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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 27, 2015
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 29, 2015, the last
business day of the registrant’s most recently completed second fiscal quarter, was $31,964,797,377 (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 15, 2016, 498,330,407 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 2016 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of
the fiscal year ended November 27, 2015, 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
    ... Principal Accounting Fees and Services 105 105 105 106 106 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative...

  • Page 3
    ... 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 well as through term subscription and pay-per-use models. We also...

  • Page 4
    ... publishers, media companies and global enterprises, to smaller design agencies, small and medium-sized businesses and individual freelancers. Moreover, our creative products are used to create much of the printed and online information people see, read and interact with every day, including video...

  • Page 5
    ... and services that allow individuals, small and medium businesses and enterprises to create, publish and monetize their content anywhere. Creative Cloud, a subscription service with competitive monthly pricing, is attractive to users of older versions of our products who desire to use our latest...

  • Page 6
    ...; Deliver personalized customer experiences across channels and on any device; Use predictive analytics to enable marketers to utilize past marketing program data and success to predict and drive their future success with digital marketing programs; Access all Adobe Marketing Cloud solutions from...

  • Page 7
    ...revenue in our Digital Marketing segment in fiscal 2016 and beyond. Print and Publishing Our Print and Publishing segment contains legacy products and services that address diverse market opportunities including eLearning solutions, technical document publishing, web application development and high...

  • Page 8
    ... subscription. Channel 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...

  • Page 9
    ...-production applications. After Effects is available to Creative Cloud subscribers, and customers can also subscribe to use it as an individual subscription product. Dreamweaver Dreamweaver provides a complete toolset for professional web designers and front-end developers to create, code and manage...

  • Page 10
    ... and Adobe Acrobat Reader can also access, edit and save changes to their PDF files stored on the Dropbox website or mobile app. Our eSign Services, which can be purchased as part of Document Cloud, allow users to safely electronically send and sign any document from any device. Adobe eSign Manager...

  • Page 11
    ... products on a timely 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...

  • Page 12
    ... business for creating and managing PDFs. In addition, other PDF creation solutions can be found at a low cost or for free on the web. To address these competitive threats, we are working to ensure our Adobe Document Cloud applications stay at the forefront of innovation in emerging opportunities...

  • Page 13
    ... from their use of Creative Cloud, to how they manage, deliver, measure and monetize their content with our Adobe Marketing Cloud. Print and Publishing Our Print and Publishing product offerings face competition from large-scale electronic and web publishing systems, XMLbased publishing companies as...

  • Page 14
    ... subscription entitlement, and to perpetual license customers via annual fee-based maintenance and support programs. These offerings provide technical support on the products they have purchased from Adobe; "how to" help in using our products; and product upgrades and enhancements during the term...

  • Page 15
    ... or on-demand model, where hosted software is provided on demand to customers, generally through a web browser. The use of these products is governed by either the online terms of use or an enterprise licensing agreement associated with the product. Policing unauthorized use of computer software is...

  • 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 15, 2016 are as follows: Name Age Positions Shantanu Narayen 52 President...

  • Page 17
    ...Morris currently serves as Senior Vice President of Adobe's Global Customer and Employee Experience organization. Ms. Morris joined Adobe as Senior Director of Global Talent Management in April 2002 through the acquisition of Accelio Corporation, a Canadian software company, where she served as Vice...

  • Page 18
    ... sales and software delivery environment. These digital application marketplaces often have exclusive distribution for certain platforms, which may make it more difficult for us to compete in these markets. If any competing products, services or operating systems (that do not support our solutions...

  • Page 19
    ... and subscription-based licensing models, such as Creative Cloud, we have entered markets that may not be fully accustomed to cloud-based subscription offerings. Market acceptance of such services is affected by a variety of factors, including information security, reliability, performance, customer...

  • Page 20
    ... Creative Cloud offering, our subscription sales may lag behind our expectations; our cloud strategy may raise concerns among our customer base, including concerns regarding changes to pricing over time, service availability, information security of a cloud solution and access to files while offline...

