UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
 
FORM 10-K
(Mark One)
(Mark One)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2012
or
For the fiscal year ended December 3, 2010
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                    &# 160;                  
 
Commission file number:File Number: 0-15175
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
_______________________________________________________
Delaware77-0019522
Delaware
(State or other jurisdiction of
(I.R.S. Employer
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 Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share 
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________________________
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes xNo o
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo x
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. YesxNo o
Indicate by check markcheckmark whether the registrant has submitted electronically and posted on its corporate Website,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). YesxNo o
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. x
Indicate by check markcheckmark 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 xAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company) Smaller reporting company ox
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes oNox
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 4, 20101, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, was $13,532,884,64212,526,183,922 (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 stat usstatus is not necessarily a conclusive determination for other purposes. As of January 21, 2011, 504,728,14518, 2013, 498,790,943 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 20102013 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal year ended December 3, 2010,November 30, 2012, 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.



ADOBE SYSTEMS INCORPORATED
FORM 10-K
 
TABLE OF CONTENTS
 
TABLE OF CONTENTS
  Page No.
PART I 
Item 1.Business
Business3
3
Item 1A.Risk Factors
Risk Factors38
39
Item 1B.
Unresolved Staff Comments
49
48
Item 2.Properties
Properties49
50
Item 3.Legal Proceedings
Legal Proceedings51
52
Item 4.Mine Safety Disclosures
(Removed and Reserved)51
52
   
PART II 
Item 5.
Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
   Equity Securities
53
52
Item 6.6
Selected Financial Data
56
54
Item 7.
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
57
55
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
78
75
Item 8.
Financial Statements and Supplementary Data
81
78
Item 9.
Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
128
123
Item 9A.
Controls and Procedures
128
123
Item 9B.Other Information
Other Information123
128
  
PART III 
Item 10.
Directors, Executive Officers and Corporate Governance
128
123
Item 11.Executive Compensation
Executive Compensation123
128
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
   Matters
129
123
Item 13.
Certain Relationships and Related Transactions, and Director Independence
129
124
Item 14.
Principal Accounting Fees and Services
129
124
   
PART IV  
Item 15.
Exhibits, Financial Statement Schedules
129
124
   
Signatures
130
125
Summary of Trademarks
132
127
Index to Exhibits
134
129


 

2
TABLE OF CONTENTSTable of Contents


Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements, including statements regarding product plans, future growth and market opportunities which involve risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” in Part I, Item 1A of this report. You should carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange Commission (“the SEC”), including our Quarterly Reports on Form 10-Q to be filed in 2011.2013. When used in this report, the words “will,” “expects,” & #8220;could,“could,” “would,” “may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” “looks for,” “looks to”to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
PART I
ITEM 1.  BUSINESS
Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world. We offer a line of creative, business, Web and mobile software and services used by creative professionals, marketers, knowledge workers, application developers, marketers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences across multiple 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”), systems integrators, independent software vendors (“ISVs”), retailers and original equipment manufacturers (“OEMs”). We also market and license our software directly to enterprise customers through our sales force and to end users through our own Website at www.adobe.com. In a ddition,addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and providesolutions. We offer some of our solutionsproducts via Softwarea Software-as-a-Service (“SaaS”) model (also known as a Service (“SaaS”), also known as hosted or “cloud-based” offerings.model) as well as through term subscription and pay-per-use models. Our software runs on personal computers (“PC”PCs”) and server-based computers, as well as various non-PCon smartphones, tablets and mobileother devices, depending on the product. We have operations in the Americas, Europe, Middle East and Africa (“EMEA”) and Asia.Asia-Pacific (“APAC”). See Note 18 of our Notes to Consolidated Financial Statements for further geographical information.
Adobe was originally incorporated in California in October 1983 and was reincorporated in Delaware in May 1997. We maintain executive offices and principal facilities at 345 Park Avenue, San Jose, California 95110-2704. Our telephone number is 408-536-6000. We maintain a Websitewebsite at www.adobe.com. Investors can obtain copies of our SEC filings from this site free of charge, as well as from the SEC Websitewebsite at www.sec.gov.www.sec.gov. The information posted to our website is not incorporated into this Annual Report on Form 10-K.
BUSINESS OVERVIEW
 
For more than 2830 years, innovation in Adobe software and technologies has transformed how individuals, businesses and governments communicate and interact with their constituents. Across the markets and customers we serve, Adobe helps its customers create and deliver the most compelling content and applicationsinteractive experiences in a streamlined workflow, and optimize those experiences and marketing activities for greater return on investment. Our solutions turn ordinary interactions into compelling and valuable digital experiences, across media and devices, anywhere, anytime.
While continuingwe continue to sellmarket and license a broad portfolio of servicesproducts and solutions, we are focusingfocus our greatest business investment in threetwo strategic growth areas:
Content authoring—enabling how digital experiences are created, managed, distributed,Digital Media—providing tools, services and increasingly monetized in a multiscreen world.solutions that enable individuals, small businesses and enterprises to create, publish, promote and monetize their content anywhere. Our customers include traditional content creators, web designers, app developers and digital media professionals, as well as their management in marketing departments and agencies, companies and publishers. This is the core of what we have delivered for over 20 years, but we are evolving rapidly to ensureprovide these customers have anwith a more complete and integrated workflow to handleacross the plethoravariety of new devices, formats and formatsbusiness models that are emerging.continue to emerge.
Customer experience management—transforming how enterprises engage with their customers through powerful digital experiences. Our customers include line of business owners as well as their IT partners. Our solutions are designed to help companies be effective in signing up and servicing their customers to produce a positive business impact.
Online marketing—Digital Marketing—providing solutions and services for how digital advertising and marketing iscampaigns are created, managed, executed, measured executed, and optimized. Our customers include digital marketers, advertisers, publishers, merchandisers, web analysts, chief marketing officers and chief revenue officers. We process over a trillion web transactions a quarter in helpingvia SaaS, providing our customers with site analytics, visitor acquisitionsocial, targeting, media optimization and conversion.experience management solutions This

3
Table of Contents

complements our content authoringdigital media franchise, bringing together the art of creating content with monetization and the science of measuring and optimizing it.it, enabling our customers to achieve optimal business outcomes.
To capitalize on the potential in these two market areas, we made several significant changes in key areas of our business during the past two years. We have made investments to increase the deployment of some of our products through new SaaS models, and to offer a new subscription model for our creative products. We believe these business model changes allow us to target new users, as well as increase the amount of recurring revenue we generate as a percent of our total revenue, thus creating the potential for our business to be more predictable.
We have also invested in the development of new products that address emerging customer needs in these two market areas and represent new revenue sources. In addition, we made several acquisitions during the past two years to broaden the scope of our solutions. We believe the new products we are bringing to market, combined with products and technologies we have acquired, will make our Digital Media and Digital Marketing solutions more compelling to our customers.
3While we have increased our investments in certain products areas, we have also reduced our focus on certain products. The cost savings resulting from the reduced focus on certain product areas has been redeployed as we continue to invest into research and development and sales and marketing to drive higher growth potential in our two focus areas.
Because of this transformation we have undertaken, as we enter fiscal year 2013 we believe we are uniquely positioned to be a leader in both the Digital Media and Digital Marketing categories where our mission to change the world through digital experiences resonates well with customers.
PRODUCTS AND SERVICES OVERVIEW
Entering fiscal 2010, weThis overview is organized by our products and services into the following businesses: Creative Solutions, Business Productivity Solutions, Omniture, Platformthree reportable segments: Digital Media, Digital Marketing, and Print and Publishing. We reported our financial results based on these named businesses, with the exception of Business Productivity Solutions whichFor each segment, we reported in two segments: Knowledge Worker and Enterprise. We also renamed Business Productivity Solutions to Digital Enterprise Solutions in the middle of the fiscal year.
Effective in the first quarter of fiscal 2011, we modified our segments due to changes we made in how we operate our business. We have split our prior Creative Solutions segment into two new segments: Digital Media Solutions, and Creative and Interactive Solutions. Digital Media Solutions contains our industry-leading Photoshop family of digital imaging products and our video products used by creative professionals and hobbyists, whereas Creative and Interactive Solutions contains our Creative Suite family of products including our professional page layout and Web layout products. We also merged our former Platform business unit and reporting segment into the new Creative and Interactive Solutions business unit and reporting segment to better align our focus with market trends and our opportunities. Our Omniture segment and our Print and Publishing segment continue to be reported as they were in fiscal 2010. Our Digital Enterprise Solutions business continues to be split and reported in two segments: Knowledge Worker and Enterprise.
In addition to our business unit reorganization, we also moved several products to different businesses. Our Scene7 products have been moved from our prior Creative Solutions business to our Omniture business; our ColdFusion products have been moved from our prior Platform business to our Print and Publishing business; and our Presenter product that was part of our Adobe Connect offering has been moved from our Knowledge Worker business to our Print and Publishing business.
Accordingly, our six fiscal 2011 reportable segments will be as follows: Creative and Interactive Solutions, Digital Media Solutions, Knowledge Worker, Enterprise, Omniture, and Print and Publishing. We will adjust our reportable segments at the beginning of fiscal 2011 to reflect these changes. The following overview is organized by these new segments and combinesprovide an explanation of our market opportunities, with a summaryreview of our fiscal 2010segment results, and a discussion of our strategies to address our market opportunities in fiscal 20112013 and beyond.See Note 18 of our Notes to Consolidated Financial Statements for further segment information.
Creative and Interactive SolutionsDigital Media Segment
Creative and Interactive Solutions MarketDigital Media Opportunity
We believe we are at a key inflection point in the history of digital communications. A convergence of major trends is occurring, which in turn is driving changes in consumer behavior and expectations. These trends include the rise in use of smartphones and tablets, increased internet access speeds, new business models driven by online commerce and app stores, the increase in media and entertainment made available online, the impact of online social communities, and software delivery transitioning from prior PC delivery models to cloud-based services.
These trends and changes are having a profound impact on our customers, who are interacting with content on a daily basis and want to regularly share and collaborate with colleagues and clients. Adobe customers, large and small, are rethinking their online presence, addressing concerns such as how to make a site more dynamic, how to manage visitors from both PCs and mobile devices, whether to invest in web browser-based applications or create individual mobile apps, and how to transition from legacy content delivery methods to new models which offer new revenue streams. For our customers, these challenges create a great deal of complexity in their workflows and cost structures. For Adobe, these challenges and complexities our customers face are expanding the size of the markets we can target.
We realigned our company entering fiscal 2012 and created our Digital Media business unit to address these opportunities as we believed these market conditions presented significant opportunities for Adobe to rapidly deliver product innovation, access new market segments, increase engagement with our customers, transition our business to promote a recurring revenue model, and accelerate our revenue growth. Our goal is to be the leading provider of tools and services that allow individuals, small businesses and enterprises to create, publish, promote and monetize their content anywhere.
The flagship of our Digital Media business is Adobe Creative Cloud, which is an ongoing membership service that lets our customers download and Interactive Solutions segment focusesinstall the latest version of any of our Adobe Creative Suite desktop products, and other creative software like Adobe Photoshop Lightroom and new HTML version 5 (“HTML5”) based products and services. Creative Cloud members also get online services to sync, store, and share files, participate in creative communities, receive product training, as well as publish digital magazines to the iPad, develop mobile applications, and create and manage websites. We believe Creative Cloud is redefining the creative process and becoming a destination place where our creative customers can obtain everything they need to create, collaborate on and deliver engaging digital content.

4
Table of Contents

The cornerstone of Creative Cloud is our Creative Suite family of products. Consisting of sixteen individual products and four suites that contain different combinations of these products, we focus on the needs of creative professional customers, as well as Web and application developers. Collectively, these customerswhich include those in professions such as graphic designers, production artists, Webweb designers and developers, user interface designers, writers, videographers, motion graphic artists, prepress professionals, video game developers, and mobile application developers.developers, students and administrators. They use and rely on Adobe’sour solutions for professional publishing, Webweb design and development, video and animation production, mobile app and motion graphic production, applicationgaming development and printing visually rich information.document creation and collaboration. They also use our professional imagingwork in businesses ranging from large publishers, media companies and video products, which are reported in our Digital Media Solutions segment.
global enterprises, to smaller design agencies, small and medium-sized businesses and individual freelancers.
Our Creative Suite family ofcreative products are used by creative professionals to create much of the printed and on-line information people see, read and interact with every day, including newspapers, magazines, Websites, Rich Internet Applications (“RIAs”),websites, mobile apps, catalogs, advertisements, brochures, product documentation, books, memos, reports and banners. Our tools are also used to create and enhance visually rich content, including video, animation and mobile content, that is created by multimedia, film, television, audio and video producers who work in advertising, Webweb 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 deliver content that is of creative professional level quality.
We believe the innovation we deliver in the tools and solutions our customers use enableenables the future of digital media. Our creative solutions are mission-critical to customers such as publishers, advertisers and advertisers;media companies; they rely on Adobe tools and technologies to create highly compelling content, deliver it across diverse media and devices, and then optimize it through systematic targeting and measurement. For example:
Publishers around the world are striving to embrace the digital age to build distinctive brands, develop sustainable business strategies, achieve greater profitability, and deliver optimized content to fragmented audiences on an expanding array of smartphones, tablets, e-readers, and other devices. Their audiences seek compelling, media-rich experiences, wherever they go, using their preferred devices. The advent of app stores is enabling publishers to reach these audiences in easy, more effective and affordable ways, through the delivery of apps and content via online subscription services to their readers and customers.
· Publishers around the world are striving to embrace the digital age—to build distinctive brands, develop sustainable business strategies, achieve greater profitability, and deliver optimized content to fragmented audiences on an expanding array of smartphones, tablets, e-readers, and other devices. Their audiences seek compelling, media-rich experiences, wherever they go, using their preferred devices.
4

· Advertisers face an ever-shifting media landscape. Traditional media are giving way to the emergence of new digital channels such as mobile devices and social networks. Customers have greater choice in where they go for their preferred brands, making it harder to keep audiences engaged. Successful advertising increasingly requires compelling content and greater focus on data and analytics than ever before in order to optimize advertising for improved targeting and higher returns.
As technology continues to change and improve, the market dynamics for these creative professionals continue to evolve. Due to the constantly changing waysemergence of new digital channels such as mobile devices and social networks. Customers have greater choice in which people choosewhere they go for their preferred brands, making it harder for marketers to receive information,keep audiences engaged. Successful advertising increasingly requires compelling content and greater focus on data and analytics than ever before in order to optimize advertising for improved targeting and higher returns.
The challenges facing customers such as these not only exist in how they create and deliver their content, but also in how they manage, measure and optimize their content. Adobe's value proposition extends beyond our historical focus on content creation to other critical aspects of our customers' workflow, with how we can integrate the capabilities of our analytics and web optimization solutions, as well as our other digital marketing solutions. These are discussed later in the “Digital Marketing Opportunity” section.
In the second quarter of fiscal 2011, we released CS5.5. At that time we also introduced a monthly subscription offering. This lower upfront fee, as opposed to the higher upfront perpetual license fee, provides cost-sensitive new users access to our products, as well as enabled users of older versions of our products to migrate to the latest versions at a lower upfront cost. The subscription offering also enabled users to have immediate access to software updates and new innovations that we implemented in our creative professionals lookproducts in between release dates of the products.
Given our success in attracting new and existing customers to their software tools andour initial subscription offering, combined with our offering of cloud-based services as a means to make their information impactfuldeliver more value to our users, we announced Creative Cloud in October 2011 and to repurpose content across a varietyin the second quarter of media, applications and systems. They desire greater efficiency fromfiscal 2012, we delivered the software they use to streamline their publishing and content creation workflows and to effectively manage their assets. They also look for new and innovative ways to deliver their content and information to hand-held devices such as smartphones, tablets and consumer electronic devices.
Creative professional customers license upgrades and new versionsinitial release of our new Creative and Interactive Solutions products due to the high degreeCloud subscription offering. As part of innovative new features and significant productivity gained through their use. TheyCreative Cloud, we also frequently purchase license upgrades and new versions of these products when they buy new computers, or migrate to new or updated operating systems.
In addition, knowledge workers in enterprises and government, educators and students in schools and universities, and hobbyists at home license our creative products. Knowledge workers desire professional-quality products to accomplish tasks such as creating visually-rich sales presentations, engineering or architectural proposals, real estate flyers and school yearbooks. Educators utilize our solutions to educate future creative professionals, as well as create their course content and online eLearning-based lessons. Hobbyists use our tools to create distinctive online communications, community newsletters, blogs and Websites for family, friends or community organizations.
With the increasing use of the Web as a means for marketing, advertising and commerce, we believe a key driver of our Creative and Interactive Solutions business will also be the growing amount of Website content created by our customers to deliver impactful and compelling Web-based experiences for their constituents across multiple screens, including PCs, mobile devices such as smartphones and tablets, and Internet-connected living room electronics such as televisions. We also believe those who manage Websites will want to utilize Web analytic data and other Web usage metrics to optimize their Websites and content to improve the overall experience of their sites.
To address these trends and the workflow implications, our Creative and Interactive Solutions business unit also focuses on the development, marketing and licensing of our Adobe Flash technologies, as well as our support and development efforts for other Web technologies including HTML. The broad reach and rapid adoption of the newest versions of our Flash technologies allows us to rapidly innovate with our designer, developer and enterprise software which utilize these technologies—enabling our customers to deliver new and more engaging experiences to their constituents with the widest range of media that leverages the latest advancements in operating systems, platforms, devices and rich media technologies. Our support for HTML and other Web standards enables these technologies to also be broadly adopted through innovations in our tools, and used to create rich, engaging Web experiences.
Creative and Interactive Solutions Business Summary
Our Creative Suite 4 (“CS4”) family of products, which first shipped in fiscal 2008, incorporated Adobe technologies used by creative professionals into six Creative Suite editions and thirteen individual creative products, providing offerings for the various creative disciplines our customers desire. Entering fiscal 2010, our overall creative business was exiting a year that was adversely affected by the global economic recession and the weak general macro-economic environment. This caused overall revenue for CS4 to be lower than revenue achieved with the prior version for a comparable period of time since release. Despite this economy-driven weakness, we maintained our focus on driving adoption of our creative products entering 2010—particularly with large media companies and enterprise customers. With our executio n, and as the general economy improved in early 2010, licensing of our CS4 products remained stable in the first five months of fiscal 2010.
In May of 2010, we delivered Creative Suite 56 (“CS5”CS6”), which is the newest release of our creative toolset. CS5CS6 provides more than 250numerous feature enhancements, particularly in the areas of mobile device content creation, website development with new HTML5 capabilities, digital imaging, digital publishing for tablets and enhancedproduct performance. Customers obtained CS6 capabilities through both our historical perpetual licensing model as well as through our new subscription-based model.
A key benefit of our Creative Cloud offering is the rapid delivery of additional products and product updates to subscribers as soon as these products and updates become available. Examples of additional value provided to customers through Creative Cloud since its initial release included the delivery of new features significant performance improvements,for Adobe Illustrator users, new integration with Omniture measurementenhancements for web designers and optimization services (or software services),an updated version of Adobe Acrobat. In addition, new products and capabilities were made available to Creative Cloud subscribers that were not made available to licensees of the perpetual products. Adobe Lightroom, our popular image editing and photo management tool, was delivered as an additional enhancement to Creative Cloud subscribers in the summer of 2012, and new workflow capabilities.HTML5 content creation capabilities were delivered through the release of our new Adobe Edge Animate product and related

5
Table of Contents

Edge Tools & Services to subscribers in September. These feature sets enableadditional capabilities demonstrate our commitment to deliver ongoing value and capabilities as they become available and are needed by our customers.
We believe our Creative Cloud offering, marketed as a subscription model with attractive monthly pricing, will be a catalyst for revenue growth in the coming years. By increasing the value we provide to our core creative customers with Creative Cloud services, we anticipate we can grow our revenue per customer over time as they begin to use additional features available to them in the offering. We also believe the monthly pricing model will be attractive to users of older versions of our products who desire to use our latest releases and services, but who have not been willing to upgrade to newer versions due to their price sensitivity, and, therefore, will increase our revenue potential with them. Similarly, we anticipate we can drive significant new user adoption of our creative tools business over the next several years outside of our core creative professional targeted market because of the attractive monthly subscription pricing combined with the strong brand of our creative tools and the broad value proposition provided by our Creative Cloud offering.
In addition to a monthly subscription price that provides access to use of all of our latest creative tools and services, we also offer subscription pricing for Creative Cloud for some of our key point products, as well as for users in the education market. Similarly, we offer Creative Cloud for team and enterprise users. We believe the mix of these offerings will drive new user acquisition and increase our revenue over time.
The impact of this business model shift based on the product offering and the subscription pricing will affect the revenue and cash flow to Adobe. As customers make a shift from paying upfront for the use of our software in the perpetual model to the new subscription model where they pay over time, reported revenue and cash flow will be lower in the short term when compared to the historical perpetual model. However, over time we expect this business model transition will significantly increase our long-term revenue growth rate by (1) attracting new users, (2) keeping our user base current and (3) thereby driving higher average revenue per user. Additionally, our shift to a subscription model will increase the amount of our recurring revenue that is ratably reported, driven by broader Creative Cloud adoption over the next several years.
In addition to the shifts in how we develop, market and license our creative tools to our customers, we have also implemented several initiatives to create and deliver theirdrive new revenue streams in our Digital Media business. These initiatives include delivering advanced publishing services, enhancing the capabilities of our solutions to utilize new innovations in HTML5, delivering new touch-based apps to expand our content creation user base to mobile device owners, enhancing our video solutions and applications acrossaddressing the broadest range of media and formats.
The launch of CS5 included the introduction of a new product called Adobe Flash Catalyst, which is a professional interaction design tool for creative professionals who want to create expressive interfaces and interactive content without writing code. The new CS5 release was also the first version of Creative Suite to integrate with new Adobe CS Live online
5

services, which are a set of capabilities that enhance the feature set of Creative Suite to include features such as Adobe BrowserLab, Adobe CS Review, SiteCatalyst NetAverages, Acrobat.com, and Adobe Story.
Asneeds of the end of fiscal 2010, we experienced an increase in revenue for CS5 when compared to a similar period of availability for CS4. Despite this success, we did experience modest weakness in the adoption of CS5 in the second half of fiscal 2010 in the education and Japan markets. We attribute this weakness to education budget issues which occurred during the normally seasonally strong education buying period in the summer, and, economic weakness in the Japan market, respectively. Overall, however, we believe CS5 has performed well given the status of the economy in our major markets across the world.knowledge worker.
During fiscal 2010 in the professional page layout market, despite the 2009 downturn in the economy and the financial pressure facing traditional print media companies, we continued to focus on gaining market share during the year with our Adobe InDesign product. Similarly, in the Web layout and Web development markets, and in the illustration market, we focused on maintaining market share leadership with our Adobe Dreamweaver and Adobe Illustrator products. New CS5 versions of these products delivered in fiscal 2010 increased these products’ capabilities and value propositions for end users, allowing us to maintain or grow our market share position against competitors.
In the fall of 2010 we introduced a beta of the Adobe Digital Publishing Suite (“DPS”) is an online, hosted publishing solution that enables magazine and newspaper publishers to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices. This newOur Digital Publishing solution combines hosted services,utilizes flexible e-commerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces and analytics capabilities based on our Adobe Online Marketing Suite. Content is createdapp stores. Our customers can create and enhancedenhance content through integration with CS5our CS6 tools to enable a complete workflow for the creation and delivery of content to mobile device users via our new Content Viewer technology.technology, which is utilized by users on tablets and smartphones. Analytics capabilities are built into these apps and are based on our Digital Marketing products. The analytics features enable publishers to measure and understand the use of the digital editions they deliver with our solutions, and more effectively monetize their digital edition apps with more relevant advertising.
As hundredsIn addition to the Enterprise version that publishers and large media companies use, we also offer Digital Publishing Single Edition, which can be used by other customers who want to publish their content as apps in app stores on an individual and ad hoc basis. Single Edition can be used by individuals to publish any type of millions of people around the world adopt Internet-connected smartphonespublication to app stores, including research reports, catalogs, marketing materials and tablet devices as a means to communicate, collaborate and be entertained, as well as consumer electronic deviceseven more specific consumer-related content such as digital cameras, Internet-connected televisions and game consoles, we believe a significantwedding photo albums. The combination of our different DPS offerings significantly increases our market opportunity exists to offer more integrated solutions involving our creative solutions and our platform technologies. This trend equally applies to emerging categories such as smartphone and tablet application development, and user interface and application creation for new Internet-connected televisions. The explosion in adoption of such devices is creating a challenge for content owners and application developerstarget anyone wanting to deliver consistent experiencesa digital publication via app stores.
Adobe has long been an innovator in helping drive the HTML standards process and then delivering the best tools in the market to create content based on web standards. The ongoing evolution of new standards, including HTML5, and their adoption in popular browsers, become significant catalysts for revenue growth in our solutions. To address this opportunity, we are innovating across multiple devices, operating systems, Webthe spectrum of content creation, content delivery, and content display in browsers and screen sizes.
To address these challenges, we increased our investment during the year in support of formats andmobile apps. Our innovation includes adding new capabilities to web standards such as HTML and Adobe Flash. During fiscal 2010, we introducedCSS, contributing technology to open source projects such as jQuery (an HTML and JavaScript library to assist with creating websites) and Webkit (the open source foundation for many popular web browsers such as Apple Safari and Google Chrome), and adding new features across many of ourto products to support the newest version of the HTML standard, version 5 (“HTML5”). Amongsuch as Adobe InDesign, Adobe Dreamweaver and the new Edge Tools & Services to enable our customers to utilize these innovations occurring in web browsers.
Our innovation with web standards also includes the creation and delivery of brand new products built on top of web standards to help our customers create engaging content leveraging the latest innovations in web browsers on PC and non-PC devices. In the fall of 2012 we introduced wereannounced the availability of Adobe Edge Tools & Services, including Adobe Edge Animate, Adobe

6
Table of Contents

Edge Inspect (formerly codenamed “Shadow”), Adobe PhoneGap Build and Adobe Edge Web Fonts. We also previewed Adobe Edge Code and Adobe Edge Reflow. These powerful tools enable web designers and developers to build cutting-edge websites, digital content and mobile apps. For website development, we also provide Adobe Muse, which allows designers to design and publish websites without having to learn and write HTML5 feature setscode. Muse integrates with other Adobe tools and enables designers to easily publish their websites using our Business Catalyst web hosting service or any other hosting provider.
While we increase our investments in our Dreamweaver and Illustrator products.
Wesolutions utilizing web standards, we also advanced the capabilities ofcontinue to innovate in our Adobe Flash Player duringtechnologies, including the year. In the later part of fiscal 2009 and during the first half of fiscal 2010, we released a version 10.1 update for our Flash Player. For the first time, we simultaneously delivered comparableAdobe Flash Player capabilities for both PCPC-based browsers and non-PC implementations. Building upon the successAdobe AIR for packaging standalone applications for PCs and mobile devices. The broad reach and adoption of Flash Player 10, the newest 10.1 version adds improved video capabilities such as HTTP streaming, content protection, peer-to-peer support, and enhanced digital video recorder capabilities such as pause, instant replay, and slow motion for both PC as well as smartphone and tablet environments. It also adds hardware acceleration for improved performance in both PC and non-PC environments, and new user interface capabilities such as touch screen input methods for non-PC devices whi ch lack the traditional input methods of a PC such as a mouse.
Adoption of the new Flash Player 10.1 on PCs was the fastest ever of any Flash Player release during the three months after it was commercially available. With non-PCs, companies such as Google, Research in Motion (“RIM”), Samsung and Motorola announced or introduced Flash Player 10.1 as part of their new smartphone operating system and handset offerings during the year. With this broad support, more than 10 million copies of Flash Player 10.1 for mobile devices were either shipped or downloaded during fiscal 2010 and we expect approximately 60 million more shipments and downloads of Flash Player to smartphones and tablets during fiscal 2011. This adoptionversions of our Flash technologies resulted in strong growth in the number of developers in the world who utilizeon personal computers and for use with mobile devices allow our developer toolscustomers to deliver contentnew and more engaging experiences using our tools and services. Going forward, we are primarily focused on enhancing the gaming and premium video delivery aspects of our Flash technology-based solutions.
Just as AIR and our Flash tools enable Flash technology-based applications basedto be packaged for mobile devices, PhoneGap and PhoneGap Build provide similar capabilities for applications built using web standards. Based on Flash.
Duethe open source PhoneGap framework, PhoneGap Build enables users to the successbuild cross-platform mobile applications using HTML5, CSS and frequent electronic downloads of these client technologies, we generate revenue through OEM relationships with companiesJavaScript that run on popular mobile operating systems such as Google, whereAndroid, iOS and BlackBerry OS.
As millions of web developers and website designers look to build mobile apps to increase engagement with their constituents, we include their technologies as part of the download offerings ofbelieve our client technologies on PCs. In fiscal 2010, this download revenue grew when comparedAIR and PhoneGap solutions enable them to fiscal 2009 and represented a significant part of the overall revenue we reported in our prior Platform segment.
6

