1 000-15175 10.4A 2003 Equity Incentive Plan, as amended* 10.4B Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* Form...

  • Page 114
    ... Exhibit Number SEC File No. Filed Herewith 10.4E Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan (applicable to the 2011 Performance Share Program)* Award Calculation Methodology to the 2011 Performance Share Program pursuant to the 2003 Equity Incentive Plan* Form of...

  • Page 115
    ... Form Filing Date Exhibit Number SEC File No. Filed Herewith 10.4P Form of Director Annual Grant Restricted Stock Unit Award Agreement used in connection with the 2003 Equity Incentive Plan* 10.4Q Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive...

  • Page 116
    Incorporated by Reference** Exhibit Number Exhibit Description Form Filing Date Exhibit Number SEC File No. Filed Herewith 10.15C Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective December 5, 2014 Form of Indemnity Agreement* Second Amended and Restated Master ...

  • Page 117
    ... Form Filing Date Exhibit Number SEC File No. Filed Herewith 10.24B Forms of Stock Option Agreement under the Omniture 1999 Plan* Form of Stock Option Agreement under the Omniture 1999 Plan used for Named Executive Officers and Non-Employee Directors* Omniture, Inc. 2006 Equity Incentive Plan...

  • Page 118
    Incorporated by Reference** Exhibit Number Exhibit Description Form Filing Date Exhibit Number SEC File No. Filed Herewith 10.38 Auditude, Inc. Employee Stock Option Plan, as amended* Description of 2012 Director Compensation* Adobe Systems Incorporated 2011 Executive Severance Plan in the Event ...

  • Page 119
    ... of the Registrant Consent of 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...

  • Page 120
    ...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 amended, or the Securities Exchange Act of 1934, as...

  • Page 121
    ... in our common stock, the S&P 500 Index and the S&P 500 Software & Services Index, with reinvestment of dividends. For each reported year, our reported dates are the last trading dates of our fiscal year which ends on the Friday closest to November 30. 2009 2010 2011 2012 2013 2014 Adobe Systems...