  • Page 21
    ... services to customers. We devote significant resources to address security vulnerabilities through engineering more secure products, enhancing security and reliability features in our products and systems, code hardening, conducting rigorous penetration tests, deploying updates to address security...

  • Page 22
    ... access to customer data may be obtained through inadequate use of security controls by customers. Accounts created with weak passwords could allow cyber-attackers to gain access to customer data. Additionally, failure by customers to remove accounts of their own employees, or granting of accounts...

  • 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
    ...our products and services, thereby harming our revenue. On behalf of certain customers, we collect and store anonymous and personal information derived from the activities of end users with various channels, including traditional websites, mobile websites and applications, email interactions, direct...

  • Page 25
    ... 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 26
    ... products. Our corporate headquarters, a significant portion of our research and development activities, certain of our data centers and certain other critical business operations are located in the San Francisco Bay Area, and additional facilities where we conduct significant operations are located...

  • Page 27
    ... our internal policies. Any such violation could have an adverse effect on our business. We face various risks associated with our operating as a multinational corporation. As a global business that generates approximately 42% of our total revenue from sales to customers outside of the Americas, we...

  • Page 28
    ... effect on our reported results and may even retroactively affect previously reported transactions. Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls. For example, the U.S.-based Financial Accounting...

  • Page 29
    ... to enable the effective transfer of knowledge and facilitate smooth transitions of our key employees could adversely affect 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 have built to foster...

  • Page 30
    ... 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 and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes. Should financial market conditions...

  • Page 31
    ... is subleased. In June 2015, we transferred our Bangalore operations from the Salapuria Infinity property to the Prestige Platina Technology Park property. (2) (3) (4) (5) In general, all facilities are in good condition, suitable for the conduct of our business and are operating at an average...

  • Page 32
    ... license arrangements and service agreements. Between May 4, 2011 and July 14, 2011, five putative class action lawsuits were filed in Santa Clara Superior Court and Alameda Superior Court in California. On September 12, 2011, the cases were consolidated into In Re High-Tech Employee Antitrust...

  • Page 33
    ... a summary of stock repurchases for the three months ended November 27, 2015. 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 Dollar Value that May...

  • Page 34
    ...7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Fiscal Years 2015 2014 2013 2012 2011 Operations: Revenue Gross profit Income before income taxes Net income Net income per share: Basic Diluted Shares used to compute basic net income per share Shares used to...

  • Page 35
    ... accounting policies have not differed materially from actual results. Revenue Recognition Our revenue is derived from the licensing of subscription, perpetual and time-based software products, associated software maintenance and support plans, non-software related hosted services, consulting...

  • Page 36
    ... revenue we report. We recognize revenue for hosted services that are based on a committed number of transactions ratably beginning on the date the services are first made available to the customer and continuing through the end of the contractual service term. Overusage fees, and fees billed based...

  • Page 37
    ... 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 38
    ... laws applicable to corporate multinationals such as Adobe. These potential changes could adversely affect our effective tax rates or result in other costs to us. Recent Accounting Pronouncements On November 20, 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-17, Balance...

  • Page 39
    ... of our long-term plans for our two strategic growth areas, Digital Media and Digital Marketing, while continuing to market and license a broad portfolio of products and solutions. In our Digital Media segment, we are a market leader with Adobe Creative Cloud, our subscription-based offering for...

  • Page 40
    ... 2014. We exited fiscal 2015 with 6.167 million paid Creative Cloud subscriptions, up 78% from 3.458 million at the end of fiscal 2014. Our Digital Media segment also includes our Document Cloud products and solutions, including our newly released Acrobat DC product which helped grow Document Cloud...

  • Page 41
    ...a result of our investments in new software-as-a-service ("SaaS") and subscription models. We have the following reportable segments-Digital Media, Digital Marketing and Print and Publishing. Subscription revenue by reportable segment for fiscal 2015, 2014 and 2013 is as follows (dollars in millions...

  • Page 42
    ...in revenue associated with our perpetual creative offerings, distribution of third-party software downloads and Hobbyist products launched in fiscal 2013. With respect to the Hobbyist product revenue decline, we began actively migrating customers to our Creative Cloud Photography Plan in fiscal 2014...