With the delivery of Flash Player 10.1 in fiscal 2010, nineteen of the top twenty handset manufacturers have now committed to utilizing Adobe Flash Player for Web browsing, Web application creation and the delivery of rich, consistent Internet experiences on their devices. Over time, we expect adoption of Flash Player to accelerate—increasing the need for Adobe’s designer and developer tools used to create content and applications,build cross-platform apps as well as broadening our Omniturereuse their existing browser-based content to deliver standalone apps on popular smartphones and LiveCycle opportunitiestablets.
In 2011 we began delivering a series of content creation tools which run on tablets such as Webthe Apple iPad. These apps and IT developers extendtheir features are discussed later in the “Digital Media—Touch App Products” section. The Adobe touch apps integrate with Creative Cloud enabling subscribers to move between the apps and Creative Suite software, and to view, access, share, and present creative work from anywhere.
Over the past several years, as consumers and advertisers demand more professional video online and on devices, media companies have an unprecedented opportunity to monetize their content and expand the reach of their solutionsbroadcast advertising. Because of this trend and the general explosion of video being created and delivered over the web, new opportunities have emerged for Adobe to include mobile handsets and tablets as enterprise clients.
In the same way we have had success deploying Flash Player to PC and non-PC devices during fiscal 2010, we also broadened the reach of our cross-platform client technology named Adobe AIR. Based on Flash, PDF and HTML technologies, Adobe AIR enables developers to leverage existing code to create and deliver Web-enabled desktop applications that run standalone outside of a Web browser on PCs, tablets, smartphones and televisions.
Adoption of Adobe AIR has been substantial since first being made availablesignificantly expand its market opportunity in fiscal 2008. As of October 2010, there were more than 400 million AIR downloads on PCs, along with more than one million downloads of the AIR developer tools used to create these applications. In October, we extended the capabilities of AIR to mobile devices with the delivery of AIR version 2.5 for televisions, tablets, smartphones and desktop operating systems. With this release, Adobe AIR now supports smartphones and tablets based on BlackBerry Tablet OS, Android, iOS, and desktops including Windows, Macintosh and Linux operating systems. In addition, Samsung has integrated support for AIR 2.5 into Samsung SmartTVs, while Acer, HTC, Motorola, RIM, Samsung and others have announced they expect to ship AIR pre-installed on a variety of devices including tab lets and smartphones in late 2010 and early 2011.
Adobe Flex, our open source framework for developing RIAs, has also enjoyed strong growth during fiscal 2010 as developers increasingly use Flex and our developer tools for building RIAs that can run on every platform where the Adobe Flash Player and/or Adobe AIR is supported. ISVs and VARs deploying SaaS applications utilize Flex as a means for creating engaging user interfaces for their applications, and enterprise developers are increasingly using Flex as a way to extend the reach and usefulness of their back office applications to their constituents.  These opportunities and our solutions to address them helped to double the number of Flash and Flex developers on a year-over-year basis.
As the adoption of our Flash, Flex and AIR technologies grows, we focus on the development and delivery of our developer solutionsareas such as Flash Buildervideo content creation, delivery, authentication and Flash Catalyst to leverage the latest innovations adopted by Flash Player users. These solutions ensure reliable, securemonetization.
Our products addressing these opportunities span across our Digital Media and rich application experiences across the broadest range of browsers, operating systems and devices.
Digital Marketing business segments. In the online video and rich media delivery market, we continued to innovate to maintain and grow our market leadership position. During the year we achieved strong adoption of Adobe FlashDigital Media, Server 3.5 (“FMS”), which we released in the fourth quarter of fiscal 2009. FMS, our digital video-based server technology, provides improved dynamic streaming and HTTP delivery capabilities, performance improvements and enhanced digital rights management capabilities for H.264 video and digital video recorder functionality. The launch of FMS, which is licensed either directly by our customers or licensed through our Flash Video Streaming Service via Content Delivery Network (“CDN”) partners such as Akamai and Limelight, helped to maintain the broad adoption of FLV, the video file format compatible with Adobe Flash Play er. Due to the broad reach and ubiquity of our Flash Player technologies, the growing adoption of our authoring tools and our video delivery capabilities via our Flash Player, Flash video remains the market share leader in terms of worldwide video watched online according to the research agency comScore.
Creative and Interactive Solutions Business Strategy
In fiscal 2011, our Creative and Interactive Solutions strategy will focus on achieving revenue growth and increasing market share of our products through the delivery of comprehensive software solutions that meet the evolving needs of our customers.
To help drive this strategy, we will deliver more frequent minor releases of some of our Creative Suite family of products during the year to help our customers stay current with evolving technology trends. We will also focus on enabling content creation using desktop solutions combined with new content creation capabilities on tablets and via hosted online solutions.
We intend to drive faster migration toare centered around our most recently released creative products through fine-tuning of our tiered upgrade pricing model, through an increase in focus on signing larger customers and enterprises to maintenance contracts, and by using cloud-based hosted creative services which augment the capabilities of our latest desktop versions.
We also intend to acquire new users for our products through the implementation of a subscription licensing model that augments our traditional perpetual licensing model. We believe that a lower entry price point through monthly or annual
7

subscription will incentivize customers who are price-conscious to adopt or migrate to the latest versions of our software. We also intend to acquire new users through other means, including increasing our focus on the education market, where our products are offered to schools and students and increasing our focus on addressing piracy problems with the inclusion of more advanced anti-piracy enhancements in the product line.
Looking forward, we will continue to work on the next major versions of our creative products with a focus on improved integration between our products, more efficient collaboration and workflow capabilities, better integration with our Omniture Web analytics and business optimization products, and enhanced functionality, particularly in areas related to interactivity and rich media use on smartphone, tablet, and Internet-connected TVs. We will expand our hosted cloud-based services to augment the capabilities of our desktop products. We will utilize hardware improvements to continue to improve the performance of our products. We will also continue to improve our support for HTML5 content creation, as support for the new standard begins to be integrated into Web browsers and those browsers begin to be adopted by Web users.
We intend to continue our efforts to be the recognized market leader in the professional page layout, Web layout and illustration software markets. In page layout, we will continue to add new features to our InDesign product with a focus on cross-media publishing workflows, as well as continue to enhance its integration with other products print professionals utilize in their workflows. In Web layout, we strive to continue to redefine the Web experience by offering the most feature-rich, market-leading solutions for Website design and development with our Dreamweaver and Flash offerings. In these and across all of our products, we intend to enhance our support for HTML5 as this new Web standard becomes more stable and Web browser manufacturers begin to implement consistently more of its feature set. In illustration, we will conti nue to innovate and develop new capabilities which we believe will preserve our Illustrator product as a leading graphics creation solution.
With our developer tools, we plan to add new features and capabilities to our Flash Builder and Flash Catalyst products to address the needs of designers and developers creating content and applications for both PC and non-PC environments.
We also anticipate that growth in sales of Internet-connected televisions from vendors like Samsung and Vizio will continue to increase. Participation by these partners and potentially others will extend our opportunity for Flash Player distribution from mobile devices to Internet-connected consumer electronic devices in the digital home. We expect this in turn will increase the need for designer and developer solutions—ranging from our Creative Suite family of products to previously mentioned developer tools and technologies.
Creative and Interactive Solutions Products—Creative Products
Adobe Creative Suite Design Premium—an integrated software solution that creative professionals can use as a platform for print, Web and mobile content publishing; combines Adobe Acrobat Pro, Adobe Dreamweaver, Adobe Flash Catalyst, Adobe Flash Professional, Adobe Illustrator, Adobe InDesign and Adobe Photoshop Extended technologies with file management and integration technology called Version Cue, a file management and control center called Adobe Bridge, a tool used to produce innovative and compelling content for a broad range of mobile phones and consumer electronics devices called Adobe Device Central, and Adobe Connect software that enables users to instantly communicate and collaborate through easy-to-use, easy-to-access online personal meeting rooms.
Adobe Creative Suite Design Standard—an integrated software solution that creative professionals can utilize for professional design and print production, page layout, image editing, illustration and Adobe PDF workflows; combines Adobe Acrobat Pro, Adobe Illustrator, Adobe InDesign and Adobe Photoshop technologies, Version Cue, Adobe Bridge, Adobe Device Central and Adobe 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, print production, Website design/development, rich interactive content creation, visual effects and motion graphics, video capture/editing/production, DVD titling and digital audio production; includes Adobe Acrobat Pro, Adobe After Effects Professional, Adobe Contribute, Adobe Dreamweaver, Adobe Encore, Adobe Fireworks, Adobe Flash Builder, Adobe Flash Catalyst, Adobe Flash Professional, Adobe Illustrator, Adobe InDesign, Adobe Photoshop Extended, Adobe Premiere Pro and Adobe Soundbooth technologies, Version Cue, Adobe Bridge, Adobe Device Central, Ad obe ConnectAfter Effects products, and Adobe Dynamic Link which enables intermediate rendering for a smoother workflow between video production tools.
Adobethe Creative Suite Web Premium—an integrated software solutionProduction Premium that provides creative professionals a complete solution for creating interactive Websites, applications, user interfaces, presentations, mobile device content andcontains these products plus other digital experiences; allows users to prototype Web projects, design Website assets, build Web experiences and efficiently maintain
8

and update Web content; combines Adobe Acrobat Pro, Adobe Contribute, Adobe Dreamweaver, Adobe Fireworks, Adobe Flash Builder Standard, Adobe Flash Catalyst, Adobe Flash Professional, Adobe Illustrator and Adobe Photoshop Extended technologies, Version Cue, Adobe Bridge, Adobe Device Central, Adobe Connect software and Adobe Dynamic Link.
CS Live Services—online services which augment the desktop capabilities ofcapabilities. With our Creative Suite family of products; includes Adobe CS Review for design feedback, Adobe BrowserLab to accurately test Website content across browser types, Adobe Story for script development, SiteCatalyst NetAverages for Internet trends data, and Acrobat.com to allow users to enhance their communication with clients and colleagues around the world.
Adobe Digital Publishing Suite—a new integrated, online, hosted publishing solution that enables magazine and newspaper publishers to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices; combines hosted services, flexible e-commerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces, and analytics capabilities basedincreased focus on our Adobe Online Marketing Suite; content is created and enhanced through integration with CS5 to enable a complete workflow for the creation and delivery of content to mobile device users via our new Content Viewer technology.
Adobe Dreamweaver—a professional software development application used by designers and developers to create a broad range of Webthese solutions for publishing online commerce, customer service and online educational content; includes capabilities for visually designing HTML pages, coding HTML and application logic and working with application server technologies.
Adobe Fireworks—a professional graphics design tool that allows users to rapidly prototype and design Websites and Web application interfaces while giving professional designers and developers tools for creating images that can be deployed to Web browsers, Adobe Flash Player and Adobe AIR; integrates with Adobe Dreamweaver, Adobe Flash and Adobe Photoshop, and supports Adobe AIR application development.
Adobe Flash Professional—provides an advanced development environment for creating Internet applications which integrate animations, motion graphics, sound, text and additional video functionality; solutions built with Adobe Flash Professional are deployed via the Web to browsers that run Adobe Flash Player, and to devices as installable applications using Adobe AIR.
Adobe Ideas—new, vector-based sketching software application for mobile tablet devices such as an Apple iPad; designed to enable creative professionals to capture their ideas and be a companion tool for other professional design applications from Adobe, including Adobe Illustrator and Adobe Photoshop.
Adobe Illustrator—a vector-based illustration design tool used to create compelling graphic artwork for print publications, Websites and video production.
Adobe InCopy—an editorial tool for collaboration between writers, editors and copy-fitters; Adobe InCopy is a companion to Adobe InDesign.
Adobe InDesign—a page layout application for publishing professionals; based on an open, object-oriented architecture that enables Adobe and its industry part­ners to deliver powerful publishing solutions for magazine, newspaper and other publishing applications.
Adobe InDesign Server—technology for third-party systems integrators and developers to use for building design-driven, server-based publishing solutions; brings the innovative design and typography features of InDesign software to the server platform and enables Adobe partners to provide new levels of automation and efficiency in high-end editorial workflows, collateral creation, variable data publishing and Web-based design solutions.
Adobe Visual Communicator—software used to create newscast-style video presentations that can be delivered via e-mail, CD, DVD, PowerPoint or live over the Internet.
Business Catalyst—hosted software service which provides an all-in-one capability to develop, maintain, and run a Website to implement marketing campaigns and sell products online.
Ovation—software which allows users to enhance Microsoft PowerPoint slides into a richer visual experience to help deliver more impactful information, presentations and messages.
Creative and Interactive Solutions Products—Platform Products
Adobe AIR—client software which allows developers to use existing Web development skills (e.g. HTML, Ajax, Flash and Flex) to build and deploy RIAs onpast several years, we believe we are the desktop and on non-PC devices.
9

Adobe Flash Builder—an Eclipse-based integrated development environment (“IDE”)leader in the market for developing cross-platform RIAs with the Adobe Flex framework for either Adobe Flash Player or Adobe AIR; Flash Builder includes support for intelligent coding, debugging, and visual design and features testing tools that speed up development and lead to higher performing applications.
Adobe Flash Catalyst—an interaction design tool that enables designers to transform artwork into interactive projects without writing code.
Adobe Flash Lite—client software used in a wide range of non-PC devices including mobile phones and consumer electronic devices; provides a subset of Adobe Flash Player functionality for viewing and interacting with content designed for mobile handsets, televisions and other types of devices.
Adobe Flash Player—the most widely distributed rich client software on PCs and consumer electronic devices, Adobe Flash Player provides a runtime environment for text, graphics, animations, sound, video, application forms and two-way communications.
Adobe Flash Platform Services—new services that enable developers and publishers to distribute and monetize applications across multiple distribution channels.
Adobe Flex—a free, open source framework for building applications that deploy consistently on major browsers, desktops, and computer operating systems by leveraging the Adobe Flash Player and Adobe AIR runtimes.
Creative and Interactive Solutions Products—Flash Media Server Products
Adobe Flash Access—a scalable, flexible content protection solution that enables the distribution and monetization of premium video content delivered online; the successor to Adobe Flash Media Rights Management Server.
Adobe Flash Media Interactive Server—a configuration of our streaming media capabilities to deliver secure, high-quality video on demand, video blogging and messaging, Web conferencing and live video capabilities that can be viewed via Adobe Flash Player and Adobe AIR; provides a flexible development environment for creating and delivering interactive media applications; utilized by many industries, including media and entertainment, telecommunications, advertising, government and education.
Adobe Flash Media Enterprise Server—a configuration of our streaming media capabilities to deliver large-scale, secure, high-quality video on demand, video blogging, messaging, Web conferencing and liveproviding video and real-time communication capabilities that can be viewed via Adobe Flash Player and Adobe AIR; provides a flexible development environmentspecial effects editing for creating and delivering interactive media applications; utilized by many industries, including media and entertainment, telecommunications, advertising, government and education.
Adobe Flash Media Live Encoder—a free media encoder and live audio and video capture software that streams audio and video in real time to Flash Media Server software or Flash Video Streaming Service; enables Web broadcasts of live events such as sporting events, concerts, Webcasts, and news and educational events.
Adobe Flash Media Playback—a free media player that can be used by any Website with only a few lines of HTML, enabling playback of video in the FLV file format and other media; has an extensible plug-in architecture that enables easy integration with CDNs and advertising platforms, as well as support for analytics and additional third-party services.
Adobe Flash Media Streaming Server—a lower-cost version of our streaming media capabilities that can be used to deliver live streaming and video-on-demand streaming; configured for lower volume streaming of content that is suitable for small- and medium- size streaming needs.
Adobe Flash Video Streaming Service—via CDN partners, Adobe offers hosted services for streaming on-demand video for the Adobe Flash Player runtime across high-performance networks; built with Adobe Flash Media Server, Flash Video Streaming Service provides an effective way to deliver Flash video to large audiences without the overhead of setting up and maintaining streaming server hardware and network.
HTTP Dynamic Streaming—with new support for on-demand and live video streaming online, our latest video delivery method enables on-demand and live adaptive bitrate video streaming of standards-based MP4 media over regular HTTP connections; gives content creators, developers, and publishers more choice in high-quality media; while the Real Time Message Protocol (“RTMP”) remains the protocol of choice for lowest latency, fastest start, dynamic buffering, and stream encryption, HTTP Dynamic Streaming enables leveraging of existing caching infrastructures, and provides tools for integrating content preparation into existing encoding workflows.
10

Digital Media Solutions Segment
Digital Media Solutions Market Opportunity
Our Digital Media Solutions segment contains our professional imaging and video products, and targets many of the same creative professional customers as our Creative and Interactive Solutions business. In addition, our Digital Media Solutions business is chartered with focusing on additional opportunities in imaging and video workflows where there are challenges faced by creative professionals in markets such as professional photography, television, and film and broadcasting. Similarly, our Digital Media Solutions team is focused on leveraging Adobe’s strong brand and market-leading imaging and video technologies to deliver innovative products to non-design professionals at work and at home.
Imaging and video are critical drivers of the explosion of digital content being created, managed and distributed via the Web. The use of imaging and video tools is essential for creating and enhancing visually rich content, including pictures and graphics, as well as video, animation and mobile content. Those creating this content include creative artists and professional photographers, as well as multimedia, film, television, audio and video producers. They work in industries including advertising, Web design, music, entertainment, broadcasting, fine arts, corporate and marketing communications, product design, user interface design and training.
We believe the innovation and capabilities we deliver in our tools and solutions enable the future of digital media, and our imaging and video products are mission-critical for how creative professionals create their content. In addition, knowledge workers, educators, hobbyists and high end consumers are also attracted to our imaging and video products to create and deliver content that is of creative professional quality.
Because of the explosion of rich media content on the Web, traditional markets such as entertainment and television broadcasting are evolving rapidly. Audiences today have new choices for when and how they view content. Advertising models are shifting in response, and broadcasters face enormous opportunity as they adapt to take advantage of these trends. Smart investments in technology for a wide array of screens are critical for success.
We believe we can help advance the next generation of content creation and media delivery due to the capabilities and broad reach of our products in the entertainment and broadcasting industries. In addition to the creation and enhancement of content, our solutions also enable our customers to take advantage of these new market opportunities. Integration with other key industry vendors which enables improved collaboration, workflow and media delivery assists our customers as they migrate their content and business models online. Rich metadata that can be integrated within content our tools create makes the content more discoverable to a wider audience via the Web. Analytics via our Omniture offerings also enables greater measurement and content optimization possibilities.
Our offerings in the Digital Media Solutions market extend from desktop tools, to smartphone and tablet applications, to cloud-based SaaS capabilities, to real-time rich media solutions which give business users the control to upload, manage, enhance and publish dynamic rich content with minimal IT support. Our offerings also extend to the delivery of rich media through streaming media and a flexible development environment for creating and delivering innovative, interactive media applications. Our media products and services enable broadcasters, event organizers and marketers to reach the broadest possible audience.
As outlined in the opportunities for our Creative and Interactive Solutions business, the market dynamics for our customers continue to evolve. People are constantly connected and are creating, modifying and sharing images and video throughout the day, with whatever device is accessible to them—whether it be a phone, a tablet, a PC or a television. Our digital media customers look to their software tools as a means to make their information impactful and to repurpose content across a variety of media, applications and systems to address how their constituents are accessing this content.  Our customers desire greater efficiency from the software they use to streamline their publishing and content creation workflows and to effectively manage their assets. They also look for new and innovative ways to deliver their conten t and information, including through new solutions such as hosted or cloud-based services.
Our Digital Media Solutions customers license upgrades and new versions of our products due to the high degree of innovative new features and significant productivity gained through their use. They also frequently purchase license upgrades and new versions of these products when they buy new computers, or migrate to new or updated operating systems.
In addition, knowledge workers in enterprises, educators and students in schools and universities, and hobbyists at home license our Digital Media Solutions products. Knowledge workers desire professional-quality products to accomplish tasks such as creating images and video for visually-rich sales presentations, engineering or architectural proposals, real estate flyers and school yearbooks. Educators utilize our solutions to educate future creative professionals, as well as create their course content and online eLearning-based lessons. Hobbyists use our tools to create distinctive online communications and
11
photo albums, community newsletters, blogs, animations, videos and Websites for family, friends or community organizations.
With the increasing use of the Web as a means for communicating, marketing and advertising, we believe a key driver of our Digital Media Solutions business will also be the growing amount of Website content created by our customers to deliver impactful and compelling Web-based experiences for their constituents across multiple screens, including PCs, mobile devices, and Internet-connected living room electronics such as televisions. We also believe those who manage Websites will want to utilize Web analytic data and other Web usage metrics to optimize their Websites and content to improve the overall experience of their sites.
Another driver of our Digital Media Solutions business is the growth in the use of digital devices such as digital cameras, digital video cameras, multimedia-enabled computers, DVD players, scanners, Web-capable image and video-enabled handheld devices, cellular phones, gaming consoles and other non-PC Internet-connected devices. In addition, faster Internet broadband speeds have made the Web a viable platform for the delivery of rich media, especially digital video. In turn, the growth in the use of high definition (“HD”) televisions and video is driving the need for HD-enhanced video tools to produce HD content for movies and commercial television, as well as the need to deliver or repurpose this content to be viewed on the Web across PC and non-PC based devices.
As the use of digital photography and digital videography grows, we believe creative professionals and professional photographers throughoutvideographers. We have invested resources to improve the world will continue to require softwareperformance and capabilities of our video authoring solutions, to edit, enhance and manage their digital photographs and digital videos. Increasingly, we expect these users to desire software solutions which leverage the Web as a platform to deliver the capabilities of some or all of the features they desire in desktop software. In addition, we believe creative professionals and Web developers are increasing their use of digital video streamsresult, have significantly grown our market share over the Web to create more compelling Websites. We believe professional videographers are upgrading their systems to support HD video content creation, enhancement and delivery. We also believe hobbyists will use, with more frequency, digital imaging and digital vid eo software and online hosted software services as they purchase more affordable digital cameras and digital video cameras.
Digital Media Solutions Business Summary
Entering fiscal 2010, our Digital Media Solutions business, like our Creative and Interactive Solutions business, was exiting a year that was adversely affected by the global economic recession and the weak general macro-economic environment. Despite this economy-driven weakness, we maintained our focus on driving adoption of CS4 versions of our professional imaging and video productspast several years in the first two quarters of the fiscal year. Through our execution, as the general economy improved in early 2010, licensing of our CS4 products remained stable in the first four months of fiscal 2010.
In May of 2010, as noted earlier, we delivered CS5, the newest release of our creative toolset which included new versions of our flagship imaging andprofessional video authoring products. Strong adoption of the new CS5 products in the second, third and fourth quarters of fiscal 2010 helped to drive year-over-year revenue growth in our Digital Media Solutions segment during the entire fiscal year.
Throughout fiscal 2010, we maintained our focus on making Adobe Photoshop the standard by which all other imaging products are measured. As an essential tool in every creative customer’s workflow, many of our customers acquire its capabilities through the purchase of suites of our products—the management of which is handled by our Creative and Interactive Solutions business.
editing market.
With our standalone Photoshop family of products—including Photoshop Extended, Photoshop, and Photoshop Lightroom, we experienced strong year-over-year revenue growth during fiscal 2010. The release of CS5 versions of Photoshop, and the new version 3 of our Lightroom product, drove increased demand and revenue.
Similarly, ourgrowing leadership position in video authoring, tools—includingwe have worked closely with our customers to build a more complete workflow to meet their additional needs for delivering, measuring and monetizing their video assets. To enable collaborative video authoring environments, we also offer Adobe Anywhere for video. Adobe Anywhere allows customers to bring teams together, enabling them to better collaborate and create productions from virtually any location where there is network connectivity. With Adobe Anywhere, editors, visual effects artists, and other video professionals can use local or remote networks to simultaneously access, stream, and work with remotely stored media. Its collaborative capabilities are embedded directly in Adobe Premiere Pro, After Effects, Adobe Audition, and the suite containing them called Adobe Creative Suite Production Premium—achieved growth during the year due to an improving economy, new CS5 versions of the products, and strong execution by our sales and marketing teams to position Adobe as a leader in the overall digital media solutions category.
During the fourth quarter of fiscal 2010, we released version 9 of our Adobe Photoshop Elements software which is our digital imaging application targeted for amateur photographers and digital imaging hobbyists. In the same quarter, we released version 9 of Adobe Premiere Elements software which is our video editing software that can be used by hobbyists to enhance and share their digital video memories on DVDs. We also released a software bundle that includes the new versions of Adobe Photoshop Elements and Adobe Premiere ElementsPrelude software, eliminating the need for team members to target hobbyists who desire both applications in onelearn additional video software tools.
12

affordable package. Adoption of these new releases helped to drive year-over-year revenue growth in this category during the fiscal year.
We also released free versions of applications which run on smartphones and tablets, including Adobe Photoshop.com Mobile which is a popular application and available for free on devices running Google Android OS and Apple iOS. We later renamed this product to Adobe Photoshop Express. With more than 15 million downloads of our mobile applications during the year, these free solutions expose users to Adobe’s product capabilities and brand, and represent future upgrade opportunities as users of the free solutions wish to do more than what the free products enable them to do.
Digital Media Solutions Business Strategy
In fiscal 2011, our Digital Media Solutions strategy will focus on delivering innovation in the imaging and video markets to create, manage, distribute and monetize digital experiences in a multiscreen world.  In doing so, we intend to drive revenue growth and increase market share of our products through the delivery of comprehensive software solutions that meet the evolving needs of our customers. We also intend to develop and deliver new products which leverage the strong brand and technology of our imaging and video products—including products which could run on non-PC platforms such as tablets and smartphones, and applications which could run in the cloud as a SaaS offering.
In imaging, we have a leadership position with our Photoshop franchise of products. We will continue to update our products to maintain our lead through technical innovation, and to drive upgrade and new user revenue. We also plan to drive incremental revenue growth by tuning and optimizing our business model, including: increasing our focus on the education market as a new seat and revenue growth opportunity; utilizing new trial and new subscription-based licensing models to attract new and price-sensitive customers to adopt our products; and, increasing our focus on addressing piracy problems with the inclusion of more advanced anti-piracy enhancements in the product line.
In video and rich media content creation and delivery, we have a leadership position with our video and audio tools.  We plan to update certain products in the portfolio to maintain and grow this leadership position through market share gains and new user acquisition during the year. We believe our strategy of improving the workflow around planning-to-playback has been effective in migrating users to our set of digital media solutions, and we will continue to innovate to improve the workflow capabilities of our offering.
Areas where we intend to improve the workflow of our customers include improving our planning-to-playback offering through the integration of Omniture measurement and optimization capabilities, and, integrating our new Web content management (“WCM”) capabilities into the workflow. We expect both initiatives will further enhance our solution to provide the most complete end-to-end solution in the market, as well as expand the revenue we can generate from existing customers that rely on our solutions.
Across all of our digital media solutions, we will continue to market the advanced features, the cross-platform and cross-device capabilities, and the workflow benefits of this platform to creative professionals and videographers in the film, broadcast, corporate and event videography market segments. We plan to leverage innovations in Adobe Flash Player and its high-quality video playback features, we will continue to work on advancing our seamless video authoring-to-playback workflow capability for those wishing to provide a rich video experience on the Web and to mobile devices. We also plan to continue to innovate with the latest Web formats to provide the best offerings to customers. This includes improvements for our support of Flash video technology, as well as adding new HTML5 capabilities as browsers begin to support these ne w features and the world begins to migrate to Web browsers which support them.
In the future, we intend to innovate in new areas of content creation, including addressing an emerging opportunity of building and marketing applications which work on non-PC devices such as tablets. We are making investments to insure our solutions remain leaders in their respective categories, regardless of adjustments in how people wish to create imaging andOur video content in the future.
Digital Media Solutions Products
Adobe After Effects—software used to create sophisticated animation, motion graphicsdelivery, authentication and visual effects found in television broadcast, film, DVD authoring and the Web; provides 2D and 3D compositing, animation and visual effects tools, as well as advanced features such as motion tracking and stabilization, advanced keying and warping tools, and more than 250 additional visual and additional audio effects.
Adobe Audition—a professional audio editing environment designed for demanding audio and video professionals; provides advanced audio mixing, editing and effects processing capabilities.
13

Adobe Creative Suite Production Premium—an integrated software solution that provides creative professionals a complete post-production solution consisting of video, audio and design tools that can be utilized to create and deliver content to film, video, DVD, Blu-ray Disc, the Web and mobile devices; combines Adobe Premiere Pro, Adobe After Effects, Adobe Photoshop Extended, Adobe Flash Professional, Adobe Flash Catalyst, Adobe Illustrator, Adobe Encore, Adobe OnLocation and Adobe Soundbooth technologies, and the following additional components: Adobe Bridge, Adobe Device Central and Adobe Dynamic Link.
Adobe Encore—professional DVD authoring and creation software; provides a comprehensive set of design tools and integration with other Adobe software to create a streamlined DVD creation workflow; provides ability to output projects to recordable DVD formats including Blu-ray, ensuring a wide degree of playback compatibility.
Adobe Photoshop—provides photo design, enhancement and editing capabilities for print, the Web and multi-media; used by graphic designers, professional photographers, Web designers, professional publishers and video professionals, as well as amateur photographers and digital imaging hobbyists.
Adobe Photoshop Express—an online hosted service that provides customers with the ability to view, enhance and share their photos. It also provides photo backup services and was initially launched as Photoshop.com.
Photoshop Express Mobile—offers the ability to edit and share photos virtually anywhere from smartphones and tablet devices; runs on Apple iOS and Android OS operating systems.
Adobe Photoshop Elements—offers powerful yet easy-to-use photo editing functionality plus intuitive organizing, printing and sharing capabilities for amateur photographers and hobbyists who want to create professional-quality images for print and the Web.
Adobe Photoshop Extended—provides the capabilities of Adobe Photoshop, plus additional tools for editing 3D and motion-based content and performing image analysis; targeted for:  film, video and multimedia professionals; graphic and Web designers using 3D and motion; manufacturing professionals; medical professionals; architects and engineers; and scientific researchers.
Adobe Photoshop Lightroom—software designed for professional photographers and photo hobbyists, it addresses their unique photography workflow needs by providing more efficient and powerful ways to import, select, develop and showcase large volumes of digital images.
Adobe Premiere Elements—a powerful yet easy-to-use video-editing software for home video editing; provides tools for hobbyists to quickly edit and enhance video footage with fun effects and transitions and create custom DVDs for sharing video with friends and family.
Adobe Premiere Express—hosted software service based on Adobe Premiere technology that provides video editing and video remix capabilities; licensed by customers such as those running media portals to provide consumers with embedded access to industry leading Adobe video editing and enhancement technologies.
Adobe Premiere Pro—professional digital video editing software used to create broadcast quality content for video, film, DVD, multimedia and streaming over the Web.
Adobe Soundbooth—an application that provides video editors, designers and others who do not specialize in audio with the tools that they need to accomplish audio-based tasks in their everyday work, such as removing noise from recordings, polishing voiceovers and customizing music to fit a video or animation production.
Adobe Story—an online collaborative script development tool currently in beta release and made available as a hosted service; can be used to begin the planning and preproduction phase of video workflows is be integrated with other Adobe products; developed to create more efficient video production workflows while reducing production costs, Adobe Story automatically turns content in scripts into relevant metadata that can be used throughout the Adobe digital video workflow.
Adobe Visual Communicator—software used to create newscast-style video presentations that can be delivered via e-mail, CD, DVD, PowerPoint or live over the Internet.
Digital Enterprise Solutions
The focus of our Digital Enterprise Solutions business is to provide solutions which meet the needs of enterprises and governments to increase their revenue, improve their productivity, help automate business processes, improve collaboration, provide better customer service and reduce costs. We believe there are several macro trends and specific growth drivers that are creating opportunities for our Digital Enterprise Solutions business:
14

· 
Transforming customer experiences—businesses increasingly focus their customer service and new customer acquisition activities online, both to gain business process efficiencies and to take advantage of the opportunities presented by new, more sophisticated technologies for analytics, optimization and targeted communications. As they do so, enterprises and governments face rapidly changing consumer expectations, fueled by innovations across channels and technologies—from social media and real-time collaboration, to online video and Internet-connected television, to new mobile and Internet applications. We believe a major opportunity has emerged to provide a platform for enterprises and governments to manage the accelerating innovation in digital experiences across multiple channels and devices—and to deliver effective and engaged cus tomer experiences with transformative business results.
· 
Collaboration—the nature of business continues to become more social and collaborative, and enterprises and governments are being forced to become more transparent. Customers and government constituents desire that their online interactions be friendly and effective. As such, we believe weaving social, real-time interaction into every customer interaction is becoming a key market opportunity, as well as a differentiation in the marketplace.
·
Paper-to-digital—eliminating paper and moving to automated forms-based workflows continue to be key challenges in enterprises and governments around the world. Paper remains prevalent throughout industries and governments, and there are goals to drive down operational costs related to paper use and workflows involving paper-based documents. During the past decade, there has been considerable progress made towards moving away from paper-based workflows. However, we believe there still remains a significant opportunity to deliver solutions which focus on this opportunity.
Given these market trends and growth drivers, we categorize ourmonetization opportunities, and our results into two distinct segments within our solutions which address them, are centered around an initiative we announced in 2012 called Project Primetime, and are discussed later in in the section titled “Digital Enterprise Solutions: Knowledge Worker and Enterprise.
Knowledge Worker Market Opportunity
Marketing Opportunity.”
As part of our Digital Enterprise SolutionsMedia focus, we also address the needs of the knowledge worker customer whom we define as someonecustomers: people working in document intensive industries, focused on creating and disseminating high-value information as part of their job on a regular basis. Knowledge workers include a wide variety of job functions—functions such as accountants, attorneys, architects, educators, engineers, graphic designers, insurance underwriters and stock analysts. These jobs typically require the sharing of information either as a static, published document or as a collaborative, interactive document.

7
Table of Contents

Knowledge workers must create information and content from a variety of sources and software applications, and be able to exchange this information within a reliable format that ensures coworkers and constituents can reliably and securely access the information. When appropriate, this information often needs to be protected, authenticated, or securely managed and controlled.
Document-based collaboration among knowledge workers can occur through face-to-face meetings, via phone calls, through e-mail or through Webweb conferencing technologies. Knowledge workers who participate in collaborations with their colleagues may be located in offices next door to each other, or in different parts of the world. These team members may change with every project and either be part of an organization’sorganization's employee base, or be an external consultant or third-party partner.
We believe there is a significant opportunity to provide solutions which enable knowledge workers to communicate and collaborate across technical, geographical and social boundaries, both inside and outside of their companies. We believe that with such solutions, users can collaborate and efficiently manage feedback from their colleagues in both real time and on-demand, and control how, when and by whom information is accessed.
Since the early 1990s, our Acrobat family of products has provided for the reliable creation and exchange of electronic documents, regardless of 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 target a variety of user needs, Adobe Acrobat provides essential electronic document capabilities and services to help knowledge workers accomplish a wide range of ad hoc tasks involving digital documents ranging from simple publications to forms to mission critical engineering and architectural plans. Although Acrobat has achieved strong market adoption in document-intensive industries such as go vernment,government, financial services, pharmaceutical, legal, aerospace, insurance and technical publishing, we believe there are tens of millions of users who need capabilities such as those provided by Acrobat who have not yet licensed an Acrobat- basedAcrobat solution.
Our Acrobat.com service providesFor several years, we have offered additional cloud-based Acrobat services to supplement the features of Acrobat and provide knowledge workers with centralized online file sharing and storage capabilities, as well as simple PDF creation an online word processor, spreadsheet, and personal Web conferencingconverting PDF to other file formats. With our new Acrobat XI software and its innovative cloud services that were released in the fourth quarter of fiscal 2012, we've significantly extended the capabilities of our solution. With Acrobat cloud services, users can take advantage of electronic document signing with Adobe ConnectNow. InEchoSign, complete form management with Adobe FormsCentral, and utilize other features such as Adobe SendNow and Acrobat.com.
With Adobe EchoSign, companies can expedite document and web contract approvals. Users of EchoSign can send an electronic document to others for signing, keep track of who's signed it, and store their signed contracts online. This enables faster, more efficient and cost-effective customer interaction. Our FormsCentral cloud service enables companies to create, distribute, and analyze forms without writing code. Templates can be used to build new forms, or users can design forms from scratch. Our FormsCentral solution collects all responses and helps customers share real-time results with their colleagues. SendNow enables customers to share large files more easily rather than using email attachments. Acrobat.com provides services to customers so they can store their documents online and have access to them from virtually anywhere using a computer or mobile device.
Combined, Acrobat and Acrobat cloud services increasingly provide more value to knowledge workers. The cloud services serve as additional value to Acrobat customers, thereby further entrenching the use of Acrobat and PDF as part of our customers' day-to-day businesses.
15

addition to complementing our Acrobat desktop solutions, Acrobat.com also serves as an introductory service for knowledge workers who wish to utilize PDF-creation capabilities and the Adobe Reader, but have not yet licensed an Acrobat desktop solution.
Knowledge WorkerDigital Media Business Summary
In the second quarter of fiscal 2012, we delivered CS6, the newest release of our creative toolset. CS6 provided numerous feature enhancements, particularly in the areas of mobile device content creation, website development with new HTML5 capabilities, digital imaging, digital publishing for tablets and product performance.
The launch of CS6 was also the cornerstone of our new Creative Cloud subscription offering, which was also delivered in the second quarter of fiscal 2012. Adoption of Creative Cloud subscriptions in the launch quarter exceeded our expectation as we believe the value of the new offering was attractive to both existing and new users of our creative tools. We also believe the low monthly payment options with Creative Cloud, as opposed to paying for perpetual licenses up front, has attracted more price-sensitive customers to license our creative products, as well as migrate existing users to the newest release. In the subsequent third and fourth quarters of fiscal 2012, we achieved accelerated adoption of Creative Cloud. In each of these three quarters, the success of Creative Cloud subscription adoption adversely affected reported revenue as we recognize revenue associated with our subscription offerings ratably whereas revenue associated with our perpetual licenses is generally recognized at the time of initially licensing the products.
Our DPS solution achieved strong growth in fiscal 2012 based on broad adoption by magazine and newspaper publishers to deliver engaging, branded reading experiences of their publications to mobile and tablet devices. During the year, we continued

8
Table of Contents

to innovate with DPS, leveraging new innovations in CS6 products such as Adobe InDesign, to help customers accelerate app delivery to their readers through app stores. In the Fall of 2012, we delivered an update to our Digital Publishing Single Edition solution and made it generally available to all Creative Cloud subscribers. This significantly broadened the use of our solution beyond mainstream publishers.
We drive our DPS revenue through the licensing of software that customers use to create and publish their apps. In addition, with our Enterprise version, we obtain revenue for each digital edition that is downloaded and delivered through our content delivery infrastructure. As of the end of fiscal 2012, we have over 1,450 DPS customers, reflecting the success and strong adoption of our solution. In addition, on average we deliver approximately 163,000 digital issues every day to users of iPads, Kindles and Android tablets, with more than 53 million digital editions delivered since March of 2011.
In the professional digital imaging market, we released new versions of Adobe Photoshop CS6, Adobe Photoshop CS6 Extended and Adobe Lightroom 4 during fiscal 2010, our Knowledge Worker2012. Ground-breaking features in Photoshop included new Content-Aware technologies, enhancements in image effects such as Blur Gallery and performance improvements based on updates to the Adobe Mercury Graphics Engine. Lightroom enhancements included refined technology for superior shadow and highlight processing, expanded management capabilities including enhanced DSLR video support and the ability to create photo books. To drive increased adoption of Lightroom, we also lowered the price of the product, which resulted in substantial unit and revenue increasedgrowth during the year when compared to fiscal 20092011.
With our professional digital video authoring and content creation solutions, including Adobe Premiere Pro and After Effects, we continued to achieve strong market share and revenue growth during the year due to general macro-economic improvementsnew CS6 product versions and increased spendingstrong execution by IT organizations. Helpingour sales and marketing teams to position Adobe as a leader in the overall digital video solutions category.
During the fourth quarter of fiscal 2012, we released version 11 of our Adobe Photoshop Elements software which is our digital imaging application targeted for amateur photographers and digital imaging hobbyists. In the same quarter, we released version 11 of Adobe Premiere Elements software, which is our video editing software that can be used by hobbyists to enhance and share their digital video memories on DVDs. We also released a software bundle that includes the new versions of Photoshop Elements and Premiere Elements to target hobbyists who desire both applications in one affordable package. Adoption of these new releases helped to drive year-over-year revenue growth in this category.
To help our customers create new content leveraging advancements in web standards, we deliver the Edge Tools & Services, which included Edge Animate, in the fall of 2012. Edge Animate is our new web motion and interaction design tool that allows designers to bring animated content to websites, using web standards like HTML5, JavaScript, and CSS3. We also delivered Adobe Muse, which enables designers to design and publish HTML websites without writing HTML code. Combined, we believe the customer adoption of these new tools as well as positive customer reactions to innovations we added to our existing web content creation tools such as Adobe Dreamweaver CS6, has caused the web community to embrace Adobe as a leading provider of HTML solutions for web content creation.
During fiscal 2012, we advanced the capabilities of our Adobe Flash Player with several new releases. Flash Player is a cross-platform, browser-based application runtime that provides viewing of expressive applications, content, and videos across most browsers and PC operating systems. Key features that are driving adoption of Flash in markets such as gaming and premium video delivery include 3D accelerated graphics support, native 64-bit operating system support, improved software encoding for cameras and protected HTTP dynamic streaming. Adoption of Flash Player remained strong on PC platforms during fiscal 2012. Due to the frequent downloads of our client technologies such as Flash Player, we generate revenue through OEM relationships with companies where we include their technologies as part of the download offerings of our client technologies on PCs. In fiscal 2012, this download revenue grew when compared to fiscal 2011.
In fiscal 2012, we also broadened the reach of Adobe AIR, our cross-platform client technology. The AIR runtime enables developers to deploy standalone applications built with HTML, JavaScript, ActionScript, Flex, Flash Professional, and Adobe Flash Builder across platforms and devices—including Android, iOS devices, personal computers and televisions.
To capitalize on the increased use of smartphones and tablets, we released updates of our tablet applications which run on mobile devices, including Photoshop Touch, which is a popular application and available on devices running Google Android OS and Apple iOS. In addition, Adobe Revel provides users access to their entire photo library from their Apple devices, along with photo-processing features based on Lightroom. Both Photoshop Touch and Revel received positive reviews and achieved strong revenue growth during the year.
In the Document Services market, we achieved solid year-over-year growth during fiscal 2012. This performance was the successdriven by continued, solid adoption of our corporate and volume licensing programs, which allow customers who want to deploy Acrobat to many users to do so through convenient license acquisition and installation means.
Our Acrobat 9 family of products, which first shipped in August of 2008, offered features that allow workgroups to manage a range of essential business activities such as assembling documents from multiple sources, controlling security and access to sensitive information, enabling the creation and filling out of intelligent electronic forms and more effectively collaborating on documents and projects. These enhanced capabilities helped to continue the increase of our penetration of Acrobat desktop licenses in enterprises.
In November 2010, we launched Adobe Acrobat X release that initially launched in the tenthfourth quarter of fiscal 2010. In the fourth quarter of fiscal 2012, we released Acrobat XI, the eleventh major version of our Acrobat family of products. WithAcrobat XI, the industry standard for PDF software, contains new and improved featurescapabilities that improve user productivity, streamline document reviews, collectfeature complete PDF editing and export to

9
Table of Contents

Microsoft PowerPoint; touch-friendly capabilities on tablets; and newly integrated cloud services, including sophisticated Web contracting with Adobe EchoSign and forms creation, data in fillable PDF forms, protectcollection and analysis with Adobe FormsCentral. Acrobat XI additionally supports IT departments with seamless Microsoft Office and SharePoint integration, easy deployment, applications virtualization and robust application security. Our free Adobe Reader, used by hundreds of millions of people to view and interact with PDF documents, was also updated to deliver more features to users, and other content,includes full support for non-PC devices such as iPhones, iPads and share PDF documentsAndroid devices. Our EchoSign service, with others,its simplistic model that doesn't require scanning software, signature pads or digital certificates, is used to sign nearly one million contracts per month. In addition to making this service available to Acrobat X extends the value proposition for knowledge workers to communicate and collaborate more effectively. Acrobat X is offeredXI users, we also integrated it with our Adobe Reader in Standard and Pro versions, as well as in a new Acrobat Suite which includes Acrobat X Pro, Adobe Photoshop CS5, Adobe Captivate 5, Adobe Presenter 7, Adobe LiveCycle Designer ES2 and Adobe Media Encoder CS5.
fiscal 2012.
During the year, continued adoption of our Creative Suite and Creative Cloud products has also contributed to broader adoption of Acrobat in the creative professional market. Acrobat Pro is included in four of the five Creative Suite editions and utilizationUtilization of Acrobat prepress, printing and collaboration functionality is a critical component of creative customer workflows. As such, adoption of Acrobat through thePro is included in several Creative Suite family of products has resultededitions and in a material amount ofCreative Cloud membership, and these offerings were updated to include Acrobat revenue being reported in our Creative Solutions Segment during the year.
We also continued to grow the usage of Acrobat.com during fiscal 2010. SinceXI when it was first introduced in 2008, more than fourteen million users have created accounts to use Acrobat.com to create and share documents, communicate in real time, and simplify working with others. We believe this compelling subscription-based service will enhance the growth capabilities of the Acrobat family of productsreleased in the coming years.fourth quarter of fiscal 2012.
Knowledge WorkerDigital Media Strategy
In fiscal 2011,2013, we intend to implement strategies which will accelerate the adoption of our Creative Cloud subscription offering. This includes migrating existing users from their current perpetual licenses, as well as driving new customer adoption. Aspects of this strategy include increasing the value of Creative Cloud by delivering frequent product updates and enhancements to subscribers; using promotions to attract customers to the offering; expanding our go-to-market reach through referral affiliate models to reach new customers particularly in the small and medium business (“SMB”) space; and utilizing Creative Cloud for teams and Creative Cloud for enterprise offerings to drive broad adoption with customers who license our software in volume.
As part of our Creative Cloud strategy, we also intend to streamline how customers learn about our offering, sign up to use it, and pay for it. We expect to accomplish these goals by utilizing our digital marketing solutions to drive awareness and customer conversion on our website. We believe Adobe.com will increasingly be the destination site where we engage individual and small business customers to sign up for and renew Creative Cloud subscriptions. We also will utilize channel partners such as corporate resellers to target mid-size creative customers with our Creative Cloud for teams offering, and our direct sales force to build relationships and drive adoption of our Creative Cloud for enterprise offering with our largest customers.
In digital imaging, we plan to broaden the adoption of our Photoshop Lightroom and Photoshop Elements products, and use our Revel product for tablets to increase awareness of our image editing and sharing solutions. In interactive development we will continue to advance the capabilities of our tools to deliver cutting-edge HTML5 capabilities with products such as Edge, while also investing in improving the capabilities of Adobe Flash in the PC-based gaming market.
In the coming year we also plan to continue to market the benefits of our knowledge workerDocument Services solutions to small andsmall-and medium-sized businesses, large enterprises and government institutions around the world. With our Acrobat family of products, we intend to continue to increase our seat penetration in these markets through the utilization of our corporate and volume licensing programs. We also intend to increase our focus on marketing and licensing Acrobat in targeted vertical markets such as education, financial services, telecommunications and government, as well as expanding into emerging markets.
We also intend to enhance and build out the delivery of cloud-based document services to our Acrobat and Adobe Reader users. The release of Acrobat XI included newly integrated cloud services, including sophisticated web contracting with EchoSign and forms creation, data creation and analysis with FormsCentral. It also includes our SendNow feature which enables users to deliver large electronic files over the web with security and fidelity.
With the integration of our cloud-based EchoSign solution with our Acrobat family of products, we intend to continue to promote its capabilities to millions of Acrobat users and hundreds of millions of Adobe Reader users. We believe that by substantially growing the awareness of Adobe EchoSign in the broader contract delivery and signing market, we can help our customers migrate away from paper-based overnight express mailing and adopt our solution, substantially growing our revenue with this business in the process.
Digital Marketing Segment
Digital Marketing Opportunity
Consumers today can interact with businesses across multiple channels and devices, and it is up to businesses to figure out how to best attract, engage, acquire and retain customers in a world where the reach and quality of experiences directly impact success. Marketing executives need to know that their investment is optimizing consumers' experiences and delivering the greatest return on our customers' marketing spend. Online marketing goals must map clearly to overarching business objectives, and

10
Table of Contents

marketing executives are expected to demonstrate the success of their programs using solid metrics. In this environment, gleaning insight in real time across channels is essential.
We believe there is a significant opportunity to address these challenges and help customers transform their businesses. This market opportunity is accelerating as Chief Marketing Officers (“CMOs”), digital marketers, heads of digital, advertisers and publishers are managing spending budgets to migrate their marketing and advertising spend to digital media.
These users are faced with several major market trends, and their choices for how they address these challenges are creating broad opportunities for our Digital Marketing business:
Broad commercial utilization of the internet
The internet has fundamentally altered the way businesses and consumers purchase and consume goods and services. It has also redefined many business processes and has created opportunities for new online businesses, as well as for existing offline businesses seeking to capitalize on online initiatives. Because of this, businesses are investing in innovative online initiatives to increase sales, improve customer service, enhance brand awareness, decrease time-to-market for their offerings, reduce fulfillment costs and increase operational efficiency.
We expect that the scope and scale of commercial internet usage will continue to increase. The roll-out of broadband and mobile networks, particularly in emerging geographic markets, will contribute to the growth of internet usage. Internet commerce should also continue to grow. Proliferation of online marketing and customer response channels, such as mobile, digital video and social networks, will continue to generate interactions that need to be measured, analyzed and optimized across channels.
Need to measure online business
In order to make informed decisions about priorities and investments in online marketing and other commercial initiatives, we believe businesses require timely and accurate measurement of customer behavior. The proliferation of internet usage and the fact that nearly every user interaction on a website (or other digital medium such as mobile apps, set-top boxes, kiosks, point of sale systems or any IP connected device) can be captured by the owner of the website, or other digital medium, has resulted in the creation of an unprecedented amount of data about how a business' customers interact and transact business with it.
Businesses are increasingly realizing the benefit of using information gained from online and other digital customer interactions to improve functional areas, such as sales, customer service, product development, marketing, pricing, manufacturing and inventory management. The interactive and measurable nature of internet activity also enables businesses to determine how customers arrived at their online destinations, such as through paid search, a display ad or a social media website. It also enables businesses to determine which advertising mediums are yielding the greatest ROI, including whether visitors convert to customers once they have reached their destination site.
Opportunity to optimize and automate online business
Measuring online activity and automating the capture and analysis of data are important for making informed business decisions. Businesses also need to leverage data to optimize the results of their online business activities. For example, businesses have historically measured the success of their online marketing programs by simple click-through rates or conversion rates, the latter being the percentage of click-through users who make a purchase or otherwise engage in the desired customer action during the online session. However, the effectiveness of online marketing can be optimized by analyzing and acting on deeper information, such as repeat visits, transactions generated, registrations, traffic pathways (various paths of online visitor traffic flow), time spent and quality of interaction (engagement), eventual conversion (desired customer action taken in subsequent visits) or success over time (lifetime value of customer) as well as comparing the relative effectiveness of different marketing channels (attribution).
Business success metrics can also vary based on the industry or vertical market—for example, media companies drive engagement to optimize subscriptions and online advertising revenue, whereas retailers and e-commerce companies focus on promotions and maximizing online purchases. Online businesses utilize a large and growing number of complex and diverse advertising and communication channels to market to customers, including display advertising, paid and natural search advertising, e-mail, social media marketing, affiliate marketing, blogs, podcasts, video, games, rich internet applications (“RIAs”) and comparison shopping engines, as well as traditional offline initiatives.
The emergence of multi-channel marketing initiatives, which combine traditional offline marketing initiatives such as television, print, magazine, newspapers, radio and catalog with online marketing initiatives, makes the measurement and analysis of online activity more challenging, but presents additional opportunities to optimize results.

11
Table of Contents

For example, businesses want to measure and understand the impact of their advertising initiatives across all these channels, not only to determine how much credit should be given to a particular channel and to understand cross-promotional effectiveness, but more importantly to optimize their advertising spending and make adjustments in the way channels are utilized and align the amount of resources that are allocated to each of them.
Delivery of premium video through online channels
Media companies face a shifting landscape as traditional media delivery evolves into multiple channels for media companies to deliver and monetize their content. As more 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 of revenue. This trend and the general explosion of video being created and delivered over the web is expanding the online video market opportunity to include fast growing areas such as video delivery, authentication and monetization.
To address the challenges and capitalize on the opportunities presented in the market trends above, CMOs, digital marketers, advertisers and publishers require new content architectures, new analytic systems, new media buying systems and optimization systems to increase the effectiveness of their engagement with customers.
Driving visitor traffic to websites, broadly defined as a customer's digital presence, including its traditional site, mobile site, pages and apps on social networks, and all other content that is distributed throughout the internet, was an early goal of digital marketing spend. This goal has broadened to include the need to measure and understand customer web traffic patterns and the effectiveness of their visitor acquisition efforts. Web analytics solutions have provided insight for digital marketers and web analysts that helps them optimize their online ad spending. Moving forward, the goals of digital marketers have evolved to include how websites and marketing campaigns can convert visitors to customers, and how these websites and marketing campaigns can be more personalized to drive better engagement and higher revenue.
Our Digital Marketing Business Unit targets this large and growing opportunity by providing comprehensive solutions that include analytics, social, targeting, media optimization and experience management solutions, and premium video delivery and monetization products, solutions and services. We deliver these capabilities through our Adobe Marketing Cloud, which is our umbrella digital marketing offering and was formerly branded as the Adobe Digital Marketing Suite.
Adobe Marketing Cloud is a collection of analytics, social, targeting, media optimization and experience management solutions and a real-time dashboard providing insight into the performance of online marketing initiatives. These capabilities empower organizations to make informed decisions and ensure the success of online marketing programs for both advertisers and publishers. Our digital marketing customers accomplish these goals with Adobe Marketing Cloud solutions which help them manage and optimize online, offline, digital and multi-channel business initiatives.
Other key features of our Adobe Marketing Cloud include:
Enabling digital marketers to align online marketing initiatives with overarching business objectives and demonstrate the success of online marketing programs using metrics;
Managing, collecting, and bringing data together from multiple systems into a flexible, integrated platform;
Providing real-time business intelligence through segmentation, dashboards and reports that managers can use to gain a complete picture of how consumers are interacting with the business;
Creating the ability to monetize and share data through audience optimization capabilities, publishers can quickly identify audiences that match the profiles that advertisers are demanding-and maximize the value of their digital assets;
Optimizing ad spend by maximizing the impact of a company's advertising spend across and within channels, including search, display, video, mobile, social media and other digitally connected forms of media, to yield the greatest returns;
Delivering relevant and engaging digital content across channels that boosts key performance metrics, whether it is a customer purchase, engagement, a download, form completion, or other desired outcome; and
Empowering organizations to re-platform their websites by enabling them to create, manage, distribute, and monetize content while optimizing the web, mobile, and social collaboration experience for their customers. More specifically, organizations can enable the delivery of customer-facing web and mobile solutions by extending enterprise services beyond interactive applications, documents, and workflows to include personalization of content, rich media delivery

12
Table of Contents

capabilities, mobile application delivery, social collaboration and deep integration into back-office systems such as e-commerce platforms.
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 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 workflow and delivery technologies.
Given the market trends described above, we believe the combination of our Adobe Creative Cloud and Adobe Marketing Cloud solutions helps customers to more efficiently and effectively create, measure, analyze and optimize those experiences, creating an end-to-end workflow and feedback loop.
With our growing leadership position in video authoring, which is discussed in the “Digital Media Opportunity” section above, we have worked closely with our customers to build out a more complete workflow to meet their additional needs for delivering, measuring and monetizing their video assets. During fiscal 2012 we moved the management of our video content delivery, authentication and monetization solutions to our Digital Marketing business unit based on our goal of aligning these teams with our overall digital marketing focus.
For content delivery, we provide Adobe Media Server software, which helps premium content publishers deliver their HD quality video to the largest audience possible across any internet-connected device, with a streamlined workflow. The Adobe Media Server family has revolutionized media delivery with support for consistent, protected streaming on the widest array of devices—tablets, mobile devices, connected TVs, and desktops.
Our Adobe Pass solution enables the industry goal known as “TV Everywhere” and allows pay TV customers to enjoy content on their connected devices. Adobe Pass is licensed by media companies and verifies a user's entitlement to content simply and securely, allowing quick time to market, a more secure environment, and more readily accessible content.
Similarly, our Adobe Access (formerly Adobe Flash Access) software provides a scalable, efficient workflow to help customers deliver and protect premium video across desktops, mobile devices, and platforms, including iOS and Android. Adobe Access is also an UltraViolet approved Digital Rights Management (“DRM”) technology. It extends audience reach and enables a variety of business models for media companies, including rental, subscription, and electronic sell-through.
Our Adobe Auditude solution is a video advertising platform that powers the video advertising experience for Adobe customers such as major media companies. With Auditude, advertisers can leverage professional TV-like video ad inventory for advertising in on-demand video delivery, live digital events and full episode video content. The solution is further enhanced with rich analytics, enabling our customers with robust ad serving and optimization capabilities that maximize the value of video content on any device.
In January of 2012 we introduced Project Primetime, which is a unified, end-to-end video platform that helps media companies achieve broadcast audience reach, lower their operating costs, and boost revenue from ad sales. Project Primetime links Adobe streaming, DRM, ad serving, audience management, analytics, and optimization technologies that are available in our Media Server, Adobe Access, Auditude and other digital marketing offerings.
Our success in these areas has enabled our entry into the video advertising market. Our Adobe Video Advertising solution has become a central source for broadcast and professional video inventory. With a focus on premium television-quality video, we help customers deliver high quality ad placements in their online video delivery. Adobe Video Advertising offers a TV-like experience with true commercial breaks during live sports, music, and news programs as well as during full episode viewing from our premium content partners. Our solution leverages our digital marketing products such as Adobe AudienceManager, and enables the use of premium ads with innovative ad executions and TV-like ad insertion within live, simulcast, and on-demand video.
Digital Marketing Business Summary
Our Digital Marketing segment contains revenue from multiple product families, including our digital marketing products and solutions, as well as legacy enterprise software offerings. As we exited fiscal 2012 we rebranded our Digital Marketing Suite to be called Adobe Marketing Cloud, and organized our product portfolio into five key solutions—Analytics, Target, Social, Media Optimizer, Experience Manager—containing multiple products to address specific marketing opportunities. In addition, we consider Video to be an emerging solution in our Adobe Marketing Cloud.
In fiscal 2012, we achieved strong year-over-year revenue growth with our Adobe Marketing Cloud products and solutions. Our acquisition of Efficient Frontier in the first quarter of fiscal 2012 helped to drive revenue growth during the year. In the fall of 2012 we rebranded Efficient Frontier as Adobe AdLens.

13
Table of Contents

Driving the growth with our Adobe Marketing Cloud product family was continued adoption of Adobe SiteCatalyst and our Adobe CQ5 Web Experience Management (“WEM”) solution now known as Experience Manager. With SiteCatalyst we help our customers track more than six trillion transactions per year in a hosted environment around the world. An increasing percentage of these transactions are from non-PC devices including tablets and smartphones. Our market-leading Experience Manager solution combines Web Content Management, Digital Asset Management (“DAM”) and social collaboration offerings, and enabled our sales force to target organizations that need to transform their websites by enabling them to create, manage, distribute, and monetize content while optimizing the web, mobile, and social collaboration experience for their customers.
In the online video and rich media delivery market, we continued our momentum in the industry by achieving strong customer adoption and revenue growth with our video solutions. In the first quarter of fiscal 2012, we unveiled Project Primetime, the industry's first fully integrated video technology platform. Project Primetime enables smooth, TV-like experiences for ad-supported videos across Web-connected devices. This new platform delivers premium video and ad content consistently across all major platforms, including Apple iOS, Google Android, desktop operating systems and connected TVs. Our solution creates a single, end-to-end workflow that interconnects our streaming technologies and content protection based on Adobe Media Server, authentication capabilities using Adobe Pass, analytics based on our digital marketing web analytics capabilities, and ad delivery and optimization with our Auditude video advertising platform. This solution enables premium video providers to give customers a superior viewing experience through seamless dynamic ad insertion into any content type, whether linear, live or on-demand across Web-connected devices, and was integral in many global media companies making the 2012 Olympic games available to mobile and tablet users.
In late fiscal 2011 we announced we would narrow the focus of our Adobe LiveCycle and Adobe Connect product families towards the government and financial services markets. At that time we also announced we expected revenue in these product areas to decline, and in fiscal 2012 combined revenue for LiveCycle and Adobe Connect did decline. However, the extent of the revenue decline was less than we targeted for the year, due to continued solid demand for these products.
Digital Marketing Strategy
In fiscal 2013, we plan to build upon the momentum we achieved in fiscal 2012 by aligning our digital marketing focus with Adobe Marketing Cloud around five key solutions:
Adobe Analytics—combines the power of actionable analytics and audience segmentation with the distributed value of reporting and sharing of key business analysis and connects it for data driven marketing. This solution includes our DataWarehouse, Adobe Discover, Adobe Genesis, Adobe Insight, Adobe ReportBuilder, SiteCatalyst and Adobe TagManager products.
Adobe Experience Manager—a web content management platform that enables organizations to deliver carefully tailored customer experiences across web and mobile channels. This solution is based on our WEM offering.
Adobe Media Optimizer—combines best of breed portfolio and rules based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. This solution includes our AdLens and Adobe AudienceManager products, and analytics capabilities from SiteCatalyst.
Adobe Social—helps organizations measure and manage marketing activities across owned, earned, and paid media, ensuring the impact of social is properly attributed. This solution includes our Context Optional and Adobe SocialAnalytics products.
Adobe Target—helps organizations dynamically test and present highly customized experiences to a digital property in order to drive significantly higher conversion rates. This solution includes our Adobe Recommendations, Adobe Search&Promote, Adobe Test&Target and Adobe Test&Target 1:1 products.
With Adobe Analytics, we will focus on helping our customers understand the performance of their business across all digital channels and support their needs for integrating offline channels. Customers want to know how their campaigns are performing across video, social, mobile and email, and look at that performance holistically. To do this, they require an analytics platform that can assemble data across all those channels to gain better insight and drive informed decision making.
Personalized engagement is a priority for digital marketers; once they attract visitors to their websites, they desire to create the best possible experience. With our Adobe Experience Manager solution we provide an integrated suite of tools that include analytics data, content management and web optimization solutions. Our solution enables digital marketing customers to personalize the experiences of visitors to their websites in ways that are dynamic and relevant to each visitor. Experience Manager helps marketers author, manage and deliver personalized experiences based on many criteria, including analytics data related to a visitor's prior visits to a site, or based on their purchasing history, or what keyword they clicked on in a web search that brought them to

14
Table of Contents

a site or in many cases, to a distributed part of its site such as a social network page or app for that customer. With personalized engagement made possible through Experience Manager, marketers can also build a better brand presence, drive demand by quickly creating, launching, and optimizing compelling online marketing campaigns, and extending their reach with their customers through multiple online channels.
The more digital marketers can know about their customers, the more effectively they can reach them with targeted advertising and offers to increase visitor acquisition and conversion through their websites. We provide Adobe Media Optimizer, which combines portfolio and rules-based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. Our Media Optimizer solution includes our Adobe AdLens (formerly Efficient Frontier), Adobe AudienceManager and Adobe SiteCatalyst products to give marketers a complete view of their online marketing campaign performance across search, display and social channels. This enables deeper and more relevant insights into how their customers are interacting with their brand. It also gives them the data they need to segment those who are still browsing on their sites, and the data on those who are ready to buy—allowing marketers to deliver the appropriate messages or marketing offers at the appropriate time.
Our Adobe Social solution enables marketers to simplify and measure their social marketing efforts. Our offering is an integrated suite of products including Context Optional and SocialAnalytics, and the ability to perform ad buying via AdLens. Combined, our solution enables marketers to create content once and push it out to social media channels such as Facebook, Twitter, Google+, and others quickly and easily. We extend these capabilities to include the ability to find out what content is resonating with marketers' customers or constituents, and help them migrate visitors into destinations such as high-profile Facebook Sponsored Stories. Adobe Social helps marketers determine if their paid media is pushing traffic to their social networks. It also provides them insights into their customers' audience, using real-time data to find out what gets their social communities talking. With this information, marketers can keep their social audiences engaged by creating more targeted content and experiences to drive positive impact on their business. From messaging and offers to media buys and influencers, Adobe Social gives marketers key information about what's driving results.
Adobe Target helps organizations drive higher conversion rates on their websites. Our solution enables digital marketers to create, dynamically serve, and continually optimize personalized messages through the use of integrated products such as Adobe Test&Target, Adobe Recommendations and Adobe Search&Promote. With Adobe Target, marketers can learn more about their customers so they can evolve from marketing messages for broader segments to those relevant to individual visitors. Our offering also uses a robust data-driven approach that unifies internal and third-party data to create highly detailed customer profiles that help marketers deliver the appropriate marketing messages in front of the right people. With these capabilities, customers can optimize their website and digital marketing efforts to maximize their revenue by controlling, monitoring and altering their personalization strategies through built-in testing. Through these features, marketers can also drive higher levels of customer engagement, conversion, and loyalty.
As part of our digital marketing initiatives, we intend to streamline how customers learn about, acquire and deploy Adobe Marketing Cloud solutions. We also believe we can accelerate the growth of our business by expanding our go-to-market strategy to include new geographies and vertical markets where Adobe has a strong presence. In fiscal 2012 we began to build out more sales capacity and resources to support them in our field organization. We believe these investments will drive higher international revenue in our Digital Marketing segment in fiscal 2013 and beyond.
With our Project Primetime initiative and set of products to help media and entertainment companies monetize their premium video assets, we will continue to invest in the build out and licensing of our solution. As part of this effort, we intend to expand our focus into new geographic markets in the coming year.
In the fall of 2011, we announced we would narrow our focus with our Adobe LiveCycle and Adobe Connect offerings on two key vertical industries: financial services and government. For these customers, we offer comprehensive, scalable, secure and reliable server products, SaaS offerings and tools to develop applications tailored to their specific information and business process requirements. In fiscal 2013 we will continue to target these vertical markets.
With our LiveCycle offerings, we enable our customers to eliminate paper and move to automated forms-based workflows, which continue to be key challenges in enterprises and governments around the world. Paper remains prevalent throughout industries and governments, and many organizations are seeking to drive down operational costs related to paper use and workflows involving paper-based documents. During the past decade, there has been considerable progress made towards moving away from paper-based workflows. However, we believe there still remains a significant opportunity to deliver solutions that focus on this opportunity, particularly in the government and financial services categories.
Adobe Connect provides capabilities for live web conferencing, as well as delivering on-demand rich presentations through an on-premise server or as a hosted service and for recording and delivering such content later. Web conferencing services are

15
Table of Contents

provided via the ubiquitous Adobe Flash Player client on PCs, as well as through smartphone and tablet device applications running natively on operating systems such as Apple iOS and Android.
Print and Publishing Segment
Print and Publishing Opportunity
Our Print and Publishing business segment contains several of our products and services that address diverse market opportunities including eLearning solutions, technical document publishing, web application development and high-end printing. These opportunities and the key products we offer to address them in fiscal 2013 are reviewed below.
Graphics professionals and professional publishers continue to require quality, reliability and efficiency in production printing, and we believe our Adobe PostScript and Adobe PDF printing technologies provide advanced functionality to meet the sophisticated requirements of this marketplace. As high-end printing systems evolve and transition to fully digital, composite workflows, we believe we are uniquely positioned to be a supplier of software and technology based on the PostScript and Adobe PDF standards for use by this industry. We generate revenue by licensing our technology to OEMs that manufacture workflow software, printers and other output devices, and in fiscal 2012, we maintained our OEM PostScript revenue through continued innovation with PostScript technologies.
eLearning solutions are becoming more prevalent as a means to create and deliver online and electronic learning experiences. These experiences range from online assessments, surveys and quizzes–to online reference and instruction manuals–to real time learning and web-based collaboration experiences. We believe we have a rich legacy in the development and delivery of eLearning tools, and can innovate by providing new features and platform reach for eLearning content delivery with our set of offerings.
Our ColdFusion offering provides fast and easy ways to build and deploy powerful internet applications. Developers can extend or integrate ColdFusion with Java or .NET applications, connect to enterprise data and applications, create and interact via web services, or interface with SMS on mobile devices or instant messaging clients. ColdFusion can also be used for business reporting, rich-forms generation, printable document generation, full-text search and graphing and charting, enabling customers to more fully engage their constituents with better web experiences.
We generate revenue by licensing our technology to OEMs that manufacture workflow software, printers and other output devices. In fiscal 2013, we plan to continue to enhance PostScript as well as utilize PDF enhancements to maintain these formats as standards in publishing and printing work flows.
Print and Publishing Business Summary
In fiscal 2012, we maintained a consistent quarterly revenue run-rate with the mature products we market and license in our Print and Publishing business. During the year we delivered version 4 of our Adobe Technical Communication Suite, which is a set of tools for technical publishing. We also released version 6 of our Adobe eLearning Suite, which is a set of tools for creating professional eLearning courseware and includes Adobe Captivate version 6 and Adobe Presenter version 8. In fiscal 2012, we maintained our OEM PostScript revenue through continued innovation with PostScript technologies.
Print and Publishing Strategy
In fiscal 2013 we will continue our focus on addressing the needs of our Print and Publishing customers. More specifically, in the eLearning market we will innovate around our broad set of tools to help authors of eLearning materials deliver their content in new and more engaging ways, leveraging the adoption of tablet devices in schools and educational institutions. We will also update several of our legacy products to keep customers current with solutions and features they need based on the Print and Publishing products they use.    
Fiscal 2013 Business Segment Products and Services
Digital Media—Creative Products
Adobe After Effects—software used to create sophisticated animation, motion graphics and visual effects found in television broadcast, film, DVD authoring and the web; provides 2D and 3D compositing, animation and visual effects tools, as well as advanced features such as motion tracking and stabilization, advanced keying and warping tools, and more than 250 additional visual and additional audio effects.
Adobe Anywhere—hosted software which enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity.