  • Page 43
    ... segment information above. The decline in Digital Media revenue was primarily due to expected decreases in perpetual license revenue, partially offset by increases in subscription revenue during fiscal 2015 as compared to fiscal 2014. Fiscal 2014 Revenue by Geography Compared to Fiscal 2013 Revenue...

  • Page 44
    ... enhancements to our management reporting system. We expect that the amount of unbilled deferred revenue backlog will change from period to period due to certain factors, including the timing and duration of large customer subscription, SaaS and managed service agreements, varying billing cycles of...

  • Page 45
    ... payments associated with computer equipment, data center costs, salaries and related expenses of network operations, implementation, account management and technical support personnel, amortization of intangible assets and allocated overhead. We enter into contracts with third parties for the use...

  • Page 46
    ... of employee-related costs and associated costs incurred to provide consulting services, training and product support. Cost of services and support revenue increased in all periods presented due to increases in compensation and related benefits driven by additional headcount and third-party fees to...

  • Page 47
    ... expenses associated with computer equipment used in software development. Research and development expenses increased due to the following: % Change 2015-2014 % Change 2014-2013 Compensation and related benefits associated with headcount Compensation associated with cash and stock-based incentives...

  • Page 48
    ... expenses are due to the following: % Change 2015-2014 % Change 2014-2013 Compensation and related benefits associated with headcount Compensation associated with cash and stock-based incentives Professional and consulting fees Loss contingency Various individually insignificant items Total change...

  • Page 49
    ... on our investment in lease receivable due to the purchase of the East and West Towers of our corporate headquarter offices during fiscal 2014. See Note 15 of our Notes to Consolidated Financial Statements for further details regarding our investment in lease receivables. Interest Expense Interest...

  • Page 50
    ... fiscal 2015 as compared to fiscal 2014. The increase was primarily due to tax costs associated with licensing acquired company assets to Adobe's trading companies. The increase was partially offset by tax benefits related to the reinstatement of the federal research and development tax credit in...

  • Page 51
    ... 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 52
    ...-term investments, venture capital, facilities 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...

  • Page 53
    ...stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we may repurchase shares in the open market or enter into structured repurchase agreements with third parties. In the first quarter of fiscal 2015, the Board of Directors approved a new...

  • Page 54
    ... 21.6 million shares at an average price per share of $46.47 through structured repurchase agreements entered into during fiscal 2013 and fiscal 2012. For fiscal 2015, 2014 and 2013, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at the payment date, though only...

  • Page 55
    ... coming fiscal year or restrict our ability to execute our business plan. Our Notes do not contain any financial covenants. Under the terms of our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless payment would trigger an event of default or one currently...

  • Page 56
    ...foreign currencies. As of November 27, 2015, all contracts were set to expire at various dates through June 2016. The bank counterparties in these contracts could expose us to credit-related losses which would be largely mitigated with collateral security agreements that provide for collateral to be...

  • Page 57
    ...At November 27, 2015, the outstanding balance sheet hedging derivatives had maturities of 180 days or less. 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 November...

  • Page 58
    ... of Cash Flows Notes to Consolidated Financial Statements Report of KPMG LLP, Independent Registered Public Accounting Firm 59 60 61 62 63 64 104 All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to...

  • Page 59
    Table of Contents ADOBE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) November 27, 2015 November 28, 2014 ASSETS Current assets: Cash and cash equivalents Short-term investments Trade receivables, net of allowances for doubtful accounts of $7,293 and $7,867, ...

  • Page 60
    ... per share data) Years Ended November 27, 2015 November 28, 2014 November 29, 2013 Revenue: Subscription Product Services and support Total revenue Cost of revenue: Subscription Product Services and support Total cost of revenue Gross profit Operating expenses: Research and development Sales and...

  • Page 61
    ... of Contents ADOBE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Years Ended November 27, 2015 November 28, 2014 Increase/(Decrease) November 29, 2013 Net income Other comprehensive income (loss), net of taxes: Available-for-sale securities: Unrealized gains...

  • Page 62
    ... Re-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 28, 2014 Net income Other comprehensive...

  • Page 63
    ... of treasury stock Excess tax benefits from stock-based compensation Proceeds from debt and capital lease obligations Repayment of debt and capital lease obligations Debt issuance costs Net cash used for financing activities Effect of foreign currency exchange rates on cash and cash equivalents Net...

  • Page 64
    ... 2015, 2014 and 2013 were 52-week years. Significant Accounting Policies Revenue Recognition Our revenue is derived from the licensing of subscription, time-based and perpetual software products, associated software maintenance and support plans, non-software related hosted services, consulting...

  • Page 65
    ... operations. 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 services are first made available to the customer and continuing through the end of the contractual service term...

  • Page 66
    ... is calculated as the difference between the old and new price of a software product on inventory held by the distributor immediately prior to the effective date of the decrease. • • Although our subscription contracts are generally non-cancellable, a limited number of customers have...

  • Page 67
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue Reserve Revenue reserve rollforward (in thousands): 2015 2014 2013 Beginning balance Amount charged to revenue Actual returns Ending balance Deferred Revenue $ $ 17,402 $ 45,676 (43,632) ...

  • Page 68
    ... based on the pattern in which the economic benefits will be consumed. To date, software development costs incurred between completion of a working prototype and general availability of the related product have not been material. Internal Use Software We capitalize costs associated with customized...

  • Page 69
    ...of hardware and software products to the retail market, customers to whom we license software directly and our SaaS offerings. A credit review is completed for our new distributors, dealers and OEMs. We also perform ongoing credit evaluations of our customers' financial condition and require letters...

  • Page 70
    ..., a leading marketplace for royalty-free photos, images, graphics and HD videos. During the first quarter of fiscal 2015, we began integrating Fotolia into our Digital Media reportable segment. Under the acquisition method of accounting, the total final purchase price was allocated to Fotolia's net...

  • Page 71
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Under the acquisition method of accounting, the total final purchase price was allocated to Neolane's net tangible and intangible assets based upon their estimated fair values as of July 22, 2013. The...

  • Page 72
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash, cash equivalents and short-term investments consisted of the following as of November 27, 2015 (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current assets...

  • Page 73
    ... our financial instruments. 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 an unrealized loss position for less than twelve months, as of November 27, 2015 and November 28, 2014...

  • Page 74
    ... loss position for more than twelve months at November 27, 2015 and at November 28, 2014, respectively. The following table summarizes the cost and estimated fair value of short-term fixed income securities classified as shortterm investments based on stated effective maturities as of November 27...

  • Page 75
    ... no transfers between fair value measurement levels during the year ended November 27, 2015. The fair value of our financial assets and liabilities at November 27, 2015 was determined using the following inputs (in thousands): Fair Value Measurements at Reporting Date Using Quoted Prices in Active...

  • Page 76
    ... ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 Markets...

  • Page 77
    ...Treasury rates, London Interbank Offered Rate ("LIBOR") interest rates and applicable credit spreads. See Note 15 for further details regarding our investment in lease receivables. The fair value of our senior notes was $1.97 billion as of November 27, 2015, based on observable market prices in less...

  • Page 78
    ... included the notional equivalent of $137.2 million in Euros, $30.9 million in British Pounds and $67.4 million in other foreign currencies. At November 27, 2015 and November 28, 2014, the outstanding balance sheet hedging derivatives had maturities of 180 days or less. The fair value of derivative...

  • Page 79
    ... excluded from effectiveness testing classified in interest and other income (expense), net. Classified in interest and other income (expense), net. Net gains (losses) recognized in interest and other income (expense), net relating to balance sheet hedging for fiscal 2015, 2014 and 2013 were as...

  • Page 80
    ... and equipment for fiscal 2015, 2014 and 2013 was $146.3 million, $144.2 million and $144.7 million, respectively. In the second quarter of fiscal 2015, management approved a plan to sell land and an unoccupied building located in San Jose, California. The total carrying value of the property assets...