16
Table of Contents

Adobe Audition—a professional audio editing environment designed for demanding audio and video professionals; provides high-performance, intuitive tools for audio editing, mixing, restoration, and effects.
Adobe Business Catalyst—an online business solution that provides an all-in-one capability to develop and maintain dynamic websites and powerful online stores with an integrated customer database, email marketing, e-commerce and analytics; integrates with Dreamweaver and Adobe Muse for seamless website creation and publishing; a Business Catalyst webBasics offering is included as part of Creative Cloud membership.
Adobe Creative Cloud—a new, comprehensive offering of creative services, Creative Suite desktop applications, and collaboration and sharing features that is offered on a subscription basis; membership to Creative Cloud enables users to download and install any of the Creative Suite desktop applications, plus other applications such as Acrobat and Photoshop Lightroom; subscribers also receive the latest apps and newest features as soon as they're released; Creative Cloud membership includes 20GB of cloud-based storage and device syncing capabilities, enabling members to easily access and share their work; it also includes the ability to publish websites using our Business Catalyst hosting service, and the ability to publish mobile apps using our DPS, Single Edition and PhoneGap Build services.
Adobe Creative Suite Design & Web Premium—an integrated software solution that creative professionals can use as a platform for print, web and mobile content publishing; combines Acrobat Pro, Dreamweaver, Flash Professional, Adobe Fireworks, Illustrator, InDesign and Photoshop Extended technologies with a file management and control center called Adobe Bridge; integrates with Adobe Digital Publishing Suite.
Adobe Creative Suite Design Standard—an integrated software solution that creative professionals can utilize for professional design and print production, page layout, image editing, illustration and Adobe PDF workflows; combines Acrobat Pro, Illustrator, InDesign and Photoshop technologies with a file management and control center called Adobe Bridge; integrates with Adobe Digital Publishing Suite.
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, print production, website design/development, rich interactive content creation, visual effects and motion graphics, video capture/editing/production, DVD titling and digital audio production; includes Acrobat Pro, After Effects, Audition, Dreamweaver, Adobe Encore, Fireworks, Flash Builder, Flash Professional, Illustrator, InDesign, Photoshop Extended, Prelude, Adobe Premiere Pro and Adobe SpeedGrade technologies, with a file management and control center called Adobe Bridge; integrates with Adobe Digital Publishing Suite.
Adobe Creative Suite Production Premium—an integrated software solution that provides creative professionals a complete post-production solution consisting of video, audio and design tools that can be utilized to create and deliver content to film, video, DVD, Blu-ray Disc, television broadcast, and web and mobile devices; combines Adobe Premiere Pro, After Effects, Adobe Audition, Encore, Photoshop Extended, Flash Professional, Illustrator and Adobe Media Encoder technologies with a file management and control center called Adobe Bridge; integrates with Adobe Story.
Adobe Digital Publishing Suite—an integrated, online, hosted publishing solution for individual designers, traditional media publishers, ad agencies, and companies of all sizes that want to create, distribute, monetize, and optimize engaging content and publications for tablet devices; enables magazine and newspaper publishers, as well as individuals, to deliver engaging, branded reading experiences of their publications to an extensive array of mobile and tablet devices; combines hosted services, flexible e-commerce models to sell single issues and subscriptions directly to consumers through mobile marketplaces, and analytics capabilities based on Adobe Marketing Cloud; content is created and enhanced through integration with Creative Suite to enable a complete workflow for the creation and delivery of content to mobile device users via our new Content Viewer technology.
Adobe Dreamweaver—a professional software development application used by designers and developers to create and edit HTML websites and mobile apps; provides a broad range of capabilities for web publishing, enabling online commerce, and providing online customer service and educational content; includes capabilities for visually designing HTML5 pages, coding HTML5 and application logic.
Adobe Edge Tools & Services—new web tools and services which include: Edge Animate, a web motion and interaction design tool that allows designers to create animated content for websites, using web standards like HTML5, JavaScript and CSS3; Edge Inspect, an inspection and preview tool that allows front-end web developers and designers to efficiently preview and debug HTML content on mobile devices; Edge Code, a code editor, built on the Brackets open source project, optimized for web designers and developers working with HTML, CSS and JavaScript; Edge Reflow, a web design tool 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 their

17
Table of Contents

websites; and PhoneGap Build, a service for packaging mobile apps built with HTML, CSS and JavaScript for popular mobile platforms.
Adobe Encore—professional DVD authoring and creation software that is included as part of Adobe Premiere Pro; provides a comprehensive set of design tools and integration with other Adobe software to create a streamlined DVD creation workflow; provides ability to output projects to recordable DVD formats including Blu-ray, ensuring a wide degree of playback compatibility.
Adobe Fireworks—a professional graphics design tool that allows users to create designs for websites and mobile apps quickly, without coding; enables the development and delivery of vector and bitmap images, mockups, 3D graphics, and interactive content for popular tablets and smartphones; integrates with Dreamweaver, Flash and Photoshop, and supports AIR application development.
Adobe Flash Professional—provides an advanced development environment for creating internet applications which integrate animations, motion graphics, sound, text and additional video functionality; solutions built with Flash Professional are deployed via the web to browsers that run Adobe Flash Player, and to devices as installable applications using Adobe AIR. The Toolkit for CreateJS, which was included in Flash Professional CS6, introduces the ability to use Flash Professional to create and publish interactive content for the standards-based web using HTML and JavaScript without any need for the Flash Player or AIR.
Adobe Illustrator—a vector-based illustration design tool used to create compelling graphic artwork for print publications, websites and video production.
Adobe InCopy—a professional writing and editing solution that tightly integrates with Adobe InDesign software to enable an efficient collaborative workflow between design and editorial staff.
Adobe InDesign—a page layout application for publishing professionals; based on an open, object-oriented architecture that enables Adobe and its industry partners to deliver powerful publishing solutions for printed and digital magazine, newspaper and other publishing applications.
Adobe InDesign Server—delivers a robust and scalable engine that leverages the design, layout, and typographical capabilities of Adobe InDesign software to enable third-party systems integrators and developers to programmatically create engaging automated documents; enables Adobe partners to provide new levels of automation and efficiency in high-end editorial workflows, collateral creation, variable data publishing and web-based design solutions.
Adobe Muse—new offering available through subscription and Creative Cloud which enables designers to create HTML websites like they would design print layouts, without having to write code; websites can be published with Adobe Business Catalyst service or any hosting provider.
Adobe Photoshop—provides photo design, enhancement and editing capabilities for print, the web and multimedia; used by graphic designers, professional photographers, web designers, professional publishers and video professionals, as well as amateur photographers and digital imaging hobbyists.
Adobe Photoshop Elements—offers powerful yet easy-to-use photo editing functionality plus intuitive organizing, printing and sharing capabilities for amateur photographers and hobbyists who want to create professional-quality images for print and the web.
Adobe Photoshop Extended—provides the capabilities of our Photoshop, plus additional tools for editing 3D and motion-based content and performing image analysis; targeted for: film, video and multimedia professionals; graphic and web designers using 3D and motion; manufacturing professionals; medical professionals; architects and engineers; and scientific researchers.
Adobe Photoshop Lightroom—software designed for professional photographers and photo hobbyists, it addresses their unique photography workflow needs by providing more efficient and powerful ways to import, select, develop and showcase large volumes of digital images.
Adobe Prelude—software used by video professionals to streamline post-production tasks; integrates with other Adobe video software including Adobe Premiere Pro, and is included in several configurations of Creative Suite.
Adobe Premiere Elements—a powerful yet easy-to-use video-editing software for home video editing; provides tools for hobbyists to quickly edit and enhance video footage with fun effects and transitions and create custom DVDs for sharing video with friends and family.

18
Table of Contents

Adobe Premiere Express—hosted software service Acrobat.com,based on Adobe Premiere technology that provides video editing and video remix capabilities; licensed by customers such as those running media portals to increaseprovide consumers with embedded access to industry leading Adobe video editing and enhancement technologies.
Adobe Premiere Pro—professional digital video editing software used to create broadcast quality content for video, film, DVD, multimedia and streaming over the valueweb; includes Adobe Encore for professional DVD authoring and creation.
Adobe SpeedGrade—new software used by video professionals to color grade their video within video production workflows; integrates with other Adobe video software including Adobe Premiere Pro, and is included in several configurations of Creative Suite.
Adobe Story—an online collaborative script development tool made available as a hosted service; enables writers to author scripts quickly with automatic formatting, and collaborate online. used to begin the planning and preproduction phase of video workflows to be integrated with other Adobe products; developed to create more efficient video production workflows while reducing production costs; automatically turns content in scripts into relevant metadata that can be used throughout the Adobe digital video workflow; offered in two versions: Adobe Story Free and Adobe Story Plus.
Adobe Typekit—subscription-based cloud service that provides the delivery of hosted, high-quality fonts for use on websites; enables designers and developers to existingdeliver beautiful type that enhances the web experience; Typekit fonts are offered as a standalone service, as part of Edge Tools and new users. As the useServices, and as part of Acrobat.com grows, we intendAdobe's Creative Cloud service.
Adobe Visual Communicator—software used to targetcreate newscast-style video presentations that can be delivered digitally; provides a teleprompter, video creation capabilities, and an entire library of customizable graphics, effects, titles, music, and templates; can be used to convert a Microsoft PowerPoint presentation into a narrated video that can be posted online; can also be used to self-produce video broadcasts, conferences, distance learning courses, campus-wide newscasts, and more.
Digital Media—Touch App Products
Adobe Revel—touch-based photo app and service for Mac, iPad, and iPhone users; gives users of the free aspects of the service with paid-for functionality that willaccess to their photo libraries from multiple devices no matter which one they are using; allows users to utilize powerful photo-processing technology based on Adobe Photoshop Lightroom software to enhance their use ofimages.
Adobe Ideas—a vector-based sketching app designed to enable creative professionals to capture their ideas and be a companion tool for other professional design applications from Adobe, including Illustrator and Photoshop; available for the overall solution.iPhone and iPad.
Adobe Photoshop Touch—touch-based iPad and Android tablet app; enables users to edit images and apply professional effects using core Photoshop features, and then digitally share the results through social networking sites like Facebook.
Knowledge WorkerDigital Media—Developer and Platform Products
Adobe AIR—client software and packaging technology that allows developers to use existing web development skills (e.g. HTML, Ajax, Flash and Flex) to build and deploy standalone applications (RIAs) on PCs and mobile devices.
Adobe Acrobat.com—an online collaboration suiteFlash Builder—a cross-platform development environment based on Eclipse for building games and applications in Actionscript and using the open-source Flex framework; enables developers to develop apps and games for browsers, PCs and mobile devices.
Adobe Flash Player—the most widely distributed rich client software on PCs and consumer electronic devices; provides a runtime environment for text, graphics, animations, sound, video, application forms and two-way communications.
Adobe Flash Platform Services—services that enable developers and publishers to distribute and monetize applications across multiple distribution channels.
Adobe Flex—a free, open source framework for building applications that deploy consistently on major browsers, desktops, and computer operating systems by leveraging the Adobe Flash Player and Adobe AIR runtimes. Adobe Flex 4.6 was the final release by Adobe. All subsequent versions are released by the Apache Software Foundation following Adobe's contribution of Flex to Apache.
Adobe PhoneGap—PhoneGap is a free, open source framework for building cross-platform mobile applications using HTML, CSS and JavaScript that run on popular mobile operating systems such as Android, iOS and BlackBerry; PhoneGap Build is our solution to assist developers with creating mobile applications which provides simple Web conferencing, centralized online file sharingleverage the open source framework; it is offered as a standalone solution and storage capabilities,as part of our Adobe Edge Tools & Services.

19
Table of Contents

Digital Media—Acrobat and online collaborative applications like a word processor and a spreadsheet authoring tool.
Document Services Products
Adobe Acrobat Standard—software that creates secure, reliable and compact Adobe PDF documents from desktop authoring applications such as Microsoft Office software, graphics applications and more; supports automated collaborative workflows with a rich set of commenting tools and review tracking features; includes everything needed to create and distribute rich electronic documents that can be viewed easily within leading Webweb browsers or on computer desktops via the free Adobe Reader.
Adobe Acrobat Pro—in addition to all the capabilities of Acrobat Standard, Acrobat Pro delivers specialized capabilities for creative professional and engineering users, such as pre-flighting, color separation and measuring tools; also allows users to insert Flash video or H.264 video for direct playback in the most recent versions of Adobe Acrobat and Adobe Reader software, create dynamic XMLHTML and PDF forms with Adobe LiveCycle DesignerFormsCentral that is included with Acrobat Pro, ad hoc form
16

distribution and 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 Pro Extended—in addition to all theAcrobat.com—an online collaboration service which provides simple web conferencing, centralized online file sharing and storage capabilities, of Acrobat Pro, Acrobat Pro Extended enables collaboration between extended teams of designers and engineers to more securelyonline collaborative applications like a word processor and reliably communicate, visualize and document architectural and manufacturing designs using 3D data; allows users to insert and publish 3D designs from major CAD applications in Adobe PDF documents that can easily be shared with suppliers, partners and customers using the free Adobe Reader software; Acrobat Pro Extended also: allows users to easily add audio, video and quizzes to PowerPoint slides to create rich, interactive presentations with Adobe Presenter; enables conversion of a variety of video formats to Flash video for playback in PDF documents; and enables the creation of PDF maps through the importing geospatial files that can ret ain metadata and coordinates. Acrobat Pro Extended was discontinued with the release of Acrobat X.
Adobe Acrobat Suite—a new suite of software for business professionals which combines Acrobat X Pro, Adobe Photoshop and rich media applications to allow users to create interactive PDF experiences such as presentations, proposals and training materials; includes Adobe Acrobat X Pro, Adobe Photoshop, Adobe Captivate, Adobe Presenter, Adobe LiveCycle Designer and Adobe Media Encoder.
spreadsheet authoring tool.
Adobe CreatePDF—a new,an online PDF file creation service that provides easy conversion of almost all document files to Adobe PDF for the secure and reliable sharing of rich electronic documents that can be viewed easily within leading Webweb browsers or on computers via the free Adobe Reader.
Adobe EchoSign—offered as part of Adobe's online document exchange services platform, EchoSign enables customers to electronically sign documents via a simple cloud-based service.
Adobe SendNow—a new,an online file sharing service that lets users send, share, and track files online, even large ones, without the complications of email size restrictions, multiple email attachments, FTP sites, and overnight shipping services.
Adobe Reader—software for reliable viewing, searching, reviewing and printing of Adobe PDF documents on a variety of hardware and operating system platforms; when used with certain Adobe PDF documents created with Adobe LiveCycle Reader Extensions Server software, Adobe Acrobat Pro or Adobe Acrobat Pro Extended, Adobe Reader also can be used to enable collaborative workflows through the addition of collaboration features built into the Adobe PDF document; these features include review and markup tools that normally are not present in the standard Adobe Reader product.
Enterprise Market Opportunity
The Enterprise segment of our Digital EnterpriseAdobe Marketing Cloud Solutions business addresses the needs of large enterprises and governments in today’s rapidly changing digital experience technology landscape. The explosion of innovation in digital experiences ranges from those found on traditional PC screens to new experiences delivered to tablets and smartphones.  These experiences include content which utilize enterprise data, interactivity, and rich media such as video. In addition, social interaction is an increasing requirement, as is the desire to measure and optimize these experiences with Web analytics data, dash boards and experience optimization software.
We believe these market trendsoffer the Adobe Marketing Cloud, our set of digital marketing solutions and customer requirements are creating the needservices used to manage and enhance online, offline and multi-channel business initiatives, which we host and deliver to our customers on-demand and also provide as an on-premise solution for a new category of enterprise software. Industry analysts have labeled this opportunity customer experience management or CEM. We offer our market-leading CEM platform—comprising our Adobe LiveCycle Enterprise Suite, our Adobe Content Repository Extreme (“CRX”), and Adobe Communiqué (“CQ”)—to enterprises and government agencies who wish to improve their customer interactions and experiences.
some products.
Our CEM platform enables our customersAdobe Marketing Cloud solutions include a complete set of analytics, social, advertising, targeting and Web Experience Management solutions and a real-time dashboard that brings together everything marketers and advertisers need to not only reachknow about their constituents through new communicationmarketing campaigns. It helps users of the solutions obtain data to gain insights and act upon their data more quickly.
Our solutions utilize data from online channels such as mobile, social and social, but also to provide common infrastructure across all of the customer touch points and processes in an enterprise. For example, enterprises leverage our CEM platform to tailor the offers presented by an agent in the traditional call center based on what the customer was researching on their mobile Website—leading to better customer alignment and loyalty, greater revenue, and reduced selling costs.
The value of CEM extends across the enterprise. Chief marketing officers invest in CEM solutions to increase marketing agility and to better engage customers by delivering consistent, personalized, targeted campaigns across channels. Chief revenue officers leverage CEM to increase revenue and selling productivity with more effective and optimized customer-facing applications, by bringing selling applications and content to the mobile sales force, and ensuring that all customer touch points present the customer with consistent messages and content. Operations and customer service leaders use CEM solutions to present a consistent, customer-centric view of the multipledigital video; data from enterprise systems that power a scalable business—frequently re-engineering customer processes for greater customer satisfaction and reduced costs.
Our CEM platform provides creative and developer tools for creating applications and global Web experiences. It also provides common business user applications for managing content and messages, and, it provides a common framework to
17

measure, optimize and target experiences for superior business results—across both new and traditional communication channels and devices.
We believe significant opportunities exist to help enterprises address these issues by making their business processes more efficient, their Web applications more engaging, agile, and measurable and giving executives the ability to manage these experiences through tools like dashboards. We also believe forward-thinking enterprises are actively investing in disruptive processes to engage more meaningfully with customers, and the employees and partners who serve them. Enterprises want to leverage these dynamic human interactions to create a more effective customer interaction model which accelerates customer acquisition and retention.
Our offering leverages a unified developer experience for creating applications that help organizations quickly assemble more secure, feature-rich user experiences. We also utilize Adobe Flash and Adobe PDF technologies to improve user engagement via the cross-platform Adobe Reader and Adobe Flash Player software installed on over 98% of Internet-enabled PCs worldwide.
With our platform, organizations can choose the appropriate combinations of standards-based user interface technologies, including Flash, PDF, AIR, XML, HTML and Ajax, to most effectively engage their users, drive flexibility, and reduce custom implementations and vendor lock-in. Our multi-platform, multi-format approach enables customers to deliver CEM solutions that allow for interaction by their constituents on any Internet-connected device, including smartphones, tablets and other non-PC devices.
To improve their collaboration and communication capabilities, we believe enterprises will increasingly utilize real-time communication to improve how they train, market, sell and support their products and solutions to their customers. For this reason, we include our Adobe Connect product line as part of our CEM offerings.
Adobe Connect provides capabilities for live Web conferencing, as well as delivering on-demand rich presentations through an on-premise server or as a hosted service and recorded. Web conferencing services are provided via the ubiquitous Adobe Flash Player client on PCs, as well as through smartphone and tablet device applications running natively on operating systems such as Apple iOS and Google Android. By offering Web conferencing services as part of our enterprise family of products, we believe we can extend adoption of Web conferencing to a broader potential market and grow the use of such technology with an easy-to-adopt business model.
We believe customers adopting our CEM solutions will increasingly need more capabilities to address how they manage and deliver their content.  The importance of managing online, mobile and social channels as a means to deliverCustomer Relationship Management (“CRM”) applications; content and measure its business impact is also growing, as is the desire to utilize a completely integrated offering and workflow from one software vendor rather than several.
To strengthen our enterprise software solution portfolio, in October, 2010 we completed our acquisition of Day Software Holding AG (“Day”), a leading provider of WCM, digital asset management and social collaboration offerings. We believe Day’s leading WCM solutions combined with Adobe’s existing portfolio form the most powerful offering for CEM on the market today. With it, we can help customers better integrate their global Web presence and business applications, unlocking value across their marketing, sales, and service processes.
Although our solutions address the needs of a diverse set of enterprise customers, we focus primarily on two key vertical industries: financial services and government. We also target vertical markets such as media and entertainment, manufacturing, telecommunications and healthcare. For all these customers, we offer comprehensive, scalable, secure and reliable server products and tools to develop applications tailored to their specific information and business process requirements. By industry, we also offer Solution Accelerator applications which enable customers in those industries to rapidly build prototype and pilot applications which can bootstrap their development efforts and help them achieve quicker time-to-market deployment as well as better return on investment (“ROI”).
Enterprise Business Summary
In fiscal 2010, as macro-economic conditions improved and our enterprise go-to-market efforts matured, we achieved strong year-over-year revenue growth in our Enterprise business. This growth was driven by increased adoption of our Adobe LiveCycle and Adobe Connect products during the year. We believe this success is due to the increased capabilities and robustness of our product offering, to the investments we have made in our direct sales force during the past several years, as well as industry analysts and enterprise customers placing more emphasis on CEM solutions as an area for investment in businesses.
18

The revenue performance of these product lines in our enterprise business also benefitted from the recent deployment of new versions of products that deliver enhanced capabilities. In the fourth quarter of fiscal 2009, we delivered Adobe LiveCycle Enterprise Suite 2, which improved our offering and enhanced our go-to-market efforts as we entered fiscal 2010. Later in fiscal 2010, we announced and delivered Adobe LiveCycle Enterprise Suite 2.5 (“LiveCycle ES2.5”), expanding our set of solutions for delivering superior customer experiences. New capabilities in LiveCycle ES2.5 include enterprise mobility for improved multiscreen delivery of applications, an enhanced framework for building enterprise RIAs, a new set of Solution Accelerators, and real-time collaboration to empower organizations to interact with customers and ci tizens in more meaningful, personal ways. Separately, in November 2010 we also announced and released Adobe Connect version 8, a significant update to our Web conferencing solution for enabling effective and engaging Web meetings, online training and Webinars.
LiveCycle ES2.5 is an integrated J2EE server solution that blends data capture, process management, information security, document generation and content services to help create and deliver rich and engaging applications that reduce paperwork, accelerate decision-making and help ensure regulatory compliance. It provides developers the ability to build applications that improve interactions with customers and constituents across devices and channels. Delivering significant productivity improvements to IT and line-of-business managers, LiveCycle ES2.5 also provides an RIA framework for building customizable RIA workspaces, mobile and desktop access to critical applications, and deployment as hosted services.
New features and enhancements to LiveCycle ES2.5 include expanded client and Web browser support. We believe the extended mobile and desktop access to LiveCycle ES2.5 will help organizations save time and costs by providing seamless end-user access to processes and services that help them complete their work faster. As part of LiveCycle ES2.5, we offer new capabilities such as LiveCycle Workspace ES2.5 Mobile—which enables access to LiveCycle ES2.5 from smartphones and tablets including iPhone, Blackberry and Windows mobile devices, thereby increasing user productivity by allowing access to tasks when users are away from their desks. We also offer LiveCycle Launchpad ES2.5, which is an Adobe AIR application that provides easy access on the desktop to initiate LiveCycle ES services such as PDF creation.
Additional LiveCycle ES2.5 capabilities include expanded RIA data services and enable Adobe Flex and LiveCycle developers to create user-centric applications that are unique to particular business needs. The new LiveCycle Mosaic ES2.5 capability is an RIA framework for rapidly assembling and engaging activity-centric enterprise applications, and provides knowledge workers with real-time, contextual information from multiple sources in a single, personalized view or dashboard. Developers can extend existing applications by exposing their business logic and user interfaces into application tiles that can be assembled to create unified views.personalized experiences; and common services that allow the ability to access the data and content. These solutions and services are accessed primarily by a web browser, and are built on a scalable and flexible computing architecture. As such, these components and services reduce the need for our customers to make upfront investments in technology, implementation services or additional IT personnel, thereby increasing customers' flexibility in allocating their IT capital investments.
Adobe Marketing Cloud is comprised of several components listed below, organized around key solutions which address the broad needs of digital marketers.
In addition, we provide LiveCycle Collaboration Service, which is a new Adobe Analytics
Adobe Analytics combines the power of actionable analytics and audience segmentation with the distributed value of reporting and sharing of key business analysis and connects it for data driven marketing. It includes the following key product components:
Adobe SiteCatalyst—hosted servicesoftware that provides developersusers the ability to capture, store and enterprises withanalyze information generated by their websites and other sources and to gain real-time business insights via charts, graphs and dashboards into the performance and efficiency of marketing and sales initiatives and other business processes; built on a scalable solutionand flexible computing architecture.

20
Table of Contents

Adobe Discover—hosted software that provides web analysts and digital marketers with insight and concise web analytics marketing segmentation as revealed by real-time visitor information; enables businesses to understand a comprehensive, multi-dimensional view of their customers through accurate and timely information such that they can make informed decisions to improve the performance of their business.
Adobe DataWarehouse—contains information captured by SiteCatalyst, our core Analytics product offering, and other Digital Marketing applications.
Adobe ReportBuilder—a plugin that enables marketers to perform specialized analysis and easily create customized reports inside of Microsoft Excel; provides users with an intuitive, easy-to-use wizard that guides them through the process of importing real-time online analytics data from our SiteCatalyst analytics product.
Adobe Genesis—contains application programming interfaces to integrate and augment analytics data with relevant data from internet and enterprise applications and data from a growing number of online and offline channels to enable business optimization.
Adobe Insight—on-premise software that enables organizations to quickly analyze large volumes of rapidly evolving data in real-time; provides users with charting and visualization capabilities to assist them with making quick business decisions that can improve overall business performance; accepts data from any source, including data warehouses and business intelligence tools.
Adobe Social
Adobe Social helps organizations measure and manage marketing activities across owned, earned and paid media—ensuring the impact of social is properly attributed. It includes the following key product components:
Adobe Social—enables marketers to use social data as an input to optimizing interactions with their customers and prospects across all channels; helps users see social media data with other analytics data by integrating the two to give real-time measurement and segmentation information on social networks; with this insight, marketers can measure the impact of social media on their business and understand how conversations on social networks and online communities influence marketing performance.
Adobe CQ Social Communities—used by marketers to leverage social media and dedicated branded communities on their digital properties; enables customers to build real-time, multi-user collaboration into existing or new RIAs. LiveCycle ES2.5out their social presence on their websites with user-generated content alongside premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities and encourage customer connection to increase engagement and drive higher brand loyalty and conversions.
Adobe Media Optimizer
Adobe Media Optimizer combines portfolio and rules based ad management with intelligent campaign forecasting and targeted ad delivery for data optimized advertising. It includes the following key product components:
Adobe AdLens—a cloud-based, unified ad management system for digital marketing efforts across search, display, and social media channels; offers insight, control, and automation for cross-channel campaign management; users can manage and optimize search, display and social advertising as a unified campaign; includes data integration with Adobe SiteCatalyst; enables advertisers to utilize conversion metrics to make strategic media decisions and deliver optimal return on their advertising spending; also provides integration with Adobe AudienceManager for targeted audience segmentation to ensure marketers can have their advertising campaigns reach their intended targeted audiences. AdLens was formerly known as Efficient Frontier, and also combines the optionfeatures of our product formerly known as Adobe SearchCenter.
Adobe AudienceManager—hosted software that enables advertisers and publishers to deploy LiveCycle capabilitiesmaximize their online ad investment through online audience optimization; helps marketers consolidate audience information from all available sources and assists with identifying, quantifying, and optimizing high-value target audiences, which can then be offered to advertisers via an integrated, secure, privacy-friendly management system that works across all advertising distribution platforms.
Adobe AudienceResearch—hosted software that provides publishers with certified metrics, enabling insight into audience size and engagement for websites, mobile applications, and digital magazines; leveraging data from Adobe SiteCatalyst installations, it certifies the quality of the data and delivers accurate and consistent reporting in real time through relationships with the cloud, Media Rating Council, the leading digital auditing service, and the Interactive Advertising Bureau, which drives industry guidelines for audience measurement.