  • Page 81
    ... ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchased and other intangible assets by reportable segment as of November 27, 2015 and November 28, 2014 were as follows (in thousands): 2015 2014 Digital Media Digital Marketing Print and Publishing Purchased...

  • Page 82
    ...412 31,181 415,658 Accrued expenses as of November 27, 2015 and November 28, 2014 consisted of the following (in thousands): 2015 2014 Accrued compensation and benefits Sales and marketing allowances Accrued corporate marketing Taxes payable Royalties payable Accrued interest expense Other Accrued...

  • Page 83
    ... of the following (in thousands): 2015 2014 2013 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 deduction...

  • Page 84
    ... below (in thousands): 2015 2014 Deferred tax assets: Acquired technology Reserves and accruals Deferred revenue Unrealized losses on investments Stock-based compensation Net operating loss carryforwards of acquired companies Credit carryforwards Capitalized expenses Benefits relating to tax...

  • Page 85
    ...an adverse effect on our operating results and financial position. 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 86
    ... salary, subject to the Internal Revenue Service annual contribution limits. In fiscal 2015, we matched 50% of the first 6% of the employee's eligible compensation. We contributed $25.7 million, $24.8 million and $22.3 million in fiscal 2015, 2014 and 2013, respectively. Adobe is under no obligation...

  • Page 87
    ... of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. STOCK-BASED COMPENSATION Our stock-based compensation programs are long-term retention programs that are intended to attract, retain and provide incentives for employees, officers and directors...

  • Page 88
    ... ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On January 24, 2014, our Executive Compensation Committee approved the 2014 Performance Share Program, including the award calculation methodology, under the terms of our 2003 Equity Incentive Plan. Under our 2014...

  • Page 89
    ... ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 2015 2014 2013...

  • Page 90
    Table of Contents ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summary of Performance Shares As of November 27, 2015, the shares awarded under our 2015, 2014 and 2013 Performance Share Programs are yet to be achieved.The following table sets forth the summary of...

  • Page 91
    ... reported by the NASDAQ Global Select Market, the market values as of November 28, 2014 and November 29, 2013 were $73.68 and $56.78, respectively. Summary of Employee Stock Purchase Plan Shares The weighted average subscription date fair value of shares under the ESPP during fiscal 2015, 2014 and...

  • Page 92
    ...-employee directors shall have an aggregate value of $0.3 million as based on the average stock price over the 30 calendar days ending on the day before the date of grant and vest 100% on the day preceding the next annual meeting. Starting in fiscal 2014, we eliminated the use of non-qualified stock...

  • Page 93
    ... thousands): 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) 2015 2014 2013 Restricted Stock and Performance Share Awards...

  • Page 94
    ...stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we may repurchase shares in the open market or enter into structured repurchase agreements with third parties. In the first quarter of fiscal 2015, the Board of Directors approved a new...

  • Page 95
    ... 21.6 million shares at an average price per share of $46.47 through structured repurchase agreements entered into during fiscal 2013 and fiscal 2012. For fiscal 2015, 2014 and 2013, the prepayments were classified as treasury stock on our Consolidated Balance Sheets at the payment date, though only...

  • Page 96
    ...$111.1 million, and $119.0 million in fiscal 2015, 2014 and 2013. Our sublease income was immaterial for all periods presented. We 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...

  • Page 97
    ... restricting our sale of products or services, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements and service agreements. 97

  • Page 98
    ...that Adobe, along with Apple, Google, Intel, Intuit, Lucasfilm and Pixar, agreed not to recruit each other's employees in violation of Federal and state antitrust laws. Plaintiffs claim the alleged agreements suppressed employee compensation and deprived employees of career opportunities. Plaintiffs...

  • Page 99
    ...$900 million designated as a fair value hedge related to our 2020 Notes. The interest rate swaps effectively convert the fixed interest rate on our 2020 Notes to a floating interest rate based on LIBOR plus a fixed number of basis points. Under the terms of the swaps, we will pay monthly interest at...