21
Table of Contents

Adobe Target
Adobe Target helps organizations dynamically test and present highly customized experiences to a digital property in order to drive significantly higher conversion rates. It includes the following key product components:
Adobe Recommendations—hosted in the Amazon Web Services cloud computing environment. We believe these capabilities provide organizations with a faster deployment pathsoftware that enables businesses to promote products and lower total cost of ownership. It also allows developerscontent online; utilizes flexible data and behavioral driven algorithms, allowing our customers to stageincrease conversions on their websites by ensuring relevant choices are automatically presented to their customers, either on websites or through email campaigns.
Adobe Search&Promote—hosted software which enables marketers to optimize how visitors browse, find, compare, and select relevant products and content on web and mobile sites; marketers can easily promote priority items based on business objectives and visitor intent, as well as automate merchandising and promotions activity via certain triggers or metrics; provides flexible search and navigation interfaces, social browsing, sort and filter options, refinements based on multiple applications before going live in production.
To make it easy for enterprise designers and developers to automate enterprise business processes, we provide Solution Accelerators—which help organizations make prototyping efficient and decrease application development time. New LiveCycle ES2.5 Solution Accelerators include Interactive Statements, Managed Review and Approval and Correspondence Management. We also provide LiveCycle Workbench ES2.5, which is an IDE that allows developers, designers, and business analysts to work together collaboratively.
These LiveCycle ES2.5 capabilities build upon advancements we have made with LiveCycle that provided common services software for functionalityfacets such as forms automation, PDF document creation, document securitycolor, gender and process management.customer ratings, an advanced marketer console to monitor conversion metrics and paths, and a visual rule builder to manage promotions.
Adobe Test&Target—hosted software that gives digital marketers a website optimization tool with the capabilities to make their online content and offers more relevant to their customers, yielding the potential for greater customer conversion; provides an intuitive interface for designing and executing tests, creating audience segments and targeting content.
In October 2010, Adobe completed its acquisitionTest&Target 1:1—hosted software that enables digital marketers to personalize the presentation of Day,content and offers that a providervisitor may find most relevant, increasing the likelihood of next-generation WCM. Adobe's acquisition of Day strengthens our CEM platformengagement and conversion; enables marketers to target individual site visitors rather than predefined visitor segments; includes self-learning algorithms which minimize the investment required to target individuals with market-leading WCM, digital asset managementpersonalized content and social collaboration offerings. We believe our acquisition of Day positions usoffers; content can be optimized to help organizations transform themselves by enabling themany key performance indicator, including revenue, conversion, or click-through rate.
Adobe Experience Manager
Adobe Experience Manager enables marketers to create, manage, distribute, and monetize content while optimizingoptimize online customer experiences to build brand, drive demand and extend reach in the Web,digital world. It integrates Adobe's broad portfolio of industry-leading tools to empower marketers to execute with ease, agility, and effectiveness. Experience Manager also facilitates collaboration with IT by providing the unified tools and platform to enable them to rapidly develop and deploy new templates, designs, and components for web, mobile and social collaborationchannels to business users.
The foundation of our Experience Manager solutions is Adobe CQ, our WCM platform which enables organizations to deliver carefully tailored customer experiences across web and mobile channels. Experience Manager also provides a rich analytics framework by enabling powerful, embedded integrations with a collection of analytics applications for online business optimization. This framework enables marketers to collect, test, and measure customer interactions with their brand to further refine the user experience, reinforcing a sustained, virtuous cycle that is constantly optimizing.
Key capabilities offered by Experience Manager include:
Automated personalization—marketers can deliver targeted content to customers based on their persona, context, and other data, and simulate user experiences for different personas. As marketers identify which offers and content are relevant to their customers, they can continually evolve their experiences by executing multiple testing to improve content relevance in any channel;
Cross-channel-marketers can rapidly deliver content to all screens, as Adobe CQ automatically detects a user's device and sends the representation optimized for its device group. Content authors can simulate the experience for their customers.
More specifically, we believe we can enable the delivery of customer-facing Webmobile sites and mobile solutions by extending enterprise services beyond interactive applications documents,as it would appear on a particular device;
Digital Asset Management —provides the ability to organize and workflows to include comprehensive WCMmanage digital assets with a single repository;
Social communities—marketers can easily embed social properties such as personalizationwikis, blogs, calendars, and forums to glean customer insights to drive their business forward, foster brand advocates to evangelize their products and services, and empower their customers to share their own content, driving deeper engagement with their brand; and
Campaign management—Automates the management of content, rich media delivery capabilities, mobile application delivery,multi-channel campaigns to help marketers handle customer segments, lists, leads, and social collaboration.reports.

22
19

We believe Day's leading WCM solutions combined with Adobe's existing portfolio formAdobe Experience Manager includes the most powerful offering for customer experience management on the market today. With it, we can help customers better integrate their global Web presence and business applications, unlocking value across their marketing, sales, and service processes. With the Day acquisition, Adobe now offers enterprise customers a more complete solution for customer-facing Web and mobile solutions.
The release of Adobe Connect 8 provides new capabilities including a simpler and more intuitive user interface, enhanced audio/video features for richer participant experiences, a new optional desktop client for improved access, an enhanced software development kit for even greater solution extensibility, and tighter session management for increased security. With these new features and the overall capabilities of our Web conferencing solution, industry analysts have given strong accolades and positive recommendations for Adobe Connect. With this commentary and our market momentum in fiscal 2010, we believe we will continue to grow our market share in the fast-growing Web conferencing market in the coming year.
Enterprise Strategy
In fiscal 2011, we will continue to focus on offering a more complete CEM platform, targeting the CEM needs of governments and enterprises worldwide. We wish to help these customers develop and deliver self-service and assisted-service Web-based applications that blend rich user interfaces and documents with data capture, document collaboration, process management, content management and document generation capabilities that are easy to use. We strive to provide solutions which are customer-centric and help the constituents of our customers work together on complex processes and bridge the digital experiences, traditional channels, and paper-based environments, and do so by providing capabilities that are accessible by anyone. We intend to provide such solutions directly through our field organization, as well as together with global and regional systems integrators we partner with that deliver comprehensive solutions to their customers.
We will continue to focus our go-to-market efforts on vertical markets such as financial services and government. We intend to continue to build out our go-to-market model to leverage sales and consulting delivery through systems integrator partners. We will also work to enhance our solutions offerings through investments in new SaaS, or on-demand, capabilities for our enterprise serverfollowing key product family.
With our newly acquired Day line of products, we believe we can drive strong revenue growth by expanding the global reach of the Day go-to-market effort as part of our CEM strategy and LiveCycle solution offering. We also believe our Day solutions can be leveraged in other market opportunities, such as how large creative customers might use it in concert with their creative workflows, and with Omniture-based Web measurement and optimization solutions.
With our Adobe Connect product, we intend to increase awareness of our solution in markets such as government and commercial enterprises. We also intend to expand our go-to-market opportunity by working with Conferencing Service Providers, and we plan to deliver capabilities which allow developers to build collaboration-enabled business processes utilizing Adobe Connect functionality and services.
Enterprise Products
Application and Content Services
components:
Adobe CQ—our WCM, digital asset management,WEM, DAM, and social collaboration platform that enables interactive marketers to leverage the online channel as the most cost-effective marketing vehicle to engage customers and prospects to increase competitive advantage and drive revenue; acquiredoffered as parta hosted and on-premise solution.
Adobe Scene7—hosted solution used to enhance, publish, and deliver dynamic marketing assets to web, mobile, social, email, and print; enables businesses to leverage consumer data and tailor content delivery to provide a rich, immersive digital experience to each consumer in real-time; content is tailored by dynamically generating and delivering variations of our acquisitionrich content that is relevant for consumer engagement across channels and devices; used by many leading online retail websites to automate the production and availability of Day.rich media experiences, including zoom, dynamic sizing, personalization and interactive dynamic product catalogs.
Landing Pages—enables digital marketers to quickly create, edit, and publish landing pages and microsites that build brand, drive demand, and reach new customers with agile digital experiences.
Adobe CQ Social Communities—used by marketers to leverage social media and dedicated branded communities on their digital properties; enables customers to build out their social presence on their websites with user-generated content alongside premium content; marketers can use its functionality to offer social login, social plug-ins, comments, ratings, forums, blogs, social calendaring, and extended user profiles; also enables marketers to interact directly with their customers, foster online communities and encourage customer connection to increase engagement and drive higher brand loyalty and conversions.
Digital Asset Management—provides a repository for organizing and managing digital assets; integrates with Adobe CQ and Adobe's creative authoring tools to provide a seamless path from asset creation to storage, approval, publishing, and reuse; designed to manage assets and dynamically deliver rich media, including video, for multi-channel distribution; uses web-based shared workspaces for workflow-based idea sharing and offers 24/7 self-service of marketing materials and video and image libraries; simplifies planning, production, and distribution of digital assets within organizations and with external digital agencies.
Adobe CRX—an open, standards-based Enterprise Content Management (“ECM”) platform, built on a modern architecture that is highly scalable; natively manages all content as defined in the Content Repository for Java Technology API Version 2.0 specification; this programming interface, defined by the ECM industry, provides developers with a stable and well-defined, yet extensible content and query model that protects past and future investments; acquiredinvestments.
Media & Advertising Solutions
We provide solutions for creating, delivering and monetizing video, enabling customers such as media and entertaining companies to expand the reach of their business using an entire workflow from Adobe. Within our Digital Media business our content creation tools are managed and offered to help customers create professional and premium video content. As part of our video content creation solutions, we also offer Adobe Anywhere which enables video teams to collaborate and develop video content, using access to shared media across standard networks virtually anywhere they have internet connectivity.
As more and more premium video delivery has migrated to the web, Adobe has built out solutions in our Digital Marketing business to assist customers with delivering, protecting and monetizing their video assets. In 2012, we announced Project Primetime, which is a unified video platform that helps customers achieve broadcast audience reach, lower operating costs, and boost revenue from ad sales. Our solution delivers a TV-like viewing experience across platforms, including iOS and Android, and on devices from desktops to tablets to Smart TVs. Project Primetime provides a single, end-to-end workflow that links our streaming, DRM, ad serving, audience management, analytics, and optimization technologies.
Our efforts with Project Primetime are based on the development and integration of the following products and solutions:
Adobe Access—a scalable, flexible content protection solution which provides an efficient workflow to help companies deliver and protect premium video across desktops, mobile devices, and platforms, including iOS and Android; as an UltraViolet approved DRM technology, it also extends audience reach and enables a variety of business models, including HD rental, subscription, and electronic sell-through.
Adobe Auditude—a video ad serving platform that provides premium TV-like commercial breaks during video delivery, supported by robust tools and services to drive the highest volume of advertising demand from direct and indirect sales; enables seamless ad insertion across PC, iOS and Android devices, set-top boxes, game consoles, and other internet-connected video playback devices; allows marketers to deliver relevant, targeted advertising with full control over ad quality and sequencing.

23
Table of Contents

Adobe Media Server—a family of server-based software which provides video publishing and workflow capabilities that enable customers to deliver video to PC and non-PC platforms, including those running iOS and Android; utilizes flexible delivery methods which can save bandwidth costs and lighten network load; offered to customers with different levels of capabilities:
Adobe Media Server Standard—base level version enables customers to deliver video on-demand and live through HTTP delivery to reach broad video audiences using iOS and Adobe Flash Player compatible devices and PCs.
Adobe Media Server Professional—combines with Adobe Access software to enable customers to stream protected, studio-grade content using a single DRM workflow across desktops, connected TVs, tablets, and smartphones, including iOS and Android devices.
Adobe Media Server Extended—broadens video delivery broadcast capabilities by enabling customers to serve video to more viewers on a large scale with peer-to-peer capabilities.
Adobe Media Server on Amazon Web Services—an easy and affordable way for customers to deploy multiprotocol media streaming that scales to meet business needs; supports Dynamic HTTP Packaging, protected HTTP streaming, and DRM for Apple HLS; enables a single packaging and protection workflow, and provides delivery scale through integration with Amazon CloudFront.
Adobe Media Encoder—a free media encoder and live audio and video capture software, also available as part of Adobe Creative Cloud and our acquisitionCreative Suite video products; streams audio and video in real time to Adobe Media Server software; enables web broadcasts of Day.live events such as sporting events, concerts, webcasts, and news and educational events.
Adobe Pass for TV Everywhere—as part of the TV Everywhere industry initiative, Adobe Pass enables content owners to verify a user's entitlement to content in a manner that is simple and secure; implemented as a hosted service, it allows for back-end integration based on the business rules required by both programmers and pay TV providers; helps content owners and pay TV providers take their content to the internet with a secure environment to prevent fraud, and a superior customer experience.
Adobe Video Streaming Service—via CDN partners, Adobe offers hosted services for streaming on-demand video for the Adobe Flash Player runtime across high-performance networks; built with Adobe Media Server, Adobe Video Streaming Service provides an effective way to deliver .flv video to large audiences without the overhead of setting up and maintaining streaming server hardware and network.
HTTP Dynamic Streaming—enables on-demand and live streaming of standards-based MP4 video over regular HTTP connections; gives content creators, developers, and publishers more choice in high-quality media; while the Real Time Message Protocol remains the protocol of choice for lowest latency, fastest start, dynamic buffering, and stream encryption, HTTP Dynamic Streaming enables leveraging of existing caching infrastructures, and provides tools for integrating content preparation into existing encoding workflows.
Digital Marketing—Digital Enterprise Products
Adobe Connect—a rich web-based SaaS offering or on-premise perpetual license server communication system that enables organizations to reduce the costs of travel and increase the effectiveness of online training, marketing events, sales meetings and collaborative web conferencing solutions which are instantly accessible by customers, partners and employees using Adobe Flash Player; consists of a core Adobe Connect Events Server or hosted service, and modules that provide specific application functionality, including Adobe Connect Training and Adobe Connect Events; can be deployed with either some or all of these components together; Adobe Connect Training allows organizations to build a complete online training system with Microsoft PowerPoint presentations that include surveys, analysis, course administration and content management; Adobe Connect Events allows users to provide seminar and training sessions as well as to conduct business presentations through the web.
Adobe LiveCycle Collaboration Service—enables architects and developers to create more engaging and more dynamic user experiences that deliver multi-user, real-time collaboration features into new or existing rich Internetinternet applications; allows customers to offload management and processing for features such as chat, video, VoIP and white-boarding, ultimately to provide guided product or service selection, assisted product design or enhanced customer support.
Adobe LiveCycle Connectors for ECM—solutions whichthat enable Adobe LiveCycle customers to connect their LiveCycle applications with other industry-leading enterprise content management systems, such as EMC Documentum, IBM FileNet and IBM Content Manager.
20

Adobe LiveCycle Content Services—offers a library of services that can be used with other LiveCycle solution components to create content-rich engagement applications whereby end users can share and collaborate on content development in content spaces as part of a company’scompany's business processes; supports check-in/check-out capabilities, keeps a complete audit history of all

24
Table of Contents

document actions and provides a fully integrated set of content services ranging from an enterprise content repository to social collaboration tools such as enterprise forums; also includes team collaboration capabilities such as forums and discussions, and provides Microsoft Office plug-ins that enable users to interact with the process engine and content repository using Microsoft Word and Microsoft Excel.
Adobe LiveCycle Mosaic—provides rich Internetinternet application framework for rapidly assembling and engaging activity-centric enterprise applications, and provides knowledge workers with real-time, contextual information from multiple sources in a single, personalized view; used by developers to extend existing applications by exposing their business logic and user interfaces into application tiles that can be assembled to create unified views.
Collaboration
Adobe Connect—a rich Web-based communication system which enables organizations to reduce the costs of travel and increase the effectiveness of online training, marketing events, sales meetings and collaborative Web conferencing solutions which are instantly accessible by customers, partners and employees using Adobe Flash Player; consists of a core Connect Events Server or hosted service, and modules that provide specific application functionality, including Connect Training and Connect Events; can be deployed with either some or all of these components together; Connect Training allows organizations to build a complete online training system with Microsoft PowerPoint presentations that include surveys, analysis, course administration and content management; Connect Events allows users to provide seminar and training sessions a s well as to conduct business presentations through the Web.
Data Capture
Adobe LiveCycle Data Services—high-performance, scalable and flexible framework that streamlines the development of RIAs using Adobe Flex and Adobe AIR; abstracts the complexity required to create server push-based applications and supports a rich set of features to create real-time solutions; utilizes powerful data services and simplifies data management problems such as tracking changes, synchronization, paging and conflict resolution; deployed as a standard J2EE Webweb application, which enables customers to leverage their existing infrastructure.
Adobe LiveCycle Forms—server-based software application that organizations can use to cost-effectively and securely extend their core business processes beyond their enterprise system; enables customers to create and deploy XML-based form templates as PDF, SWF, or HTML for use with Adobe Reader or Adobe Flash Player software, or with Webweb browsers; provides for the capture of data from submitted forms and the transfer of the data directly into an organization’sorganization's core business systems, thereby streamlining form-driven business processes and improving data accuracy.
Adobe LiveCycle Reader Extensions—server-based software application whichthat lets enterprises easily share interactive Adobe PDF documents with external parties without requiring recipients of the documents to purchase Acrobat software that normally would be necessary to interact with the Adobe PDF documents they receive; unlocks features on an individual Adobe PDF document by document basis so that when such a file is opened in the free Adobe Reader, users have access to tools that normally would not be available in Adobe Reader, such as reviewing and commenting functions, digital signatures to electronicallydigitally sign PDF documents, embedding file attachments, enabling database and Webweb service capabilities, and the ability to fill in form data, submit and save electronic documents locally.
Document Output
Adobe LiveCycle Output—server-based solution whichthat supports on-demand document processes including the generation of documents such as correspondence, confirmations, bids, or shipping labels; provides capabilities to merge XML data from back-end systems with Adobe LiveCycle Designer ES templates to generate documents in PDF, PDF/A, PostScript, PCL, or Zebra label formats; customers can customize electronic document packages by combining newly generated PDF documents with existing files from document repositories; customers can also convert PDF documents to print or image file formats and then route them automatically to support direct server-based printing or archiving operations.
Adobe LiveCycle PDF Generator—server-based software whichthat automates the creation, assembly, distribution and archivalarchiving of PDF documents in combination with critical business processes; converts a wide range of native and standard file formats, and can combine newly created PDF documents with existing files or pages to assemble customized PDF packages; supports direct server-based PDF printing or can convert PDF documents to a wide variety of formats, including image formats and PDF/A.
21

Adobe LiveCycle Production Print—server-based solution that performs high-volume jobs through efficient batch processes, generating documents such as statements, invoices, contracts, or welcome kits; merges XML, ASCII or other data types from back-end systems with Adobe LiveCycle Designer ES templates to generate documents in a broad range of print or electronic formats to support high volume production requirements; enables customers to print document packages by collecting multiple jobs over time and then grouping them to minimize mailing costs.
Information Assurance
Adobe LiveCycle Digital Signatures—server-based software application that helps organizations automate the processing of electronic documents by providing batch-based capabilities to digitally sign and certify Adobe PDF documents, validate digital signatures and encrypt/decrypt Adobe PDF documents; safeguards information when it leaves a company’scompany's network and integrates with existing public key infrastructures.
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, Dassault CATIA and Lattice XVL CAD document usage inside or outside the firewall, online or offline and across multiple document platforms; lets organizations know when a document has been viewed, printed or altered and restricts access so that only intended recipients can open, use and forward a document; allows for previously granted document permissions and access to be revoked; leverages Adobe Acrobat and Adobe Reader and other client plug-in software to author and view protected documents.

25
Process Management
Table of Contents

Adobe LiveCycle Process Management—server-based process management application that allows organizations to orchestrate people, systems, content and business rules into streamlined, end-to-end processes that are accessible to process participants through engaging user interfaces, online or offline; provides out-of-box dashboards to help users gain insights into business operations in real time and management tools to fix day-to-day operational problems and make long-term process improvements.
Adobe LiveCycle Business Activity Monitoring—software that allows administrators and process participants to quickly identify bottlenecks, check progress and view other process information related to business transactions; comes in two versions: Adobe LiveCycle Business Activity Monitoring (“BAM”) ES Standard, which allows for the monitoring of all LiveCycle processes with 16 out-of-the-box dashboards and, Adobe LiveCycle BAM ES Extended, which adds the ability to extend Adobe LiveCycle BAM ES to other enterprise business systems so that users can monitor business processes via dashboards inside and outside the LiveCycle environment.
Other Knowledge Worker and Enterprise Related Products
Adobe LiveCycle Managed Services—LiveCycle is available as on-premiseson-premise software or as a managed services offering delivered in partnership with Amazon.com Inc.Amazon.com. LiveCycle Managed Services customers pay Adobe an annual subscription fee. In return, Adobe provisions and manages a LiveCycle instance for the customer on Amazon Web Services. By outsourcing the management of their LiveCycle instance to Adobe, customers benefit from increased capital efficiency and reduced complexity. As a result, customers can focus more of their efforts on providing successful user outcomes and less on the tasks of managing computing infrastructure.
Adobe Central Pro Output Server—a server-based software application for document generation that allows organizations to create personalized, customer-facing documents from any data source—source, including legacy, line-of-business, ERPenterprise resource planning or CRM applications; merges data with an electronic document template using a powerful processing engine to dynamically generate electronic documents such as purchase orders, invoices, statements and checks for delivery via Adobe PDF, the Web,web, e-mail, fax or print; works with Adobe Output Designer which is a companion tool used to create sophisticated document templates.
Adobe LiveCycle Designer—desktop software application whichthat simplifies the creation and maintenance of intelligent XML based forms for deployment as Adobe PDF forms, HTML applications and Flash based RIAs; provides an intuitive, graphical design tool for creating XML templates that look exactly as the author intended and previewing them before deployment; it also simplifies adding intelligence to documents, such as business and routing logic, and binding form fields to arbitrary XML schemes for seamless integration with enterprise applications.
Adobe Output Designer—a design tool that allows users to create electronic document templates for use with Adobe solutions for document generation; aids in the creation of electronic documents that exactly replicate existing paper documents.
22

Adobe Output Pak for mySAP.com—aan SAP-certified server-based software application for document generation that enables organizations to optimize their investment in their SAP solution by creating personalized, professional-looking, customer-facing documents; provides an easy, fast and cost-effective way to create and maintain documents for the SAP environment; integrates directly with an SAP system to extract information which is merged with a document template that defines the layout and formatting of the document; output can be in a variety of formats, including Adobe PDF, print, fax, e-mail and the Web.
web.
Adobe Web Output Pak—a server-based software application for document generation; creates documents in PDF and HTML for presentation on the Webweb and in Wireless Markup Language for presentation to a wireless device; allows users to personalize and control the look of documents based on the data the documents contain.
Omniture Segment
Omniture Market Opportunity
Our Omniture business unit provides Web analytics and online business optimization products, solutions and services, which we deliver through the Omniture line of products and the Adobe Online Marketing Suite. Customers use Omniture products and services to manage and optimize online, offline, digital and multi-channel business initiatives.
Customers who use our Omniture solutions include marketing professionals such as the chief marketing officer, marketing managers, online marketing managers, search engine marketers, media managers, media buyers and marketing research analysts. Customers also include Web content editors, Web analysts and Web production managers. These customers often are involved in workflows which utilize other Adobe products, such as our creative professional tools and our Adobe Flash client technologies.
We believe there are several key market trends creating opportunities for our Omniture business:
·   Broad commercial utilization of the Internet—The Internet has fundamentally altered the way businesses and consumers purchase and consume goods and services. It has also redefined many business processes and has created opportunities for new online businesses, as well as for existing offline businesses seeking to capitalize on online initiatives. Because of this, businesses are investing in innovative online initiatives to increase sales, improve customer service, enhance brand awareness, decrease time-to-market for their offerings, reduce fulfillment costs and increase operational efficiency. We expect that the scope and scale of commercial Internet usage will continue to increase. The roll-out of broadband networks and mobile networks, particularly in emerging geographic markets, will contribute to the growth of Internet usage. Internet commer ce should also continue to grow. Proliferation of online marketing and customer response channels—such as mobile, digital video, and social networks—will continue to generate interactions that need to be measured and analyzed across channels.
·   Need to measure and automate online business—In order to make informed decisions about priorities and investments in online marketing and other commercial initiatives, we believe businesses require timely and accurate measurement of customer behavior. The proliferation of Internet usage and the fact that nearly every user interaction on a Website (or other digital medium such as mobile phone applications, set-top boxes, kiosks, point of sale systems or any IP connected device) can be captured by the owner of the Website, or other digital medium, have resulted in the creation of an unprecedented amount of data about how a business’ customers interact and transact business with it. Businesses are increasingly realizing the benefit of using information gained from online and other digital customer interactions to improve functional areas, suc h as sales, customer service, product development, marketing, pricing, manufacturing and inventory management. The interactive and measurable nature of Internet activity also enables businesses to determine how customers arrived at their online destinations, such as through paid search, a display ad or a social media Website. It also enables businesses to determine which advertising mediums are yielding the greatest ROI, including whether visitors convert to customers once they’ve reached their destination site.
·   Opportunity to optimize online business—Measuring online activity and automating the capture and analysis of data are important for making informed business decisions. Businesses also need to leverage data to optimize the results of their online business activities. For example, businesses have historically measured the success of their online marketing programs by simple click-through rates or conversion rates, the latter being the percentage of click-through users who make a purchase or otherwise engage in the desired customer action during the online session. However, the effectiveness of online marketing can be optimized by analyzing and acting on deeper information, such as repeat visits, transactions generated, registrations, traffic pathways (various paths of online visitor traffic flow), time spent and quality of interaction (engagement) , eventual conversion (desired customer
23

action taken in subsequent visits) or success over time (lifetime value of customer) as well as comparing the relative effectiveness of different marketing channels (attribution). Business success metrics can also vary based on the industry or vertical market—for example, media companies drive engagement to optimize subscriptions and online advertising revenue, whereas retailers and e-commerce companies focus on promotions and maximizing online purchases. Online businesses utilize a large and growing number of complex and diverse advertising and communication channels to market to customers, including display advertising, paid and natural search advertising, e-mail, social media marketing, affiliate marketing, blogs, podcasts, video, RIAs and comparison shopping engines, as well as traditional offline initiatives. The emergence of multi-channel marketing initiatives, which combine traditional offline marketing initiatives such as television, print, magazine, newspapers, radio and catalog with online marketing initiatives, makes the measurement and analysis of online activity more challenging, but presents additional opportunities to optimize results. For example, businesses want to measure and understand the impact of their advertising initiatives across all these channels, not only to determine how much credit should be given to a particular channel and to understand cross-promotional effectiveness, but more importantly to optimize their advertising spending and make adjustments in the way channels are utilized and align the amount of resources that are allocated to each of them.
Given the market trends described above, we believe the combination of our creative tools and Omniture’s solutions help customers to more efficiently and effectively measure, analyze and optimize those experiences—creating a complete feedback loop. With this broad platform, we believe there is a unique opportunity for Adobe to deliver an end-to-end workflow that will allow customers to create, deliver, monetize, and optimize the impact and business results of their content and assets.
Omniture Business Summary
We acquired Omniture in October 2009. As one of the largest SaaS businesses, our Omniture business segment processes over one trillion transactions per quarter in a hosted environment for thousands of customers around the world. Like the rest of our business segments, Omniture revenue was adversely affected during 2009 due to the macro-economic environment. However, the business stabilized in the second half of 2009 and growth returned in 2010—mirroring the growth in online advertising and e-commerce.
Our Omniture revenue in fiscal 2010 was affected by the write-down of prior Omniture deferred revenue due to purchase accounting rules for combining software companies. However, during fiscal 2010, as we more fully integrated the Omniture business into Adobe and we invested in the go-to-market capabilities of our sales force responsible for our Omniture product line, we achieved record bookings levels with our Omniture business during the year. In addition, we continued to achieve high retention rates during the year as customer contracts came up for renewal.
Our flagship Omniture product, SiteCatalyst, anchors our analytics business and represented more than 50% of Omniture revenue reported for fiscal 2010. The percentage of revenue represented by SiteCatalyst has been shrinking, which reflects success against our effort to provide additional types of services beyond analytics which integrate into our Online Marketing Suite. Revenue from these additional services grew steadily and represented nearly a third of our Omniture revenue in fiscal 2010. Our Omniture professional services, including training and consulting services, comprised the remaining portion of our Omniture revenue during the year.
Omniture Strategy
In the coming year, we expect to build upon the momentum we achieved in fiscal 2010 by enabling our customers to capture, store and analyze information generated by their Websites and other sources and to gain critical business insights into the performance and efficiency of marketing and sales initiatives and other business processes. We intend to help our customers utilize this information to optimize their advertising spend across digital advertising channels, automate the targeting and delivery of content and marketing offers on a Website, as well as the broader Internet, and test site design and navigational elements to optimize the user experience and their revenue opportunities. We will enhance our services by providing customers with real-time access to online business information through interactive dashboards, the ability to integrate that information with a broad set of other data sources, and generate flexible reports using real-time and historical data and the ability to measure, automate and optimize critical online processes. We also plan to enhance our capabilities to provide user and system controls that help manage privacy and keep our products within regulatory compliance guidelines, as new privacy standards emerge in the industry.
We also believe we can accelerate the growth of our Omniture business by expanding the Omniture go-to-market strategy to include new geographies and vertical markets where Adobe has a strong presence. We also believe we can grow the business by expanding what we offer in the Online Marketing Suite, including improving integration with our creative
24

tools and our newly acquired Day products, and by delivering “one click” optimization capabilities for vertical market solutions such as the Adobe Digital Publishing Suite.
With our Scene7 solutions, we merged the management and delivery of the Scene7 product line into our Omniture business to leverage the similar go-to-market models and targeted customer bases. We intend to market the capabilities of our Scene7 offerings to help customers automate the production and availability of rich media experiences on their Websites.
Omniture Products
We offer the Adobe Online Marketing Suite, powered by Omniture technology, our suite of products, solutions and services used to manage and enhance online, offline and multi-channel business initiatives, which we host and deliver to our customers on-demand and also provide as an on-premise solution for some products. Our Online Marketing Suite consists of an open business analytics platform, online and multi-channel analytics, and an integrated set of applications to optimize digital advertising spend and conversion. These components and services are accessed primarily by a Web browser, and are built on a scalable and flexible computing architecture. As such, these components and services reduce the need for our customers to make upfront investments in technology, implementation services or additional IT personnel, thereby increasing customers’ flexibility in allocating their IT capital investments.
The components of our Online Marketing Suite are described in more detail below and are organized by five main components of our offering: Advertising Optimization, Conversion Optimization, Online Analytics, Multi-channel Analytics and Omniture Open Business Analytics Platform.
Advertising Optimization
Adobe SearchCenter—hosted software which simplifies search marketing by providing a common interface to manage search campaigns across multiple search engines, integrate campaign metrics with Web analytics, and optimize across marketing programs; enables search marketing to occur in the context of a broader marketing plan so that users such as online marketers can improve brand engagement and online conversions.
Conversion Optimization
Adobe Merchandising—hosted software which enables retailers to implement online merchandising strategies that optimize marketing effectiveness through increased conversions and average order value; helps retailers grow their online business by improving shoppers’ ability to find and select products, as well as promoting products based on business goals and metrics.
Adobe Publish—an on-demand WCM solution that enables business users to easily create, manage and update Web content without the need of IT or Web developers; enables content owners to easily publish and maintain content on their Websites.
Adobe Recommendations—hosted software which enables businesses to promote products and content online; utilizes flexible data and behavioral driven algorithms, allowing customers to increase conversions on their Websites by ensuring relevant choices are automatically presented to customers, either on Websites or through email campaigns.
Adobe Scene7 On-Demand—provides an easy-to-use, Web-based visual merchandising system to upload, manage, enhance and publish dynamic rich content; used by many leading online retail Websites to automate the production and availability of rich media experiences, including zoom, dynamic sizing, personalization and interactive dynamic product catalogs.
Adobe Search&Promote—new, hosted Website search and merchandising application that helps marketers anticipate visitor search intent and promote the most relevant products and content across Web and mobile site searches; provides flexible search and navigation interfaces, social browsing, sort and filter options, refinements based on multiple facets such as color, gender and customer ratings, an advanced marketer console to monitor conversion metrics and paths, and a visual rule builder to manage promotions.
Adobe SiteSearch—hosted software which gives users such as marketers the ability to control and optimize the search results on their sites; enables control over the search experience with presentation and navigation features designed to help guide visitors to the most relevant information; integrated with Omniture SiteCatalyst, SiteSearch dynamically promotes the most successful products, services and content to the top of search results using analytics-derived metrics such as revenue, conversion rates and page views.
25

Adobe Test&Target—hosted software which provides users such as marketers the capabilities to make their online content and offers more relevant to their customers, yielding the potential for greater customer conversion; provides an intuitive interface for rapidly designing and executing tests, creating audience segments and targeting content.
Online Analytics
Adobe Discover—hosted software which provides users such as Web analysts and online marketers with real-time visitor information and insight; enables businesses to understand a comprehensive, multi-dimensional view of their customers through accurate and timely information such that they can make informed decisions to improve the performance of their business.
Adobe SiteCatalyst—hosted software which provides customers and users such as marketers the ability to capture, store and analyze information generated by their Websites and other sources and to gain real-time business insights via charts, graphs and dashboards into the performance and efficiency of marketing and sales initiatives and other business processes; built on a scalable and flexible computing architecture.
Adobe Survey—hosted software which helps organizations design, create and implement online surveys to measure audience sentiment.
Multi-Channel Analytics
Adobe Insight—on-premise software which enables organizations to quickly analyze large volumes of rapidly evolving data in real-time; provides users with charting and visualization capabilities to assist them with making quick business decisions that can improve overall business performance; accepts data from any source, including data warehouses and business intelligence tools.
Adobe Insight for Retail—on-premise software which provides organizations with rapid customer insights using real-time analysis of large volumes of continuously 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.
Omniture Open Business Analytics Platform
Adobe DataWarehouse—contains the information captured by Adobe SiteCatalyst, our core Omniture business product offering, and other Omniture business applications.
Adobe Genesis—contains application programming interfaces to integrate and augment analytics data with relevant data from Internet and enterprise applications and data from a growing number of online and offline channels to enable business optimization.
Print and Publishing Segment
Our Print and Publishing business segment contains several of our mature products and services which address diverse market opportunities including eLearning solutions, technical document publishing, Web application development and high-end printing. Our focus on these markets enabled year-over-year revenue growth in fiscal 2010. These opportunities and the key products we offer to address them in fiscal 2011 are reviewed below.
Increasingly, eLearning solutions are becoming more prevalent as a means to create and deliver online and electronic learning experiences. These experiences range from online assessments, surveys and quizzes—to online reference and instruction manuals—to real time learning and Web-based collaboration experiences. We believe we have a rich legacy in the development and delivery of eLearning tools, and can innovate by providing new features and platform reach for eLearning content delivery with our set of offerings.
In the third quarter of fiscal 2010, we delivered version 2 of our Adobe eLearning Suite, which is a complete set of tools for creating professional eLearning courseware. The new release enables accelerated content development with the capabilities of the new version 5 of our Adobe Captivate software. Captivate 5 adds improved software demonstrations, interactive simulations, branching scenarios, and quiz capabilities to its already robust set of features which are used to create and maintain eLearning courseware.
At the end of fiscal 2010, we moved the management and development of our ColdFusion product line into our Print and Publishing business. Our ColdFusion offering provides fast and easy ways to build and deploy powerful Internet applications. Developers can extend or integrate ColdFusion with Java or .NET applications, connect to enterprise data and applications, create and interact via Web services, or interface with SMS on mobile devices or instant messaging clients. ColdFusion can also be used for business reporting, rich-forms generation, printable document generation, full-text search
26

and graphing and charting—enabling customers to more fully engage their constituents with better Web experiences. Our ColdFusion business improved during fiscal 2010 due to the improving macro-economic environment, as well as due to continued innovation in the products’ feature sets to address the evolving needs of ColdFusion developers. We will continue to invest in the capabilities ColdFusion platform in fiscal 2011 to maintain and grow revenue in this market.
Graphics professionals and professional publishers require quality, reliability and efficiency in production printing, and we believe our printing technology provides advanced functionality to meet the sophisticated requirements of this marketplace. As high-end printing systems evolve and transition to fully digital, composite workflows, we believe we are uniquely positioned to be a supplier of software and technology based on the Adobe PostScript and Adobe PDF standards for use by this industry. We generate revenue by licensing our technology to OEMs that manufacture workflow software, printers and other output devices.
In fiscal 2010, we maintained our OEM PostScript revenue through continued innovation with PostScript technologies.  In 2011, we plan to continue to enhance PostScript as well as utilize PDF enhancements to maintain these formats as standards in publishing and printing work flows.
Print and Publishing Products
Adobe Authorware—a legacy rich media authoring tool used to develop caption based eLearning on Windows and Macintosh based platforms; use of the product ranges from creating Web-basedweb-based tutorials to simulations incorporating audio and video; applications developed with Adobe Authorware can be delivered on the Web,web, over corporate networks or on CD-ROM.
Adobe Captivate—enables users to rapidly create professional and engaging eLearning content—includingcontent-including software simulation, quizzes, animation and multi-media—andmultimedia-and deliver the content in Adobe Flash.flv and other formats; the content can be created without any programming or multi-media skills and can be published to CD/DVDs and Learning Management Systems used in training, sales, marketing and customer support applications; often used in combination with Adobe Connect, Adobe Captivate provides a robust technology solution to bring understanding and retention to end users of rapid training and eLearning solutions.
Adobe ColdFusion—provides a server-scripting environment and a set of features used by organizations for building database-driven scalable applications that are accessible through Webweb browsers, Adobe Flash Player and Adobe AIR; built on an open Java technology architecture and can be deployed on third-party Java application servers that support the J2EE specification.

26
Table of Contents

Adobe ColdFusion Builder—new development tool for building ColdFusion applications; provides a unified, customizable and extensible development environment to code applications, manage servers and deploy projects.
Adobe ColdFusion in the Cloud—new hosted service available in beta release; enables developers to build ColdFusion applications through the Amazon Web Services environment with access to the capabilities of ColdFusion as a hosted service.
Adobe Contribute—an easy-to-use tool to update and publish Webweb content, designed for non-technical business users who need to make minor changes to intranet and Internet Websitesinternet websites that conform to the structure, style, layout and site standards setup by a Websitewebsite administrator; streamlines the Webweb content maintenance process and provides Websitewebsite administrators with a set of simple content management functionality to manage and administer Websites;websites; also provides bloggers with a simple tool to create and update their blogs.
Adobe Director—a tool for creating professional multimedia content that combines images, text, audio and video into presentations, interactive experiences and prototypes; for Websites,websites, it provides users with the ability to deliver multimedia content that supports three dimensional content and animations for use in various markets, including education, games and commerce; also enables the creation of fixed-media content for CD titles and DVD titles in the entertainment, education and corporate training markets.
Adobe eLearning Suite—aan integrated set of software for creating professional eLearning and HTML5-based courseware; includes capabilities of Adobe Captivate, Flash Professional, Dreamweaver, Photoshop Extended, Acrobat, Adobe Presenter, Soundbooth, BridgeAdobe Audition and Device Central CS5.
Adobe Bridge.
Adobe FrameMaker—an application for authoring and publishing long, structured, content-rich documents including books, documentation, technical manuals and reports; provides users a way to publish their content to multiple output formats, including print, Adobe PDF, HTML, XML and Microsoft Word.
27

Adobe FrameMaker Server—extends the capabilities of FrameMaker software in an automated, server-based environment; includes features that facilitate high-volume publishing, including catalog, database, and directory publishing, as well as the production of personalized technical documents and custom eBooks.
Adobe Font Folio—contains more than 2,2002,400 typefaces from the Adobe Type Library in OpenType format, offering a type solution for print, the Web,web, digital video or electronic documents; also includes Adobe Type Manager which makes it easy to create beautiful text for print, Webweb and video projects.
Adobe JRun—a legacy application server solution based on the J2EE specification; integrates with our development tool offerings and is used to deploy applications for functions such as online banking and customer service.
Adobe PageMaker—software used to create high-quality documents simply and reliably with robust page layout tools, templates and stock art.
Adobe PDF Print Engine—a next-generation printing platform that enables complete, end-to-end PDF-based workflows using common PDF technology to generate, preview and print PDF documents; allows PDF documents to be rendered natively throughout a workflow, providing performance benefits which include eliminating the need to flatten transparent artwork.
Adobe PostScript—a printing and imaging page description language that delivers high quality output, cross-platform compatibility and top performance for graphically-richgraphically rich printing output from corporate desktop printers to high-end publishing printers; gives users the power to create and print visually rich documents with total precision; licensed to printing equipment and workflow software manufacturers for integration into their printing products.
Adobe RoboHelp—an easy-to-use authoring and collaboration tool used by developers and technical writers to create professional help systems and documentation for desktopdesktops, smartphones, tablets and Web-basedweb-based applications; utilizes support for HTML5, WebHelp, Compiled Windows HTML Help (“CHM”), AIR Help, PDF, import/export, team authoring capabilities, as well as JavaHelp.
eBook, and native mobile apps.
Adobe Shockwave Player—a rich media player used for deploying multimedia content for use in Internetinternet solutions including education, training, games and commerce.
Adobe Technical Communication Suite—an integrated set of software for technical communicators who create and delivery technical-orientated content; includes Acrobat, Adobe Captivate, FrameMaker, Illustrator and RoboHelp technologies; helps customers improve their workflows, especially technical communicators who want a single solution to meet their content creation and publishing needs.
Adobe Type Classics for Learning—a low-cost, introductory font library designed for students and educators.
Adobe Type Sets—various collection packages of Adobe’s best-selling typefaces; makes it easy to create beautiful text for print, Web and video projects.
FreeHand MX—a legacy 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.images.

27
Table of Contents

COMPETITION
The markets for our products and services are characterized by intense competition, evolvingnew industry standards, andevolving business and distribution models, disruptive software and hardware technology developments, frequent new product introductions, short product life cycles, price cutting with resulting downward pressure on gross margins and price sensitivity on the part of consumers. Our future success will depend on our ability to enhance and better integrate our existing products, introduce new products on a timely and cost-effective basis, meet changing customer needs, extend our core technology into new applications and anticipate and respond to emerging standards, business models, software delivery methods and other technological changes.
Creative and Interactive Solutions
Digital Media
In our Creative and Interactive SolutionsDigital Media segment, we offer theAdobe Creative Cloud and Adobe Creative Suite in multiple editions which consist of combinations of several of our technologies. In addition to offering the technologies within the Creative Suite editions,these products, we also offer many of them as individual software applications. These products compete with those from many companies, including Apple, Aviary, Avid, Corel, Microsoft, Quark and others, as well as from many lower-end offerings available on touch-enabled devices via app stores, and from various open source initiatives.
Of the competitors listed, no single company offers the complete range of capabilities thathas offerings identical to our Creative Suite and Creative Cloud family of products, offers. Microsoft, with their Expression Studio, competes with several aspectsbut our products face collective competition from a variety of our Adobe Creative Suite family of products.point offerings, free products and downloadable apps. For example, Expression Studio includes: Microsoft Expression Design, which competes with our Adobe Illustrator and Adobe Fireworks products; Microsoft Expression Blend, which competes with our Adobe Flash Catalyst and Flash
28

Professional products; and Microsoft Expression Web, which competes with our Adobe Dreamweaver product. Similarly,instance, Aviary provides for a free a set of online, cloud-based creative tools via their Website. Theirits partners' websites and mobile applications. Its tools run inside Webweb browsers and mobile applications and include an image editor, a vector graphics editor, a special effects tool, and audio and music tools.
We believe our Adobe Creative Suite and Creative Cloud family of products competes favorably on the basis of features and functionality, ease of use, product reliability, pricevalue and performance characteristics. The individual technologies within Creative Cloud and the Creative Suite editions also work well together, providing broader functionality and shortened product training time for the individual who uses multiple applications to complete a project.
WeAs discussed below, we also believe our individual Creative Suite and Creative Cloud products compete favorably against those offered by competitors noted above, as discussed below.
above.
Our Adobe InDesign product, used for professional page layout, faces competition from offerings such as Quark Xpress in the professional page layout market. Quark also benefits from an established industry infrastructure that has been built around the use of their XPress product in print shops and service bureaus, and through the development of third-party plug-in products. BarriersWe believe InDesign competes favorably due to the adoptioninnovative features of Adobe InDesign, by Quark XPress customers include this infrastructure, as well as the cost of conversion, training and software/hardware procurement required to switch to InDesign. Although these barriers remain, we believe we have increased the market share of our InDesign software. We also believe we will continue to see market share gains going forward due to a product offering that contains new innovative features,its improved integration with our ot herother products, our strong brand among users, positive reviews by industry experts, adoption of InDesign by major accountsand more recent innovations which are influencersaddress customer challenges related to publishing for tablets which is delivered in their industries and improved infrastructure support by the industry forconcert with our overall solution.
new Digital Publishing Suite offerings.
Professional drawing and illustration products are characterized by feature-rich competition, brand awareness and price sensitivity. In addition to competition with Microsoft’s Expression Design product, ourOur Adobe Illustrator product faces competition from companies such as ACDsee, Aviary, Corel, Mediascape, Xara and the open source product called Karbon14. Competition in this market is also emerging with a new category of drawing and illustration applications on tablet and smartphone platforms. SoftwareWe offer Adobe Ideas for graphics creation on tablets, and other software companies, including Autodesk with theirits SketchBook Pro application, are extending their products and feature sets to platforms such as Apple’sApple's iPad and potentially other tablet devices. We believe our products compete favorably due to high customer awareness of their rich features, especially the drawing and illustration functionalities, the technical capabilities of the product and our ability to leverage core technologies from our other established products.
The demand for professional Webweb page layout and professional Webweb content creation tools is constantly evolving and highly volatile. In addition to competition with Microsoft’s Expression Blend and Web products, weWe believe Adobe Dreamweaver and Adobe Flash Professional face direct and indirect competition from desktop software companies such as Bare Bones Software, FlashDevelop, JetBrains, Panic, MacRabbit, MacroMates, and various proprietary and open source Webweb authoring tools. We also face competition from Microsoft Visual Studio products, and other IDEsintegrated development environments that enable developers to create Webweb applications from companies such as BEA Systems (a subsidiary of Oracle), Borland (owned by Micro Focus) and IBM. We believe our products compare favorably to these applications; however, our market share may be constrained by Microsoft’sMicrosoft's ability to target i ts Webits web software to users in markets it dominates. These target customers include users of Microsoft Office, Microsoft Windows operating system, the Microsoft Internet Explorer Webweb browser and Microsoft Visual Studio.
Our Flash technologies, including Adobe Flash Player and Adobe AIR, face competition from Microsoft Silverlight, as well as alternative approaches to building rich content and Webweb applications such as JavaFX, HTML5, native applications and Unity. Microsoft markets its Silverlight product and technology as an alternative to our Flash and AIR technologies. Silverlight provides capabilities for the creation

28
Table of media experiences and interactive applications for the Web that incorporate video, animation, interactivity and user interfaces. We believe Flash and AIR compete favorably against Silverlight due to the broad reach of Adobe Flash Player and AIR on PCs and non-PC devices, due to the use of Flash and AIR as a means to deliver rich, cross-platform, multiscreen content, and due to the use of our market-leading creative tools as an essential part of existing creat ive workflows.Contents

The HTML specification, which among other things describes the syntax and format for encoding Webweb pages, has evolved over several decades and Adobe has participated in its evolution. Our tools are among the leading applications used by Webweb designers and developers to create HTML-based content that is displayed and viewed in Webweb browsers.
The newest version of HTML, commonly known as HTML5, is being developed by an industry consortium that includes Adobe and leading browser manufacturersvendors such as Apple, Google and Microsoft, and contains new features which will compete with some of the features of Flash and Flash Player, such asFlash. These features include the ability to create and display rich advertising and play video natively within the browser. We are working to implement support for HTML5 in our creative product solutions, and we believe we will provide the widest array of su pportsupport and tooling for HTML5 content creation over time. Yet,We are also contributing Adobe technology to WebKit, the open source project utilized by popular internet browsers such as Apple's Safari and Google's Chrome browser, to improve the user experience for HTML5-based content in areas such as publishing and animated graphics. By increasing the capabilities for displaying rich content in browsers with HTML5, we believe we can increase the competing interests of thedesire by web content creators for our tools that create such content.

browser developers, and the potential for inconsistency in how each major browser implements HTML5 will create a continuing demand for solutions such as those offered by ourAs it relates to Flash, technologies that provide a consistent presentation capability that works across browsers, operating systems and devices.  We alsowe believe that Flash basedtechnology-based content and tooling have a significant technology lead over anythingother solutions trying to replicate its feature sets on PC-based systems, particularly in market areas likeuse cases such as online gaming, Webweb applications, and RIAs, 3D-based content, and premium online video delivery, advertisingdelivery. Given Apple's considerable market share with smartphones and security.tablets, and Apple's decision to not support Adobe Flash Player on its mobile devices, in 2011 we decided (based on this and other factors) to discontinue new development on Adobe Flash Player for mobile browser implementations in favor of supporting Adobe AIR for the packaging of standalone mobile applications developed using Flash technologies.
WeAs it relates to HTML5, we believe demand for authoring using new HTML5 features will intensify the competition in the professional Webweb page layout market. We also believe the potential fragmentation of HTML5 implementations by the various browser manufacturersvendors that compete with each other will create the need for tool improvements to address the disparities between platforms and devices that could result. Our Dreamweaver product, new Adobe Edge Tools & Services and our CS Live BrowserLab serviceAdobe Muse are uniquelywell positioned to assist customers with migrating to new versions of standards such as HTML5, as well as delivering the means to create rich, interactive experiences on devices and screens of all sizes.
We expect new tools and solutions to come to market that will compete with our tools. However, we believe our continuing innovation in our tools, and how these tools are integrated with other Adobe technologies that are used by web content creators, creates a value proposition that is greater than those trying to compete with our web page content creation offerings.
As customers such as publishers and media companies increase their desire to deliver their assets to new platforms such as mobile devices and tablets, we expect new and existing companies to continue to offer solutions that address these challenges whichthat are competitive with our Digital Publishing Suite. Many design agencies are building capabilities to offer such solutions, and companies such as Amazon, Apple, Aquafada, Google, Texterity and Zinio offer an alternative format and business model for the delivery of newspaper and magazine content to mobile devices.
We believe RIAs will make use of both open source Ajax frameworks and the open source Flex framework to create hybrid RIAs in the browser, and we anticipate increased adoption of AIR as a development platform for Ajax developers. With our FMSAdobe Media Server solution, we face competition from Microsoft with theirits 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 mobile devices such as smartphones and tablets are influenced by evolving industry standards, rapid software and hardware technology developments and frequent new product and technology introductions by companies or open-source initiatives targeting similar opportunities. Technologies and products whichthat compete with our tools for creating mobile applications include solutions whichthat utilize Java Brew,and Scalable Vector Graphics and Wireless Application Protocol.Graphics. On Apple devices running the iOS operating system, on devices running Microsoft operating systems and on devices running the Google Android operating system, developers can choose to use native development environments for those platforms. They can also utilize other developer solutions whichthat can be compiled to run on such device s,devices, including those from companies such as appcelerator, Phonegap, Unity3DAppcelerator, Unity Technologies, Sencha and Corona.
With respect to Apple mobile devices such as the iPhone and iPad, although our desire is to work closely with Apple to deliver Adobe Flash Player for accessing browser-based SWF content on their devices similar to our approach with other mobile vendors, we are restricted from making advancements towards this goal until we have Apple’s cooperation to do so. We do not believe we have experienced a negative impact to our revenue because of this exclusion due to the broad uses of our creative and developer tools to create content and applications in a variety of formats for PC, mobile and other devices—including Apple mobile devices.
Strobe.
We believe our robust programming model and developer tools used to create rich content, our large developer community and ecosystem whichthat utilize our tools and the growth of companies who utilize our Flash, AIR, PhoneGap and AIRPhoneGap Build solutions as a basis for rich content and application delivery across multiple screens are key assets in our ability to effectively compete in this market. Further, the rich expressiveness of Flash, which provides the capability to deliver audio, video, motion graphics, vector graphics and visual effects resulting in rich user experiences and interfaces in browsers on PC platforms and as applications across PC and mobile devices,device platforms such as iOS and Android, is a key differentiation when compared to the capabilities of alternate solutions.
Digital Media Solutions
solutions, especially for gaming and premium video delivery use cases.
The needs of digital imaging and video editing software users are constantly evolving due to rapid technology and hardware advancements in digital cameras, digital video cameras, printers, personal computers,PCs, tablets, mobile phones and other new devices. Our imaging and video software offerings, including Adobe Photoshop, Adobe Photoshop Lightroom, Adobe Photoshop Elements, Adobe After Effects, Adobe Audition, Adobe Soundbooth, Adobe Encore, Adobe Premiere Elements and Adobe Premiere Pro, face competition from companies offering similar products. We also

29
Table of Contents

continue to face competition from new and free products, including online based Webweb services and mobile/tablet applications whichthat compete directly with our Photoshop Express mobile applicationAdobe Revel offering.
In professional digital imaging, software applications and services compete based on product features, brand awareness and price sensitivity. In addition to competition with Apple’sApple's Aperture product, and Microsoft’s Expression Design product, our Adobe Photoshop and Adobe Photoshop Lightroom products face direct and indirect competition from a number of

companies, including Corel. New image editing applications for mobile devices and tablets with features whichthat compete with our professional products are also emerging as adoption of these devices grows. Our Adobe Photoshop products compete favorably due to high customer awareness of the Photoshop brand in digital imaging, the positive recommendations for our Photoshop product by market influencers, the features and technical capabilities of the product and our ability to leverage core features from our other established products.
Our other digital imaging and video editing offerings, including Adobe Photoshop Elements and Adobe Premiere Elements, are subject to intense competition, including customer price sensitivity, competitor brand awareness and competitor strength in OEM bundling and retail distribution. We face direct and indirect competition in the consumer digital imaging market from a number of companies that market software whichthat competes with ours, including ACD Systems, AI Soft (Japan), Apple, ArcSoft, Corel, i4 (Japan), Google, Kodak, Nova Development, Magix, Microsoft, Photodex Corporation, Sonic (owned by Rovi), Pinnacle (owned by Avid) and Sony.
In addition, we face competition from device, hardware and camera manufacturers such as Apple, Canon, Dell, Hewlett-Packard, Nikon, Phase One, Sony and others as they try to differentiate their offerings by bundling, for free, their own digital imaging software, or those of our competitors. Similarly, we face potential competition from operating system manufacturers such as Apple with their iPhoto product and Microsoft as they integrate or offer hobbyist-level digital imaging and image management features with their operating systems. We also face potential competition from smartphone and tablet manufacturers that integrate imaging and video software into their devices to work with cameras that come as part of their smartphone and tablet offerings. In addition, new social networking platforms such as Facebook (including its Instagram offering) and portal sites such as Google and Yahoo! are becoming a direct mea nsmeans to post, edit and share images—images, bypassing the step of using image editing and sharing software.
Competition is also emerging with a new category of imaging and video applications on tablet and smartphone platforms. Existing as well as new competitors are extending their products and feature sets to platforms such as Apple’sApple's iPad and potentially other tablet devices. Similarly, new cloud-based SaaS offerings continue to emerge which offer image editing and video-editing capabilities, as well as social and sharing features. In addition to competing with our own mobile applications such as Photoshop Express, our Lightroom product and our Photoshop Elements and Adobe Premiere hobbyist products, these products could start to encroach upon the feature sets of our professional tools.
Applications for digital video editing, motion graphics, special effects, audio creation and DVD authoring face increasing competition as video professionals and hobbyists migrate towards the use of digital camcorders and digital video production on their computers, and DVD systems and online video for rich media playback. Our Adobe After Effects, Adobe Audition, Adobe Encore and Adobe Premiere Pro and Adobe Soundbooth software products, as well as the Adobe Creative Suite Production Premium suiteedition which contains these products, face competition from companies such as Apple, Avid, Canopus (owned by Grass Valley), Sonic (owned by Rovi) and Sony.
Our Adobe Premiere Elements software product, which is targeted for use by hobbyists, faces competition from companies such as Apple, ArcSoft, Autodesk, Avid, Broderbund, Corel, Magix, Microsoft and Sony—Sony as well as video editing capabilities found in operating systems, hosted SaaS solutions, video editing solutions bundled by video camcorder manufacturers with their hardware offerings, and video editing solutions bundled onto smartphones. Similarly, we face potential competition from operating system manufacturers such as Apple with theirits iMovie and iDVD products and Microsoft with theirits Windows Movie Maker product as they integrate or offer hobbyist-level digital imaging and image management features with their operating systems.
We believe we compete favorably against other digital imaging, digital video and consumer-focused image management software applications with our Adobe Photoshop Elements and Adobe Premiere Elements products due to strong consumer awareness of our brand in digital imaging and digital video, our relationships with significant OEMs, positive recommendations for our products by market influencers, our increased focus on the retail software channel and strong feature sets.
Adobe After Effects is a leader in professional compositing and visual effects due to its strong feature set and its integration with our other products that helps create a broad video editing platform for our customers. In professional digital video editing, we are an industry leader with Adobe Premiere Pro and compete favorably due to our strong feature set, our OEM relationships and the integration with our other products to create a broad digital video publishing platform for our customers.
Digital Enterprise Solutions
With our Adobe 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 Adobe Acrobat. They also

offer a proprietary digital

30
Table of Contents

rights management technology and a document format, called XML Paper Specification (“XPS”), which competes with Adobe PDF. Given Microsoft’sMicrosoft's market dominance, the PDF feature in Office, XPS, and any other competitive Microsoft product or technology that is bundled as part of its Office product or operating system or made freely available, could harm our overall Adobe Acrobat market opportunity.
Our Adobe Acrobat product family also faces competition in the PDF file creation market from many clone products marketed by companies such as AdLib, Active PDF, Apple, Global Graphics, Nuance, Software995, Sourcenext and others. In addition, other PDF creation solutions can be found at a low cost, or for free, on the Web.
web.
For customers that use Adobe Acrobat as part of document collaboration and document process management solutions, where electronic document delivery, exchange, collaboration, security and archival needs exist, our Acrobat product family faces competition from entrenched office applications such as Microsoft Office and its integration with its SharePoint product. In the higher end of the electronic document market, Acrobat Pro and Acrobat Pro Extended provide features which compete with other creative professional PDF tool providers, such as Enfocus, Dalim and Zinio. Google’sGoogle's Google Apps set of products also provides document creation and collaboration capabilities, including the ability to preview PDF documents, which can be used as an alternative to our collaboration features in Acrobat.
To address these competitive threats, we are working to ensure our Adobe Acrobat applications stay at the forefront of innovation in emerging opportunities such as PDF document generation, document collaboration and document process management.security.
Our Web conferencing solution, Adobe Connect, faces competition from many Web conferencing vendors, including Cisco WebEx, Microsoft Office Live Meeting (now a part of their Microsoft Lync offering), IBM Lotus Sametime and Citrix GoToMeeting. Cisco WebEx is a market share leader and Microsoft has steadily increased its marketing of its solution.
Digital Marketing
The markets we address within which our Digital Marketing business unit competes are growing rapidly and characterized by intense competition. Our Adobe LiveCycle Enterprise Suite are influenced by evolving industry standards, rapid software and hardware technology developments, and new product introductionsMarketing Cloud solutions face competition from competitorslarge companies such as Google, Yahoo!, Microsoft, Oracle, IBM, HP, salesforce.com and IBM.
Microsoft has already brought to market new products and technologies to address many of the emerging market needs we focus on with our Adobe LiveCycle family of products. Microsoft continues to offer its eForms solution called InfoPath in certain versions of Microsoft Office and has added Office Forms Services which extends their 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.
Certain Windows operating systems contain a proprietary digital rights management technology which competes with Adobe LiveCycle Rights Management ES. In addition, Microsoft’s most recent version of Office includes an updated version of its SharePoint product which competes with certain aspects of our Adobe LiveCycle products. Microsoft has also recently delivered technology called Windows Presentation Foundation and Silverlight which offers an alternative to building RIA applications within the Microsoft .NET framework.
In the electronic forms solution market,others, in addition to competition from Microsoft Infopath basedpoint product solutions we face competition from IBM through their eForms solution recently rebranded as Lotus Workplace Forms. Similarly, we face competition for document process management solutions from workflow solution vendors such as PegaSystems, Lombardi, Nuance and Ultimus.
Our overall offering for CEM solutions competes with offerings such as IBM's Project Northstar, recently renamed the IBM Customer Experience Suite. We also expect to compete with similar offerings from other major vendors with similar portfolios, such as Microsoft and Oracle. We believe that we compete favorably in this emerging market based on our extensive track recordfocused competitors. Additionally, new competitors are constantly entering these markets, increasing competition. Certain of delivering industry-leading tools for creating compelling experiences our WCM focus on global, multi-brand, multi-language Websites; the strength of our Web analytics platform; the breadth and power of our tools for building multi-screen and multi-channel applications; our long-standing and broad partnerships with system integrators and interactive agencies; our deep background in user-centric design; the superior functionality and broad range of our PDF solutions; and our scalability and performance.
Our WCM solution, acquired from Day, competes with general enterprise content platforms, including products from Autonomy, EMC, IBM, OpenText, and Oracle, as well as more specialized solutions, including products from Alfresco, FatWire, CoreMedia, Percussion, and SDL. In addition, there are low-cost and open source alternatives, such as Drupal, Joomla!, and WordPress. We believe that we compete favorably with both the enterprise and low-cost alternatives, based on our strong feature set; focus on global, multi-brand, multi-language Websites; superior user experience; tools for building

multi-screen, multi-channel applications; standards-based architecture; scalability and performance; and leadership in industry standards efforts.
Omniture
In our Omniture segment, we compete primarily with Web analytics and business optimization vendors whosethese competitors provide software is provided on demand to customers, generally through a Web browser. We also compete to a limited extent with vendors whoseweb browser, or provide software that is installed by customers directly on their servers. In addition, we compete at times with our customers’customers' or potential customers’customers' internally developed applications. Of the competitors listed, no single company has products identical to our Digital Marketing offerings. Our Digital Marketing solutions compete in a variety of areas, including: reporting and analytics; multi-channel marketing and optimization; online and social marketing; web experience management and others.
In the market of Digital Marketing, we believe our creative tools heritage differentiates us from our competitors; we have worked closely with marketing and creative customers for thirty years. We also believe we have market leadership in the digital marketing market, with current customers representing leading brands in the world including markets such as financial services, global media, retail and auto manufacturing. Our comprehensive solution to serve the needs of customers in this market extends further than any other company addressing the opportunity; we integrate content and data, analytics, personalization, web experience management, campaign management and social capabilities in our Adobe Marketing Cloud, surpassing the features of any competitor. Most importantly, we provide a vision for our digital marketing customers as we engage with them across the important aspects of their business, extending from their use of our Creative Cloud, to how they manage, deliver, measure and monetize their content with our Adobe Marketing Cloud.
Our current principal competitors for our reporting and analytics offerings include companies that offer Webweb analytics and optimization services on-demand such as ComScore (through their recent acquisition of Nedstat)(which recently acquired AdXpose and Certifica), Google, IBM (through their recent acquisitions of(which owns Coremetrics, Unica and Unica)Tealeaf), Microsoft, WebTrends, Xiti and Yahoo!. We also compete with software and business intelligence vendors, such as Infor (which owns Epiphany), Nielsen/NetRatings (which is a part of the Nielsen Online Unit of the Nielsen Company) and SAS Institute. In addition, we also compete with online marketing service providers, such as DoubleClick (owned by Google), Microsoft Advertising (formerly aQuantive when acquired by Microsoft), DoubleClick (owned by Google) and 24/7 Real Media (acquired by WPP).
Our Test&Target products compete with multivariate testing providers, such as Optimost (owned by Autonomy), Memetrics (owned by Accenture), Kefta (owned by Acxiom Digital) and [x + 1]. Our SiteSearch products compete with intra-site search vendors, such as Autonomy, Endeca Technologies, FAST Search and Transfer ASA (owned by Microsoft) and Google. Our Merchandising product competes with merchandising solutions providers such as Endeca (owned by ThanxMedia), Celebros, SLI Systems, Nextopia Software and Fredhopper. Our InSightInsight products compete with channel analytics providers, such as Truviso,AsterData (owned by Teradata), Clickfox, QliktechNetezza (owned by IBM), QlikTech and AsterData. Our Recommendations product competesTruviso.
In addition to competing with product recommendations providers, such as Aggregate Knowledge, Baynote, Certona, Rich Relevancelarge search, display and Amadesa. Our SearchCentersocial companies, our AdLens products and multi-channel campaign management offerings, including those obtained through our acquisition of Efficient Frontier, compete with point solutions pr oviders, such as Marin Software and Kenshoo, tier 2 point solution providers such as SearchIgniteBluekai, Criteo, DecideDNA (owned by WPP), DoubleClick Search (owned by Google), IgnitionOne, Kenshoo and Clickable,Marin Software.
Our Target solutions compete with multivariate testing providers, such as Kefta (owned by Acxiom Digital), Memetrics (owned by Accenture), Monetate, Optimizely, Optimost (owned by HP) and [x + 1]. Our Target products and solutions compete with intra-site search vendors and merchandising solutions providers such as Autonomy (owned by HP), Celebros, Endeca Technologies (owned by Oracle), FAST Search and Transfer ASA (owned by Microsoft), Fredhopper, Google, Nextopia Software and SLI Systems.