  • Page 100
    ... exceptions. The financial covenant, based on a quarterly financial test, requires us not to exceed a maximum leverage ratio. On March 1, 2013, we exercised an option under the Credit Agreement to extend the maturity date of the Credit Agreement by one year to March 2, 2018. On July 27, 2015, we...

  • Page 101
    ... 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 102
    ... ADOBE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Our segment results for fiscal 2015, 2014 and 2013 were as follows (dollars in thousands): Digital Media Digital Marketing Print and Publishing Total Fiscal 2015 Revenue Cost of revenue Gross profit Gross profit...

  • Page 103
    ...$ For fiscal 2015, 2014 and 2013 there were no customers that represented at least 10% of net revenue. In fiscal 2015 and 2014, no single customer was responsible for over 10% of our trade receivables. NOTE 19. SELECTED QUARTERLY FINANCIAL DATA (unaudited) 2015 (in thousands, except per share data...

  • Page 104
    ... Adobe Systems Incorporated maintained, in all material respects, effective internal control over financial reporting as of November 27, 2015, based on criteria established in Internal Control Integrated Framework (2013) issued by the COSO. (signed) KPMG LLP Santa Clara, California January 19, 2016...

  • Page 105
    ... Framework (2013). Our management has concluded that, as of November 27, 2015, our internal control over financial reporting is effective based on these criteria. KPMG LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form...

  • Page 106
    ...reference to our 2016 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 2016 Proxy Statement. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. 2. Financial Statements. See Index...

  • Page 107
    ... caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ADOBE SYSTEMS INCORPORATED By: /s/ MARK GARRETT Mark Garrett Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: January 19, 2016 POWER OF ATTORNEY KNOW ALL PERSONS BY...

  • Page 108
    Table of Contents Signature Title Date /s/ EDWARD W. BARNHOLT Edward W. Barnholt /s/ ROBERT K. BURGESS Robert ...2016 Director January 19, 2016 Director January 19, 2016 Director January 19, 2016 Director January 19, 2016 Director January 19, 2016 Director January 19, 2016 Director January 19, 2016...

  • Page 109
    ... in this Form 10-K: Acrobat Adobe Adobe Connect Adobe CreativeSync Adobe Premiere After Effects Behance Creative Cloud Creative Suite Dreamweaver EchoSign Flash Fotolia Illustrator InCopy InDesign Lightroom LiveCycle Photoshop PostScript Reader Typekit All other trademarks are the property of their...

  • Page 110
    ... Number SEC File No. Filed Herewith 3.1 Restated Certificate of Incorporation of Adobe Systems Incorporated Amended and Restated Bylaws Specimen Common Stock Certificate Form of Indenture Form of Global Note for Adobe Systems Incorporated's 4.750% Notes due 2020, together with Form of Officer...

  • Page 111
    ... 2003 Equity Incentive Plan (applicable to the 2015 Performance Share Program)* Form of Director Initial Grant Restricted Stock Unit Award Agreement used in connection with the 2003 Equity Incentive Plan* Form of Director Annual Grant Restricted Stock Unit Award Agreement used in connection with the...

  • Page 112
    ... of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan* Form of RSU Grant Notice and Award Agreement pursuant to the 2005 Equity Incentive Assumption Plan* Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective December 5, 2014...

  • Page 113
    ... Omniture, Inc. 1999 Equity Incentive Plan, as amended (the "Omniture 1999 Plan")* 10.11B Forms of Stock Option Agreement under the Omniture 1999 Plan* 10.11C Form of Stock Option Agreement under the Omniture 1999 Plan used for Named Executive Officers and Non-Employee Directors* 10.12 Omniture, Inc...

  • Page 114
    ...Plan* 2013 Executive Annual Incentive Plan* Neolane 2008 Stock Option Plan* 2012 Neolane Stock Option Plan for The United States* Description of 2013 Director Compensation* Description of 2014 Director Compensation* Description of 2015 Director Compensation* Description of 2016 Director Compensation...

  • Page 115
    ...Exhibit Number Exhibit Description Form Filing Date Exhibit Number SEC File No. Filed Herewith 23.1 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...