31
Table of Contents

Our Adobe Social offerings compete primarily with social monitoring platforms such as Radian6 (owned by salesforce.com) and Visible Technologies, as well as some services oriented searchwith social marketing companies such as Efficient Frontier.Buddy Media (owned by Salesforce.com), Lithium Technologies, Vitrue (owned by Oracle) and Wildfire (owned by Google).
Finally, our Survey productOur Experience Manager solution competes with survey providerswith: general enterprise content platforms, including products from Documentum (owned by EMC), HP (which acquired Autonomy), IBM, OpenText, and Oracle (which acquired FatWire); content management tools like Microsoft SharePoint; large-scale WEM systems from companies such as OpinionLab, iPerceptionsVignette (owned by OpenText); and Foresee Results.more specialized solutions, including products from Alfresco, CoreMedia, Percussion, and SDL. In addition, there are low-cost and open source alternatives, such as Drupal, Joomla!, and WordPress.
Many of the companies thatwith which we compete offer Web analytics software offer othera variety of products or services and as a result could also bundle their products or services, which may result in these companies effectively selling their products or services at or below market prices. In addition, large software, Internetinternet and database management companies have entered the marketexpanded and enhanced their Web analytics capabilities,offerings in the digital marketing area, either by developing competing services or by acquiring existing competitors or strategic partners of ours. For example, Apple provides its iAd service, Google offers both a Webfree and premium web analytics service free of charge, and acquired DoubleClick, one of our strategic partners, in 2008.2007. Also, Microsoft offers a Webweb analytics service, free of charge, and offers Microsoft Advertising, which is based on theirMicrosoft's 2007 acquisition of aQuantive.aQuantive; Yahoo! also offers a Webweb analytics service based on its acquisition of IndexTools,IndexTools; Salesforce.com acquired Buddy Media and Radian6 to provide services to monitor and analyze social media conversations; Oracleacquired Endeca Technologies, FatWire, Involver and Vitrue and has entered into a definitive agreement to acquire Eloqua, and HP acquired Autonomy (which had previously acquired Interwoven) to increase their presences in the digital marketing space; and IBM, recently acquiredwith its Coremetrics and Unica to extend theiracquisitions, has extended its e-retailing offering in an initiative they callit calls Project Northstar. These competitors, given their significant resources and preexisting relationships with our current and potential customers, could compete effectively against us.
We believe competitive factors in our markets include the proven performance, security, scalability, flexibility and reliability of services; the strategic relationships and integration with third-party applications; the intuitiveness and visual appeal of services’services' user interfaces; the low total cost of ownership and demonstrable cost-effective benefits to customers; the ability of services to provide N-dimensional segmentation of information; pricing; the flexibility and adaptability of services to match changing business demands; enterprise-level customer service and training; perceived market leadership; the usability of services, including services being easy to learn and remember, efficient and visually compelling; the real-time availability of data and reporting; independence from portals and search engines; the ability to deploy the services globally and to provide multi-currency, multi-language and multi-character support and to have a local presence in international markets; and success in educating customers in how to utilize services effectively. We believe that we compete favorably with both the enterprise and low-cost alternatives, based on many of these competitive factors including our strong feature set, the breadth of our offerings, our focus on global, multi-brand, multi- language 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 many web conferencing vendors, including Cisco WebEx, Microsoft Office Live Meeting (now a part of their Microsoft Lync offering), IBM Lotus Sametime and Citrix GoToMeeting (and their recent acquisition of NetViewer). Cisco WebEx is a market share leader, and Microsoft has steadily increased its marketing of its solution as well as acquired Skype which is a service that enables video calls via the internet. Microsoft has brought to market products and technologies to address many of the market needs we focus on with our LiveCycle family of products. Microsoft offers its eForms solution called InfoPath in certain versions of Microsoft Office and has added Office Forms Services which extends their 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.
Certain Windows operating systems contain a proprietary digital rights management technology which competes with our LiveCycle Rights Management. In addition, Microsoft's Office product includes SharePoint which competes with certain aspects of our LiveCycle products. Microsoft has also delivered technology called Windows Presentation Foundation and Silverlight which offers an alternative to building RIA applications within the Microsoft .NET framework.
In the electronic forms solution market, in addition to competition from Microsoft Infopath based solutions, we face competition from IBM through their eForms solution recently rebranded as Lotus Workplace Forms. Similarly, we face competition for document process management solutions from workflow solution vendors such as PegaSystems, Lombardi (owned by IBM), Nuance and Ultimus.
Print and Publishing
Our Print and Publishing product line targets many markets. In technical authoring and publishing, our Adobe FrameMaker product faces competition from large-scale electronic publishing systems, XML-based publishing companies such as PTC, as well

32
Table of Contents

as lower-end desktop publishing products such as Microsoft Word. Competition is based on the quality and features of products, the level of customization and integration with other publishing system components, the number of hard-warehardware platforms supported, service and price. We believe we can successfully compete based upon the quality and features of the Adobe FrameMaker product and our extensive application programming interface.
In desktop publishing, our Adobe PageMaker product faces competition from other software products, including Microsoft Publisher. Competition is based on the quality and features of products, ease-of-use, printer service support and

price. We believe we have a strong product and can successfully compete with these types of applications based upon the quality and features of the Adobe PageMaker product, its strong brand among users and its widespread adoption among printer service bureaus.
In printing technologies, we believe the principal competitive factors for OEMs in selecting a page description language or a printing technology are product capabilities, market leadership, reliability, price, support and engineering development assistance. We believe that our competitive advantages include our technology competency, OEM customer relationships and our intellectual property portfolio. Adobe PostScript faces competition from Hewlett-Packard’sHewlett-Packard's proprietary PCL page description language and from developers of other page description languages based on the Post­ScriptPostScript language standard, including Global Graphics and Zoran. In addition, Microsoft’sMicrosoft's XPS document format and Autodesk’sAutodesk's DWG format compete with Adobe PDF and our Adobe PostScript technologies and solutions.
In the rapid eLearning authoring market, our Adobe eLearning Suite and our Adobe Captivate product face competition from general content development tools such as Microsoft PowerPoint, screen recording tools such as Techsmith’sTechsmith's Camtasia and more advanced eLearning and software simulation solutions such as Firefly, Lectora and Articulate. Competition in this market is based on speed of development and completeness of the features of products, ease-of-use and price. We believe our product can successfully compete based upon the strength of its broad range of features, its strong brand among users and its widespread adoption among training developers.
In WCM, ourOur Adobe Contribute product faces competition from solutions that provide for the simple creation of blogs and “Wikis,” as well as basic content publishing products such as Microsoft Word, Microsoft FrontPage, Microsoft Notepad, basic HTML editors like ezHTMLArea and ekTron, and content management tools like Microsoft SharePoint and, large-scale WCM systems from companies such as Cisco, Interwoven, Vignette, IBM and Oracle.solutions similar to those with which our Day Web Experience Management solution competes. Competition in this market is based on usability, quality and features of products, the level of customization and integration with other WCMWEM components, the integration with Webweb design tools, the number of hardware platforms supported, service and price. We believe we can successfully compete based upon the usability and price of Adobe Contribute, its strong brand among users and integration with other WCMWEM components.
In multimedia content authoring, our Adobe Director product faces competition from a variety of multimedia content authoring tools. Competition is based on the quality and features of products, ease-of-use and price. We believe we have a strong product and can successfully compete based upon the quality and features of the Adobe Director product, its strong brand among users, its widespread adoption among content developers and publishers and the widespread proliferation of the Adobe Shockwave Player.
In technical Webweb authoring and publishing, our Adobe RoboHelp product faces competition from large-scale Webweb publishing systems, XML-based Webweb publishing companies, as well as lower-end publishing products such as Microsoft Word. Competition is based on the quality and features of products, the level of customization and integration with other publishing system components, service and price. We believe we can successfully compete based upon the quality and features of the Adobe RoboHelp product.
Our Adobe ColdFusion products face competition from major vendors including Microsoft, IBM and Oracle (via its BEA subsidiary and acquisition of Sun). Our ColdFusion products also compete with several technologies available today at no cost including the PHP and PERL programming environments that are available for the Apache Webweb server.
OPERATIONS
 
Marketing and Sales
We market and distribute our products through sales channels, which include distributors, retailers, software developers, systems integrators, ISVs and VARs, as well as through OEM and hardware bundle customers. We also market and license our products directly using our sales force and through our own Websitewebsite at www.adobe.com.
We support our end users through local field offices and our worldwide distribution network, which includes locations in Australia, Austria, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Dubai, Finland, France, Germany, India, Ireland, Italy, Japan, Korea, Mexico, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Ukraine, the United Arab Emirates, the United Kingdom and the United Kingdom.States.

33
Table of Contents

We also license software with maintenance and support, which includes rights to upgrades, when and if available, support, updates and enhancements.

The table below lists our significant customers,customer, as a percentage of net revenue for fiscal 2010, 20092012, 2011 and 2008. As listed, our2010. Our significant customers are distributorscustomer is a distributor who sellsells products across our various segments.
   2010  2009  2008
Ingram Micro  15%  15%  18%
  2012 2011 2010
Ingram Micro 11% 14% 15%
We have multiple non-exclusive, independently negotiated distribution agreements with Ingram Micro and its subsidiaries covering our arrangements in specified countries and regions. Each of these contracts has an independent duration, is independent of any other agreement (such as a master distribution agreement) and any termination of one agreement does not affect the status of any of the other agreements.
Receivables fromIn fiscal 2012, no single customer was responsible for over 10% of our significant distributors, as a percentage of gross trade receivables forreceivables. In fiscal 2010 and 2009 were as follows:
   2010  2009
Ingram Micro  14%  16%
2011, Ingram Micro, Inc. represented 14% of our gross trade receivables.
Order Fulfillment for Physical Distribution
The procurement of the various components of packaged products, including DVDs and printed materials, and the assembly of packages for retail and other applications products is controlled by our Supply Chain Operationssupply chain operations organization. We outsource our production, inventory and fulfillment activities to third parties in the United States, Europe, AsiaEMEA and Japan.
APAC.
To date, we have not experienced significant difficulties in obtaining raw materials for the manufacture of our products or in the replication of DVDs, printing and assembly of components.
Shippable backlog is comprised of unfulfilled orders, excluding those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy. ShippableWe had minimal shippable backlog as of January 21, 201118, 2013 and January 15, 2010, was approximately $5.8 million and $5.4 million, respectively.
20, 2012.
Services and Support
We provide professional services, technical support and customer service to a wide variety of customersacross all our customer segments, including consumers,enterprises, small/medium businesses, creative professionals, and business users.consumers. Our service and support revenue consists primarily of consulting fees, software maintenance and support fees and training fees.
Services
We have a global Professional Servicesprofessional 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. The Professional Servicesprofessional services team uses a comprehensive, customer-focused methodology to develop high quality solutions, which in turn deliver a competitive advantage to our enterprise customers. A portfolioThis methodology has been developed by capturing best practices from numerous client engagements across a diverse mix of technical training courses issolutions, industries, and customer preferences. Based on this methodology, our teams are able to accelerate the time to value and maximize the return our clients earn on their investment in Adobe solutions.
In addition, Adobe has also availablecreated a large and vibrant partner ecosystem that includes a mix of Global System Integrators (“SIs”), Regional SIs, VARs, and Solution Partners. Adobe invests significant resources in enabling this ecosystem with the right skills and knowledge about our technologies and best practices. Consequently, this ecosystem provides our clients several different choices of partners, and a large accessible pool of skilled resources that can help deploy Adobe solutions. This approach not only creates value for desktop and server-based products to meet the needs of our enterprise customers and solution partners.
partners, but also creates a large and productive go-to-market channel for our sales teams.
Support
A significant portion of our support revenue is composed of our extended enterprise maintenance and support offerings. These offerings which entitlesentitle customers to to:
the right to receive product upgrades and enhancements during the term of the maintenance and support period, which is typically one year. Regional Support Centers are charged with providing timely, high qualityyear;
the right to receive technical expertisesupport on Enterprisethe technology they have purchased from Adobe; and Knowledge Worker products and solutions
the right to meet the growing needsreceive basic “how to” help in using our products.

34
Table of our customers.Contents

Our support revenue also includes support for our desktop 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 Webweb which allows customers quick and easy access to possible solutions. We provide product support through a combination of outsourced vendors and internal support centers.
We also offer Developer Support to partners and developer organizations. The Adobe Partner Connection Program focuses on providing developers with high-quality tools, software development kits, information and services.
As a registered owner of the current version of an Adobe desktop product, customers are eligible to receive Getting Started support on certain matters. Support for some products and in some countries may vary.
We provide product support through a combination of outsourced vendors and internal support centers, and through multiple channels including phone, chat web, and email. These support services are delivered by a global support organization that includes several Regional and Global Support Centers. These teams are responsible for providing timely, high quality technical expertise on all our products.
We also offer Developer Support to partners and developer organizations. The Adobe Partner Connection Program focuses on providing developers with high-quality tools, software development kits, information and services.
35

Training
We inform customers aboutoffer a comprehensive portfolio of training options to enable our customer and partner teams in the use of our products throughproducts. Our training portfolio includes free on-line informational services on our Websitewebsite (www.adobe.com) and through a growing series of how tohow-to books published by Adobe Press pursuant to a joint publishing agreement with Peachpit Press. In addition, we develop tests to certify independent trainers who teach Adobe software classes. We sponsor workshops, work with professional associations and user groups, and conduct regular beta testing programs. We also provide paidfee-based education services to enhance our customers’ use of our Omniture solutions, including a wide range of traditional and online training and certifications delivered by our team of training professionals.
Adobe's portfolio of technical training courses covers our Digital Media, Digital Marketing and other mature products and solutions.
Investments
We make direct investments in privately-heldprivately held companies. We enter into these investments with the intent of securing financial returns as well as for strategic purposes as they often increase our knowledge of emerging markets and technologies, as well as expand our opportunities to provide Adobe products and services. We also owned a limited partnership interest in Adobe Ventures IV L.P. (“Adobe Ventures”) that invested in early stage companies with innovative technologies. During fiscal 2010, Adobe Ventures was dissolved and all remaining assets were distributed to the partners. Adobe Ventures was managed by Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures.
PRODUCT DEVELOPMENT
 
As the software industry is characterized by rapid technological change, a continuous high level of investment is required for the enhancement of existing products and services and the development of new products and services. We develop our software internally as well as acquire products or technology developed by others by purchasing the stock or assets of the business entity that held ownership rights toowned the technology. In other instances, we have licensed or purchased the intellectual property ownership rights of programs developed by others with license or technology transfer agreements that may obligate us to pay a flat license fee or royalties, typically based on a dollar amount per unit shipped or a percentage of the revenue generated by those programs.
During fiscal years ended December 3, 2010, November 27, 20092012, 2011 and November 28, 2008,2010, our research and development expenses were $680.3$742.8 million $565.1, $738.1 million and $662.1$680.3 million, respectively.
PRODUCT PROTECTION
We regard our software as proprietary and protect it under the laws of copyrights, patents, trademarks and trade secrets. We have a number of domestic and foreign patents and pending applications that relate to various aspects of our products and technology. While we believe our patents have value, no single patent is material to us or to any of our reporting segments. We protect the source code of our software programs as trade secrets and make source code available to third parties only under limited circumstances and subject to specific security and confidentiality constraints.
From time to time, we secure rights to third party intellectual property as we decide is beneficial to our business.
Our products are generally licensed to end users on a “right to use” basis pursuant to a license that restricts the useunder one of the following two methods:
(1)We offer many products on a “right to use” basis pursuant to a license that restricts the use of the products to a designated number of devices. We also rely on copyright laws and on “shrink wrap” and electronic licenses that are not physically signed by the end user. Copyright protection may be unavailable under the laws of certain countries and the enforceability of “shrink wrap” and electronic licenses has not been conclusively determined in all jurisdictions.

35
Table of devices. We also rely on copyright laws and on “shrink wrap” and electronic licenses that are not physically signed by the end user. Copyright protection may be unavailable under the laws of certain countries and the enforceability of “shrink wrap” and electronic licenses has not been conclusively determined in all jurisdictions. We also offer many products under a SaaS or on-demand model, where software is provided on demand to customers, generally through a Web browser.  The use of these products is generally governed by terms of use associated with these products.Contents

(2)We also offer products under a SaaS or on-demand model, where hosted software is provided on demand to customers, generally through a web browser. The use of these products is generally governed by terms of use associated with these products.
Policing unauthorized use of computer software is difficult and software piracy is a persistent problem for the software industry. This problem is particularly acute in international markets. We conduct anti-piracy programs directly and through certain external software associations. In addition, we have activation technology in certain products to guard against illegal use and will continue to do so in certain future products.

EMPLOYEES
EMPLOYEES
As of December 3, 2010,November 30, 2012, we employed 9,11711,144 people. We have not experienced work stoppages and believe our employee relations are good.
AVAILABLE INFORMATION
 
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our Investor Relations Websitewebsite at www.adobe.comwww.adobe.com/adbe as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information posted on our Websitewebsite is not incorporated into this report.
EXECUTIVE OFFICERS 
36

EXECUTIVE OFFICERS
Adobe’s executive officers as of January 21, 201118, 2013 are as follows:
Name Age Positions
 
Shantanu Narayen
 
 
 
47
49		 
President and Chief Executive Officer
 
Mr. Narayen currently serves as Adobe’s President and Chief Executive Officer. Mr. Narayen joined Adobe in January 1998 as Vice President and General Manager of Adobe’s engineering technology group. In January 1999, he was promoted to Senior Vice President, Worldwide Products and in March 2001 he was promoted to Executive Vice President, Worldwide Product Marketing and Development. In January 2005, Mr. Narayen was promoted to President and Chief Operating Officer and in December 2007, he was appointed Chief Executive Officer of Adobe and joined the Adobe Board of Directors. Prior to joining Adobe, Mr. Narayen co-founded Pictra Inc., a digital photo sharing software company, in 1996. He was Director of Desktop and Collaboration products at Silicon Graphics Inc. before founding Pictra. Mr. Narayen is also a director of Dell I nc.
Inc.
Mark Garrett 
53
55		 
Executive Vice President, Chief Financial Officer
 
Mr. Garrett joined Adobe in February 2007 as Executive Vice President and Chief Financial Officer. Mr. Garrett served as Senior Vice President and Chief Financial Officer of the Software Group of EMC Corporation, a products, services and solutions provider for information management and storage, from June 2004 to January 2007, his most recent position since EMC’s acquisition of Documentum, Inc., an enterprise content management company, in December 2003. Mr. Garrett first joined Documentum as Executive Vice President and Chief Financial Officer in 1997, holding that position through October 1999 and then re-joining Documentum as Executive Vice President and Chief Financial Officer in 2002. Mr. Garrett is also a director of Informatica Corporation.
Karen O. Cottle
Michael Dillon

 6154 
Senior Vice President, General Counsel and Corporate Secretary

Ms. CottleMr. Dillon joined Adobe in February 2002August 2012 as Senior Vice President, General Counsel and Corporate Secretary. Prior to joining Adobe, Ms. CottleMr. Dillon served as General Counsel for Vitria Technology, Inc.,and Corporate Secretary of Silver Spring Networks, a service-oriented business application softwarenetworking solutions provider, from November 2010 to August 2012. Before joining Silver Spring Networks, Mr. Dillon served in various capacities at Sun Microsystems, a diversified computer networking company, prior to its acquisition by Oracle Corporation. While at Sun Microsystems, from February 2000April 2006 to February 2002.January 2010, Mr. Dillon served as Executive Vice President, General Counsel and Secretary, from April 2004 to April 2006, as Senior Vice President, General Counsel and Corporate Secretary, and from July 2002 to March 2004 as Vice President, Products Law Group. From 1996 toOctober 1999 Ms. Cottleuntil June 2002, Mr. Dillon served as Vice President, General Counsel and Corporate Secretary of Raychem Corporation.
Johnny Loiacono49
Senior Vice President, Digital Media Business Unit
Mr. Loiacono joined Adobe in April 2006 as Senior Vice President and General Manager of the Creative Solutions business unit. Prior to joining Adobe, Mr. Loiacono served as Executive Vice President of software at Sun Microsystems, Inc., which he joined in 1987. During Mr. Loiacono’s 19 year tenure, he also served as General Manager of Sun Microsystems’s operating platform group, as well as Chief Marketing Officer.ONI Systems Corp, an optical networking company.
 

36
Table of Contents

37
Name Age Positions
Kevin Lynch
 
44
46		 
Senior Vice President, Chief Technology Officer
 
Mr. Lynch currently serves as Adobe’s Chief Technology Officer and Senior Vice President of the Experience & Technology Organization. Mr. Lynch joined Adobe as Chief Software Architect and Senior Vice President for Adobe’s Platform business unit through our acquisition of Macromedia, Inc. in December 2005. At Macromedia, Mr. Lynch served as Chief Software Architect and President of Product Development, where he led Macromedia in advancing Web software including managing the initial development of Macromedia Dreamweaver and guiding Flash to its current widespread adoption across the Web.Development. Prior to Macromedia, Mr. Lynch participated in a variety of technical and management roles in startups including Frame Technology and General Magic.
Rob Tarkoff
Bradley Rencher

 4239 
Senior Vice President and General Manager, Digital Enterprise Solutions Business UnitMarketing

Mr. Tarkoff currentlyRencher serves as Adobe’s Senior Vice President of the Business Productivity business unit. Mr. Tarkoff joined Adobe in April 2007 as Senior Vice President of Corporate Development. Prior to joining Adobe, Mr. Tarkoff was Senior Vice President and General Manager of the Captiva Software DivisionAdobe’s Digital Marketing business unit. Mr. Rencher joined Omniture, Inc. in January 2008 as Vice President of Corporate Development and was promoted to Senior Vice President of Business Development and Channels forOperations prior to Adobe's acquisition of Omniture in 2009. Following the Software Groupacquisition he joined Adobe as Vice President of EMC Corporation, a products, services and solutions provider for information management and storage, from December 2003Business Operations. Mr. Rencher was promoted to April 2007.  Previously, Mr. Tarkoff was Executive Vice President and Chief Strategy Officer for Documentum, Inc., an enterprise content management companyGeneral Manager, Omniture business unit in 2010 and subsequently to Senior Vice President in 2011. Prior to joining Omniture, Mr. Rencher was a member of Worldwide Business Developmentthe technology investment banking team at Commerce One,Morgan Stanley from 2005 to 2008 and a providermember of business-to-business e-commerce solutions.
the investment banking team at RBC Capital Markets from 1998 to 2004.
Matthew Thompson 5254 
Senior Vice President, Worldwide Field Operations
 
Mr. Thompson joined Adobe in January 2006 as Senior Vice President, Worldwide Field Operations. Prior to joining Adobe, Mr. Thompson served as Senior Vice President of Worldwide Sales at Borland Software Corporation, a software delivery optimization solutions provider, from October 2003 to December 2006. Prior to joining Borland, Mr. Thompson was Vice President of Worldwide Sales and Field Operations for Marimba, Inc., a provider of products and services for software change and configuration management, from February 2001 to January 2003. From July 2000 to January 2001, Mr. Thompson was Vice President of Worldwide Sales for Calico Commerce, Inc., a provider of eBusiness applications. Prior to joining Calico, Mr. Thompson spent six years at Cadence Design Systems, Inc., a provider of electronic design technologies. While at Cadence, fro mfrom January 1998 to June 2000, Mr. Thompson served as Senior Vice President, Worldwide Sales and Field Operations and from April 1994 to January 1998 as Vice President, Worldwide Professional Services.
 
David Wadhwani 3941 
Senior Vice President Creative and Interactive Solutions Business UnitGeneral Manager, Digital Media
 
AsMr. Wadhwani serves as Senior Vice President and General Manager of the Creative and Interactive SolutionsAdobe's Digital Media business unit, Mr. Wadhwani leads Adobe’s development of end-to-end solutions for content publishers and application developers. He oversees the Creative Suite family of products, our Flash products, and our digital publishing, media and entertainment solutions. Mr. Wadhwani is also responsible for the company’s multiscreen strategy utilizing Flash and HTML5, and driving adoption of the Flex family of products and Flash/AIR on devices.unit. Prior to June 2010, Mr. Wadhwani was Vice President and General Manager of Adobe’s Platform business unit. He joined Adobe in 2005 through the acquisition of Macromedia. Prior to his time at Macromedia, Mr. Wadhwani founded and managedwas VP of Engineering at iHarvest, a WCMcontent management company that was acquired by Interwoven ,and worke dand worked at Oracle in their database tools division.
 
Name Richard T. Rowley AgePositions
Richard T. Rowley
56		 
54
Vice President, Corporate Controller and Principal Accounting Officer
 
Mr. Rowley joined Adobe in November 2006 as Vice President, Corporate Controller and Principal Accounting Officer. Prior to joining Adobe, Mr. Rowley served as Vice President, Corporate Controller, Treasurer and Principal Accounting Officer at Synopsys, Inc., a semiconductor design software company, from December 2002 to September 2005 and from 1999 to December 2002, Mr. Rowley served as Vice President, Corporate Controller and Principal Accounting Officer. From 1994 to 1999, Mr. Rowley served in several finance-related positions at Synopsys. Mr. Rowley is a certified public accountant.

37
Table of Contents

ITEM 1A.  RISK FACTORS
As previously discussed, our actual results could differ materially from our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed below. These and many other factors described in this report could adversely affect our operations, performance and financial condition.
If we cannot continue to develop, market and distributeoffer new products and services or upgrades or enhancements to existing products and services that meet customer requirements, our operating results could suffer.
The process of developing new high technology products and services and enhancing existing products and services is complex, costly and uncertain, and any failure by usuncertain; if we fail to anticipate customers’ changing needs and emerging technological trends, accurately could significantly harm our market share and results of operations.operations could suffer. We must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether our predictions will accurately reflect customer demand for our products and services. Our inability to extend our core technologies into new applications and new platforms, including the market for mobile, tablet and non-pcother IP-connected devices market,(“non-PC devices”), and to anticipate or respond to technological changes could affect continued market acceptance of our products and services and our ability to develop new products and services. Additionally, any delay in the development, production, marketing or distributionoffering of a new product or service or upgrade or enhancement to an existing product or service could cause a decline in our revenue,revenues, earnings or stock price and could harmweaken our competitive position. We maintain strategic relationships with third parties with respect to the distribution of certain of our technologies.technologies and the support of certain product functionality. If we are unsuccessful in establishing or maintaining our strategic relationships with these third parties, our ability to compete in the marketplace or to grow our revenues would be impaired and our operating results would suffer.
We offer our desktopPC application-based products primarily on Windows and Macintosh platforms. We generally offer our server-based products on the Linux platform as well as the Windows and UNIX platforms. To the extent that there is a continued slowdown of customer purchases of personal computers on either the Windows or Macintosh platform or in general, to the extent that we have difficulty transitioning product or version releases to new Windows and Macintosh operating systems, or to the extent that significant demand arises for our products or competitive products on other platforms before we choose and are able to offer our products on these platforms, our business could be harmed. To the extent new releases of operating systems, including for non-PC devices, or other third-party products, platforms or devices make it more difficult for our products to perform, and our cus tomerscustomers are persuaded to use alternative technologies, our business could be harmed.
Introduction of new products, services and business models by existing and new competitors could harm our competitive position and results of operations.
The markets for our products and services are characterized by intense competition, evolving industry standards, andemerging business and distribution models, disruptive software and hardware technology developments, frequent new product and service introductions, including limited functionality alternatives available at lower costs or free of charge, short product and service life cycles price cutting, with resulting downward pressure on gross margins, and price sensitivity on the part of consumers.consumers, all of which may result in downward pressure on pricing and gross margins and could adversely affect our renewal and upgrade rates. Our future success will depend on our ability to enhance our existing products and services, introduce new products and services on a timely and cost-effective basis, meet changing customer needs, extend our core technology into new applications, and anticipate and respond to emerging standards, business models, software delivery methods and other technological changes.changes, such as the evolution and emergence of digital application marketplaces as a direct 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 servicesoperating systems achieve widespread accepta nce,acceptance, our operating results could suffer. In addition, consolidation has occurred among some of the competitors in our markets. Any furtherthe markets in which we compete. Further consolidations among our competitorsin these markets may result in stronger competitorssubject us to increased competitive pressures and may therefore harm our results of operations.
For specificadditional information regarding our competition and the risks arising out of the competitive environment in which we operate, see the section entitled “Competition” contained in Item 1 of this report.
Annual Report on Form 10-K.

If we fail to successfully manage transitions to new business models and markets, our results of operations could be negatively impacted.
We plan to release numerous new product and service offerings and employ new software delivery methods in connection with our diversification into new business models and markets. It is uncertain whether these strategies will prove successful or thatwhether we will be able to develop the necessary infrastructure and business models asmore quickly asthan our competitors. Market acceptance of these new product and service offerings will be dependent on our ability to (1) include functionality and usability in such releases that address certain customer requirements with which we have limited prior experienceour operating history is not extensive, and operating history.(2) to optimally price our products in light of marketplace conditions, our costs and consumer demand. Some of these new product and service offerings could subject us to increased risk of legal liability related to the provision of services as well as cause us to incur significant

38
Table of Contents

technical, legal or other costs. For example, with our int roductionintroduction of on-demand or cloud-based services and subscription-based licensing models, such as Creative Cloud, we are entering a marketmarkets that is at an early stage of development.are not yet fully mature. Market acceptance of such services is affected by a variety of factors, including security, reliability, performance, social/community engagement, customer concerns with entrusting a third party to store and manage their data, public concerns regarding privacy and the enactment of laws or regulations that restrict our ability to provide such services to customers in the U.S. or internationally. As our business continues to transition to new business models that may be more highly regulated for privacy and data security, and to countries outside the U.S. that have more stringent data protection laws, our liability exposure, compliance requirements and costs may increase. In addition, laws in the areas of privacy and online advertising are likely to be passed in the future, which could result in significant limitations on or changes to the ways in which we and our customers can collect, process, use, store or transmit the information of customers or employees, communicate with customers, and deliver products and services. Further, any perception of our practices as an invasion of privacy, whether or not illegal, may subject us to public criticism and reputational harm. Existing and potential future privacy laws, increased risks related to unauthorized data disclosures and increasing sensitivity of consumers to use of personal information may create negative public relations related to our products and business practices.
Additionally, customer requirements for open standards or open sourceopen-source products could impact adoption or use of some of our products or services. To the extent we incorrectly predict customer requirements for such products or services, or if there is a delay in market acceptance of such products or services, our business could be harmed.
From time to time we open source certain of our technology initiatives, provide broader open access to our technology, license certain of our technology on a royalty-free basis, and release selected technology for industry standardization. These changes may have negative revenue implications and make it easier for our competitors to produce products or services similar to ours. If we are unable to respond to these competitive threats, our business could be harmed.
We are also devoting significant resources to the development of technologies and service offerings in markets where we have a limitedour operating history is not extensive, including the enterprise, governmentcloud-based computing and mobile and non-pcnon-PC device markets. In the enterprise market, we intend to increase our focus on vertical markets such as education, financial services, and manufacturing. These new offerings and markets require a considerable investment of technical, financial, compliance and sales resources, and a scalable organization. Many of our competitors may have advantages over us due to their larger presence, larger developer network, deeper experience in the enterprise, governmentcloud-based computing and mobile and non-pcnon-PC device markets, and greater sales, consulting and marketing resources. In the mobile and non-pc device markets, our intent is to partner with device makers, manufa cturers and telecommunications carriers to embed our technology on their platforms, and in the enterprise and government market our intent is to form strategic alliances with leading enterprise and government solutions and service providers to provide additional resources to further enable penetration of such markets. If we are unable to successfully enter into strategic alliances with device makers, manufacturers, telecommunication carriers and leading enterprise and government solutions and service providers, or if they are not as productive as we anticipate, our market penetration may not proceed as rapidly as we anticipate andestablish these new offerings in light of the competitive environment, our results of operations could be negatively impacted.
The increased emphasis on a cloud strategy may give rise to risks that could harm our business.
To accelerate the growth of our business, we launched our subscription-based Creative Cloud offering in fiscal 2012. As a result, we expect to derive an increasing portion of our revenues in the future from subscriptions to our creative tools and cloud-based offerings. This subscription model prices and delivers our products in a way that differs from the historical pricing and delivery methods of our creative tools. These changes reflect a shift 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. As our customers’ purchases trend away from perpetual licenses toward subscriptions, we are experiencing and will continue to experience a deferral of revenues and cash received from customers. 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 new or current customers desire only perpetual licenses, our subscription sales may lag behind expectations;
the increased emphasis on a cloud strategy may raise concerns among our installed perpetual license customer base;
we may be unsuccessful in maintaining our target pricing, new seat adoption and projected renewal rates, or we may select a target price that is not optimal and could negatively affect our sales or earnings;
our revenues are expected to decline over the short term and may decline over the long term as a result of this strategy;
our shift to a subscription licensing model may result in confusion among our customers, partners, resellers and investors;
our relationships with existing partners that resell perpetual license products may be damaged; and
we may incur costs at a higher than forecasted rate as we expand our cloud operations.
Revenue from our product and service offerings may be difficult to predict.
As previously discussed, we are devoting significant resources to the development of product and service offerings as well as new distribution models where we have a limitedour operating history. For example, we intend to implement ahistory is not extensive. As our traditional perpetual license business shifts toward our subscription licensing model, to augment our traditional perpetual licensing model. This makes it difficult to predict revenue andlicense revenue may decline more quickly than anticipated. Additionally, we haveUnder a limited historysubscription model, downturns or upturns in sales may not be immediately reflected in our reported financial results. Subscription pricing allows customers to use our products at a lower initial cost when compared to the sale of licensinga perpetual license. Although the subscription model is designed to increase the number of customers who purchase our products and offering services and create a recurring revenue stream that is more predictable, it creates certain risks related to the timing of revenue recognition and reduced cash flows.
As a result, a portion of the subscription-based revenue we report each quarter results from the recognition of deferred revenue relating to subscription agreements entered into during previous quarters. A decline in certain marketsnew or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our

39
Table of Contents

revenue in future quarters. If we were to experience significant downturns in subscription sales and renewal rates, our reported financial results might not reflect such downturns until future periods. A subscription model could also make it difficult for us to rapidly increase our revenues from subscription- or SaaS-based services through additional sales in any period, as revenue from new customers will be recognized over the governmentapplicable subscription term. Further, any increases in sales under our subscription sales model could result in decreased revenues over the short term if they are offset by a decline in sales from perpetual license customers.
Additionally, in connection with our sales efforts to enterprise customers and our introduction of enterprise market and may experienceterm license agreements, a number of factors that willcould make our revenue less predictable, including longer than expected sales and implementation cycles, decisions to open source certain of our technology initiatives, potential deferral of revenue due to multiple-element revenue arrangements and alternate licensing arrangements. If any of our assumptions about revenue from our new businesses or our addition of a subscription-based model prove incorrect, our actual results may vary materially from those anticipated, estimated or projected.
We may be unable to predict subscription renewal or upgrade rates and the impact these rates may have on our future revenue and operating results.
40
For instance, theThe SaaS business model we utilize in our Omniture business unitAdobe Marketing Cloud offerings typically involves selling services on a subscription basis pursuant to service agreements that are generally one to three years in length.length, our Creative Cloud subscription agreements are generally month to month or one year in length, and subscription agreements for other products and services may provide for shorter or longer terms. Although many of our service and subscription agreements contain automatic renewal terms, our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, upon providing timely notice of non-renewal and wesome customers elect not to renew. We cannot provide assurance that these subscriptions will be renewed at the same or higher level of service, for the same number of seats or for the same duration of time, if at all. Moreover, under somecertain circumstances, some of our customers have the right to cancel their service agreements prior to the expiration of the terms of their agreements. We cannot be assured that we will b ebe able to accurately predict future customer renewal rates. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our services, the prices of our services, the prices of services offered by our competitors, mergers and acquisitions affecting our customer base, reductions in our customers’ spending levels, or declines in consumer Internet activity as a result of economic downturns or uncertainty in financial markets. If our customers do not renew their subscriptions for our services or if they renew on less favorable terms to us, our revenues may decline.
Our future growth is also affected by our ability to sell additional features and services to our current customers, which depends on a number of factors, including our customers’ satisfaction with our services, the prices of our services and general economic conditions. If our efforts to cross-sell and upsell to our customers are unsuccessful, the rate at which our business grows might decline.
Uncertainty about current and future economic conditions and other adverse changes in general political conditions in any of the major countries in which we do business could adversely affect our operating results.
As our business has grown, we have become increasingly subject to the risks arising from adverse changes in economic and political conditions, both domestically and globally. Uncertainty about current and future economic and political conditions on us, our customers, suppliers and partners, makes it difficult for us to forecast operating results and to make decisions about future investments. If economic growth in the U.S., Europe and other countries slows or does not improve, or if the U.S., Europe or other countries in which we do business experience further economic recessions, many 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. Deterioration in economic conditions in any of the countries in which we do business could also cause slower or impaired collections on accounts receivable, which may adversely impact our liquidity and financial condition.
There could be a number of effects from a financial institution credit crisis on our business, which could include impaired credit availability and financial stability of our customers, including our distribution partners and channels. A disruption in the financial markets may also have an effect on our derivative counterparties and could also impair our banking partners on which we rely for operating cash management. Any of these events would likely harm our business, results of operations and financial condition.
Political instability in any of the major countries in which we do business would also likely harm our business, results of operations and financial condition.

40
Table of Contents

We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management.
We have in the past and may in the future acquire additional companies, products or technologies. Recently, we completed the acquisition ofWe acquired Omniture in October 2009, and completed the acquisition of Day Software (“Day”) in October 2010.2010 and Efficient Frontier in January 2012, as well as other smaller business and asset acquisitions. We may not realize the anticipated benefits of an acquisition, and each acquisition hasof which involves numerous risks. These risks include:
difficulty in integrating the operations and personnel of the acquired company;
·difficulty in integrating the operations and personnel of the acquired company;
difficulty in effectively integrating the acquired technologies, products or services with our current technologies, products or services;
difficulty in maintaining controls, procedures and policies during the transition and integration;
·difficulty in effectively integrating the acquired technologies, products or services with our current technologies, products or services;
entry into markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges;
·difficulty in maintaining controls, procedures and policies during the transition and integration;
difficulty integrating the acquired company’s accounting, management information, human resources and other administrative systems;
inability to retain personnel of the acquired business;
·entry into markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
inability to retain key customers, distributors, vendors and other business partners of the acquired business;
inability to achieve the financial and strategic goals for the acquired and combined businesses;
·disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges;
inability to take advantage of anticipated tax benefits as a result of unforeseen difficulties in our integration activities;
incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;
·difficulty integrating the acquired company’s accounting, management information, human resources and other administrative systems;
potential additional exposure to fluctuations in currency exchange rates;
potential impairment of our relationships with employees, customers, partners, distributors or third-party providers of our technologies, products or services;
·inability to retain key technical and managerial personnel of the acquired business;
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired company or technology, including but not limited to, issues with the acquired company’s intellectual property, product quality 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, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to, claims from terminated employees, customers, former stockholders or other third parties;
·inability to retain key customers, distributors, vendors and other business partners of the acquired business;
incurring significant exit charges if products or services acquired in business combinations are unsuccessful;
potential inability to assert that internal controls over financial reporting are effective;
·inability to achieve the financial and strategic goals for the acquired and combined businesses;
potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions;
potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product and service offerings; and
·inability to take advantage of anticipated tax benefits as a result of unforeseen difficulties in our integration activities;
potential incompatibility of business cultures.
·incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;
·potential additional exposure to fluctuations in currency exchange rates;
·potential impairment of our relationships with employees, customers, partners, distributors or third-party providers of our technologies, products or services;
·potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired company or technology, including but not limited 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, or impositions of, legislative or regulatory requirements impacting the acquired business;
·exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to, claims from terminated employees, customers, former stockholders or other third parties;
·incurring significant exit charges if products or services acquired in business combinations are unsuccessful;
·potential inability to assert that internal controls over financial reporting are effective;
·potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions;
·potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product and service offerings; and
·potential incompatibility of business cultures.

Mergers and acquisitions of high technology companies are inherently risky, and ultimately, if we do not complete an announced acquisition transaction or integrate an acquired business successfully and in a timely manner, we may not realize the benefits of the acquisition to the extent anticipated.
We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings.
In connection with the enforcement of our own intellectual property rights, the acquisition of third-party intellectual property rights, or disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation are typically very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual property disputes, including those emanating from non-practicing entities, could subject us to significant liabilities, require us to en terenter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions 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. 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.
We may not be able to protect our intellectual property rights, including our source code, from third-party infringers or unauthorized copying, use or disclosure.
Although we defend our intellectual property rights and combat unlicensed copying, access and use of software and intellectual property rights through a variety of techniques, preventing unauthorized use or infringement of our rights is inherently difficult. We actively pursuecombat software piracy as part of our enforcement of our intellectual property rights, but we nonetheless lose significant revenue due to illegal use of our software. If piracy activities increase, it may further harm our business.
Additionally, we take significant measures to protect the secrecy of our confidential information and trade secrets, including our source code. If unauthorized disclosure of our source code occurs through security breach, or attack or otherwise, we could potentially lose future trade secret protection for that source code. The loss of future trade secret protection could make it easier for third-partiesthird parties to compete with our products by copying functionality, which could adversely affect our revenue and operating margins. We also seek to protect our confidential information and trade secrets through the use of non-disclosure agreements with our customers, contractors, vendors and partners. However, there is a risk that our confidential information and trade secrets may be disclosed or published without our authorization, and in these si tuationssituations it may be difficult and/or costly for us to enforce our rights.
Increasing regulatory focus on privacy issues and expanding laws and regulations could impact our new business models and expose us to increased liability.
Our new business models are more highly regulated, including for privacy and data security. We are also expanding these new models in countries that have more stringent data protection laws than those in the U.S. With these new business models, our liability exposure, compliance requirements and costs associated with privacy issues will likely increase. Privacy laws globally are changing and evolving. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share or transmit personal data. New laws and industry self-regulatory codes have been enacted and more are being considered that may affect our ability to reach current and prospective consumers, to understand how our products and services are being used, to respond to consumer requests allowed under the laws, and to implement our new business models effectively. These new laws and regulations would similarly affect our competitors as well as our customers. Any perception of our practices or products as an invasion of privacy, whether or not consistent with current regulations and industry practices, may subject us to public criticism, class action lawsuits, reputational harm or claims by regulators, industry groups or other third parties, all of which could disrupt our business and expose us to increased liability.
On behalf of certain of our customers using some of our services, we collect and store information derived from the activities of website visitors, which may include anonymous and/or personal information. This enables us to provide such customers with reports on aggregated anonymous or personal information from and about the visitors to their websites in the manner specifically directed by each such individual customer. Federal, state and foreign governments and agencies have adopted or are considering adopting laws regarding the collection, use and disclosure of this information. Our compliance with privacy laws and regulations and our reputation among the public body of website visitors depend on such customers’ adherence to privacy laws and regulations and their use of our services in ways consistent with such visitors’ expectations. We also rely on representations made to us by customers that their own use of our services and the information they provide to us via our services do not violate any applicable privacy laws, rules and regulations or their own privacy policies. We ask customers to represent to us that they provide their website

42
Table of Contents

visitors the opportunity to “opt-out” of the information collection associated with our services, as applicable. We do not formally audit such customers to confirm compliance with these representations. If these representations are false or if such customers do not otherwise comply with applicable privacy laws, we could face potentially adverse publicity and possible legal or other regulatory action. In addition, some countries are considering enacting laws that would expand the scope of privacy-related obligations required of service providers, such as Adobe, that would require additional compliance expense and increased liability.
Security vulnerabilities in our products and systems could lead to reduced revenues or to liability claims.
Maintaining the security of our products, computers and computer networks is a critical issue for us and our customers. Hackers maySecurity researchers, criminal hackers and other third parties regularly develop new techniques to penetrate computer and network security measures. In addition, hackers also develop and deploy viruses, worms and other malicious software programs, that aresome of which may be specifically designed to attack our products, systems, computers or networks. Additionally, outside parties may attempt to fraudulently induce our employees or users of our products to disclose sensitive information in order to gain access to our data or our customers’ data. These potential breaches of our security measures and systems,the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data as a result of hacking, fraud, trickery or other forms of deception, could expose us, our internal network. employees, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability or fines for us, damage our brand and reputation or otherwise harm our business.
Although this is anthese are industry-wide problemproblems that affectsaffect computers and products across all platforms, it affectsthey affect our products in particular because hackers tend to focus their efforts on the most popular operating systems and programs and we expect them to continue to do so. Critical vulnerabilities have beenmay be identified in certain of our products.applications. These vulnerabilities could cause the applicationsuch applications to crash and could potentially allow an attacker to take control of the affected system.
system, which could result in liability to us or limit our ability to conduct our business and deliver our products and 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 security updates to address security vulnerabilities and improving our incident response time. The cost of these steps could reduce our operating margins. Despite these efforts, actual or perceived security vulnerabilities in our products and systems may lead to claims against us and harm our reputation, and could lead some customers to seek to return products, to stop using certain services, to reduce or delay future purchases of products or services, or to use competing products or services. Customers may also increase their expenditures on protectingsecurity measures designed to protect their existing computer syste mssystems from attack, which could delay adoption of new technologies. Further, if we or our customers are subject to an attack, or our technology is utilized in a third-party attack, it may be necessary for us to take certain measures and make certain expenditures to take appropriate responsive and preventative steps. Any of these actions by customers could adversely affect our revenue.
revenues.
Some of our businesseslines of business rely on us or our third-party service providers to host and deliver services and data, and any interruptions or delays in our service or service from these third parties,hosted services, security or privacy breaches, or failures in data collection could expose us to liability and harm our business and reputation.
Some of our businesseslines of business and services, including our online store at adobe.com, our Creative Cloud offering, our hosted Digital Media offerings and Omniture business unit,our Adobe Marketing Cloud offerings, rely on services hosted and controlled directly by us or by third parties. Because we hold large amounts of customer data, and host certainsome of such datawhich is hosted in third-party facilities, a security incident may compromise the confidentiality, integrity or availability of customer data, or customer data may be exposed to unauthorized access.data. Unauthorized access to customer data may be obtained through break-ins, breach of our secure network by an unauthorized party, employee theft or misuse, or other misconduct. It is also possible that unauthorized access to customer data may be obtained through inadequate use of security controls by customers. While our products and services provide and support strong password controls, IP restriction and account controls, are provided and supported, their use is cont rolledcontrolled by the customer. As such, this could allow accounts to be created with weak passwords, which could result in allowing an attacker to gain access to customer data. Additionally, failure by customers to remove accounts of their own employees, or granting of accounts by the customer in an uncontrolled manner, may allow for access by former or unauthorized customer employees. If there were ever an inadvertent disclosure of personal information, or if a third party were to gain unauthorized access to the personal information we possess on behalf of our customers, our operations could be disrupted, our reputation could be harmed and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized disclosure of the information we collect or breach of our security could damage our reputation, result in the loss of customers and harm our business.
Because of the large amount of data that we collect and manage on behalf of our customers, it is possible that hardware or software failures or errors in our systems (or those of our third-party service providers) could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. Furthermore, our ability to collect and report data may be delayed or interrupted by a number of factors, including access to the Internet,internet, the

43
Table of Contents

failure of our network or software systems, security breaches or significant variability in visitor traffic on customer Websites.websites. In addition, computer viruses may harm our systems causing us to lose data, and the transmission of computer viruses could expose us to litigation. We may also find, on occasion, that we cannot deliver data and reports to our customers in nea rnear real time because of a number of factors, including significant spikes in consumer activity on their Websiteswebsites or failures of our network or software. We may be liable to our customers for damages they may incur resulting from these events, such as loss of business, loss of future revenues, breach of contract or for the loss of goodwill to their business. In addition to potential liability, if we supply inaccurate information or experience interruptions in our ability to capture, store and supply information in near real time or at all, our reputation could be harmed and we could lose customers.
On behalf of certain of our customers using our services, we collect and store information derived from the activities of Website visitors, which may include anonymous and/or personal information. This enables us to provide such customers with reports on aggregated anonymous or personal information from and about the visitors to their Websites in the manner specifically directed by each such individual customer. Federal, state and foreign government bodies and agencies have adopted or are considering adopting laws regarding the collection, use and disclosure of this information. Therefore, our compliance with privacy laws and regulations and our reputation among the public body of Website visitors depend on such customers’ adherence to privacy laws and regulations and their use of our services in ways consistent with such visito rs’ expectations. We also rely on representations made to us by customers that their own use of our services and the information we provide to them via our services do not violate any applicable privacy laws, rules and regulations or their own privacy policies. We ask customers to represent to us that they provide their Website visitors the opportunity to “opt-out” of the information collection associated with our services, as applicable. We do not formally audit such customers to confirm compliance with these representations. If these representations are false or if such customers do not otherwise comply with applicable privacy laws, we could face potentially adverse publicity and possible legal or other regulatory action.

Failure to manage our sales and distribution channels and third-party customer service and technical support providers effectively could result in a loss of revenue and harm to our business.
A significant amount of our revenue for application products is from one distributor, Ingram Micro, Inc., which represented 15%11% of our net revenue for fiscal 2010.2012. We have multiple non-exclusive, independently negotiated distribution agreements with Ingram Micro and its subsidiaries covering our arrangements in specified countries and regions. Each of these contracts has an independent duration, is independent of any other agreement (such as a master distribution agreement) and any termination of one agreement does not affect the status of any of the other agreements. In fiscal 2010,2012, no single agreement with this distributor was responsible for over 10%5% of our total net revenue. If any one of our agreements with this distributor waswere terminated, we believe we could make arrangements with new or existing distributors to distribute our p roductsproducts without a substantial disruption to our business; however, any prolonged delay in securing a replacement distributor could have a negative short-term impact on our results of operations.
Successfully managing our indirect channel efforts to reach various potential customer segments for our products and services is a complex process.process across the broad range of geographies where we do business. Our distributors and other channel partners are independent businesses that we do not control. Notwithstanding the independence of our channel partners, we face potential legal risk and reputational harm from the activities of these third parties including, but not limited to, export control violations, workplace conditions, corruption and anti-competitive behavior. Although we have undertaken efforts to reduce these third-party risks, they remain present. We cannot be certain that our distribution channel will continue to market or sell our products effectively. If we areour distribution channel is not successful, we may lose sales opportunities, customers and revenues.
Our distributors also sell our competitors’ products, and if they favor our competitors’ products for any reason, they may fail to market our products as effectively or to devote resources necessary to provide effective sales, which would cause our results to suffer. We also distribute some products through our OEM channel, and if our OEMs decide not to bundle our applications on their devices, our results could suffer.
In addition, the financial health of our distributors and our continuing relationships with them are important to our success. Some of these distributors may be adversely impacted by changes to our business model and practices, such as our launch of Creative Cloud, including our release of Creative Cloud offerings for teams and enterprises, or unable to withstand adverse changes in current economic conditions, which could result in insolvency of certain of our distributors and/or the inability of oursuch distributors to obtain credit to finance purchases of our products. In addition, weakness in the end-user market could further negatively affect the cash flowflows of our distributors who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure. Our business could be harmed if the financial condition of some of these distributors substantially weakensweakened and we were unable to timely secure replacement distributors.
We also sell certain of our products and services through our direct sales force. Risks associated with this sales channel include a longer sales cycleand collection cycles associated with direct sales efforts, difficulty inchallenges related to hiring, retaining and motivating our direct sales force, and substantial amounts of training for sales representatives, including regular updates to cover new and upgraded systems, products and services. Moreover, our recent hires and sales personnel added through our recent business acquisitions may not become as productive as we would like, as in most cases it takes a significant period of time before they achieve full productivity. Our business could be seriously harmed if these expansion efforts do not generate a corresponding significant increase in revenues and we are unable to achieve the efficiencies we anticipate.
In addition, the loss of key sales employees could impact our relationships and future ability to sell to certain of these accounts covered by such employees.
We also provide products and services, directly and indirectly, to a variety of governmental entities, both domestically and internationally. TheRisks associated with licensing and sale ofselling products and services to governmental entities may requireinclude longer sales cycles associated with selling to diverse governmental entities, varying governmental budgeting processes and timelines and adherence to potentially complex specific procurement regulations and other requirements. While we believe we have adequate controls in this area, failure to effectively manage this complexity and satisfyIneffectively managing these requirementsrisks could result in the potential assessment of penalties and fines, harm to our reputation and lost sales opportunities to such governmental entities.

44
Table of Contents

We outsource a substantial portion of our customer service and technical support activities to third-party service providers. We rely heavily on these third-party customer service and technical support representatives working on our behalf and we expect to continue to rely heavily on third parties in the future. This strategy provides us with lower operating costs and greater flexibility, but also presents risks to our business, including the possibilities that we may not be able to impactinfluence the quality of support that we provide as directly as we would be able to do in our own company-run call centers, and that our customers may react negatively to providing information to, and receiving support from, third-party organizations, especially if based overseas. If we encounter problems with our third-party customer service and technical su pportsupport providers, our reputation may be harmed and our revenue may be adversely affected.
Uncertainty about future economic conditions and other adverse changes in general political conditions in any of the major countries in which we do business could adversely affect our operating results.
As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic and political conditions. Uncertainty about future economic and political conditions makes it difficult for us to forecast operating results and to make decisions about future investments. If economic growth in the U.S. and other countries slows or does not improve, many customers may delay or reduce technology purchases, advertising spending or marketing spending. This could result in continued reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price competition.
Financial institutions may continue to consolidate or cease to do business which could result in a tightening in the credit markets, a low level of liquidity in many financial markets, and increased volatility in fixed income, credit, currency and equity markets. There could be a number of effects from a credit crisis on our business, which could include impaired credit availability and financial stability of our customers, including our distribution partners and channels. A disruption in the financial markets may also have an effect on our derivative counterparties and could also impair our banking partners on which we rely for operating cash management. Any of these events would likely harm our business, results of operations and financial condition.
Political instability in any of the major countries we do business in would also likely harm our business, results of operations and financial condition.
Catastrophic events may disrupt our business.
We are a highly automated business and rely on our network infrastructure and enterprise applications, internal technology systems and our Websitewebsite 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 facilities serving our customers from around the world, which increases our vulnerability. A disruption, infiltration or failure of these systems or third-party hosted services in the event of a major earthquake, fire, flood, power loss, telecommunications failure, software or hardware malfunctions, cyber attack,cyber-attack, war, terrorist attack or other catastrophic event could cause system interruptions, reputational harm, loss of intellectual property, delays in our product develop ment,development, lengthy interruptions in our services, breaches of data security and loss of critical data and could prevent us from fulfilling our customers’customers' orders. 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 in the Salt Lake Valley Area, both of which isare near major earthquake faults. We have developed certain disaster recovery plans and certain backup systems to reduce the potentially adverse effect of such events, but a catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.
Net revenue, margin or earnings shortfalls or the volatility of the market generally may cause the market price of our stock to decline.
The market price for our common stock has experienced significant fluctuations and may continue to fluctuate significantly. TheA number of factors may affect the market price for our common stock, may be affected by a number of factors, including including:
shortfalls in our net revenue, margins, earnings or key performance metrics, metrics;
confusion on the part of industry analysts and investors about the long-term impact to our business resulting from our subscription offerings;
shortfalls in the number of paid, active Creative Cloud subscribers and ARR;
changes in estimates or recommendations by securities analysts, analysts;
the announcement of new products, product enhancements or service introductions by us or our competitors, competitors;
seasonal variations in the demand for our products and services and the implementation cycles for our new customers, customers;
the loss of a large customer or our inability to increase sales to existing customers and attract new customers, quarterly customers;
variations in our or our competitors’competitors' results of operations, changes in the competitive landscape generally and developments in our industry; and
unusual events such as significant acqu isitions,acquisitions, divestitures, and litigation, general socio-economic, regulatory, political or market conditions and other factors, including factors unrelated to our operating performance.
We are subject to risks associated with global operationscompliance with laws and regulations globally which may harm our business.
We are a global business that generates over 50% of our total revenue from sales to customers outside of the Americas. This subjects us to a number of risks, including:
·foreign currency fluctuations;
·changes in government preferences for software procurement;
·international economic, political and labor conditions;

·tax laws (including U.S. taxes on foreign subsidiaries);
·increased financial accounting and reporting burdens and complexities;
·unexpected changes in, or impositions of, legislative or regulatory requirements;
·failure of laws to protect our intellectual property rights adequately;
·inadequate local infrastructure and difficulties in managing and staffing international operations;
·delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;
·transportation delays;
·operating in locations with a higher incidence of corruption and fraudulent business practices; and
·other factors beyond our control, including terrorism, war, natural disasters and pandemics.
If sales to any of our customers outside of the Americas are delayed or cancelled because of any of the above factors, our revenue may be negatively impacted.
In addition, approximately 45% of our employees are located outside the U.S. This means we have exposure to changes in foreign laws governing our relationships with our employees, including wage and hour laws and regulations, fair labor standards, unemployment tax rates, workers’ compensation rates, citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs. We also intend to continue expansion of our international operations and international sales and marketing activities. Expansion in international markets has required, and will continue to require, significant management attention and resources. We may be unable to scale our infrastructure effectively, or as quickly as our competitors, in these markets and our revenues may not increase to offset these expected increas es in costs and operating expenses, which would cause our results to suffer.
Moreover, as a global company we are subject to varied and complex laws, regulations and customs domestically and internationally. These laws and regulations relate to a number of aspects of our business, including trade protection, import and export control, data and transaction processing security, records management, employee data privacy, user-generated content hosted on websites we operate, corporate governance, employee and third-party complaints, gift policies, conflicts of interest, employment and labor relations laws, securities regulations and other regulatory requirements affecting trade and investment. The application of these laws and regulations to our business is often unclear and may at times conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance

45
Table of Contents

could also result in fines, damages, criminal sanctions against us, our officers or our empl oyees,employees, prohibitions on the conduct of our business, and damage to our reputation. We incur additional legal compliance costs associated with our global operations and could become subject to legal penalties in foreign countries if we do notfail to comply with local laws and regulations in U.S. jurisdictions or in foreign countries, which laws and regulations may be substantially different from those in the U.S. In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable to us such as the Foreign Corrupt Practices Act. Although we implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, including those based in or from countries where practices whichthat violate such U.S. laws may be customary, will not take actions in violation 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 50% of our total revenue from sales to customers outside of the Americas, we are subject to a number of risks, including:
foreign currency fluctuations;
changes in government preferences for software procurement;
international economic, political and labor conditions;
tax laws (including U.S. taxes on foreign subsidiaries);
increased financial accounting and reporting burdens and complexities;
unexpected changes in, or impositions of, legislative or regulatory requirements;
failure of laws to protect our intellectual property rights adequately;
inadequate local infrastructure and difficulties in managing and staffing international operations;
delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;
the imposition of governmental economic sanctions on countries in which we do business or where we plan to expand our business;
transportation delays;
operating in locations with a higher incidence of corruption and fraudulent business practices; and
other factors beyond our control, including terrorism, war, natural disasters and pandemics.
If sales to any of our customers outside of the Americas are delayed or canceled because of any of the above factors, our revenue may be negatively impacted.
In addition, approximately 48% of our employees are located outside the U.S. Accordingly, we are exposed to changes in laws governing our employee relationships in various U.S. and foreign jurisdictions, including laws and regulations regarding wage and hour requirements, fair labor standards, employee data privacy, unemployment tax rates, workers' compensation rates, citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs. We also intend to continue expansion of our international operations and international sales and marketing activities. Expansion in international markets has required, and will continue to require, significant management attention and resources. We may be unable to scale our infrastructure effectively or as quickly as our competitors in these markets, and our revenues may not increase to offset these expected increases in costs and operating expenses, which would cause our results to suffer.
We may incur losses associated with currency fluctuations and may not be able to effectively hedge our exposure.
Our operating results are subject to fluctuations in foreign currency exchange rates. We attempt to mitigate a portion of these risks through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and expense. We have established a hedging program to partially hedge our exposure to foreign currency exchange rate fluctuations for various currencies. If the foreign currency hedging markets are negatively affected by clearing and trade execution regulations imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the cost of hedging our foreign exchange exposure could increase.

46
Table of Contents

We regularly review our hedging program and make adjustments as necessary based on the judgment factors discussed above. Our hedging activities may not offset more than a portion of the adverse financial impact resulting from unfavorable movement in foreign currency exchange rates, which could adversely affect our financial condition or results of operations.
We have issued $1.5$1.5 billion of notes in a debt offering and may incur other debt in the future, which may adversely affect our financial condition and future financial results.
In the first quarter of fiscal year 2010, we issued $1.5$1.5 billion in senior unsecured notes. We also have a currently undrawn $1.0$1.0 billion revolving credit facility.facility, which is currently undrawn. Although 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, among other things:
requiring the dedication of a portion of our expected cash from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions; and
·requiring the dedication of a portion of our expected cash from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions; and
·limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
Our senior unsecured notes and revolving credit facility impose restrictions on us and require us to maintain compliance with specified covenants. Our ability to comply with these covenants may be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the lenders or noteholders, then, subject 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. Under certain circumstances, if our credit ratings are downgraded or other negative action is taken, an increase in the interest rate payable by us under our revolving credit facility could result. In addition, any downgradesincrease. Downgrades in our credit ratings may affectcould also restrict our ability to obtain additional financing in the future and maycould affect the terms of any such financing.
Changes in, or interpretations of, accounting principles could result in unfavorable accounting charges.
have a significant impact on our financial position and results of operations.
We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. Our accounting principles that recently have been or may be affected by changes in
For example, the accounting principles are as follows:
·software and subscription revenue recognition; and
·accounting for business combinations and related goodwill.
In December 2007, theU.S.-based Financial Accounting Standards Board (“FASB”) issued revised standards for business combinations, which changesis currently working together with the International Accounting Standards Board (“IASB”) on several projects to further align accounting for business combinations including timingprinciples and facilitate more comparable financial reporting between companies who are required to follow GAAP under SEC regulations and those who are required to follow International Financial Reporting Standards outside of the measurement of acquirer shares issuedU.S. These efforts by the FASB and IASB may result in consideration for a business combination, the timing of recognition and amount of contingent consideration, thedifferent accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring liabilities, the treatment of acquisition-related transaction costs and the recognition of changesprinciples under GAAP that may result in the acquirer’s income tax valuation allowance. The revised standards for business combinations were effectivematerially different financial results for us beginning the first quarter of fiscal 2010. We havein areas including, but not limited to, principles for recognizing revenue and will continue to inc ur expenses related to acquisitions and this will have an impact on our financial performance.
In October 2009, the FASB amended the accounting standards for certain multiple deliverable revenue arrangements to: (1) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; (2) require an entity to allocate revenue in an arrangement using the best estimated selling price (“BESP”) of deliverables if a vendor does not have vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence (“TPE”) of selling price; and (3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. We elected to early adopt this accounting guidance at the beginning of our first quarter of fiscal year 2010 on a prospectiv e basis for applicable transactions originating or materially modified after November 27, 2009. The new accounting standards for revenue recognition if applied in the same manner to the year ended November 27, 2009 would not have had a material impact on total net revenues for that fiscal year. In terms of the timing and pattern of revenue recognition, the new accounting guidance for revenue recognition is not expected to have a significant effect on total net revenues in periods after the initial adoption when applied to multiple-element arrangements based on current go-to-market strategies due to the existence of VSOE across certain of our product and service offerings. However, we expect that the new accounting standards will enable us to evolve our go-to-market

strategies which could result in future revenue recognition for multiple element arrangements to differ materially from the results in the current period. Changes in the allocation of the sales price between elements may impact the timing of revenue recognition, but will not change the total revenue recognized on the contract. We are currently unable to determine the impact that the newly adopted accounting principles could have on our revenue as these go-to-market strategies evolve.
lease accounting.
If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.
Under GAAP, we review our goodwill and amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is requiredGAAP requires us to be testedtest for goodwill impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a decline in stock price and market capitalization, future cash flows and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, resulting in an impact on our results of operations.
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.
We are a U.S.-basedUnited States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S. income taxes on earnings from the United States, we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries' earnings are considered permanently reinvested outside the United States. While we do not anticipate changing our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.

47
Table of Contents

Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to discrete items and to earnings considered as permanently reinvested in foreign operations. Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in, or our interpretation of, tax rules and regulations in the jurisdictions in which we do business, by unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax 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.
In addition, we are subject to the continual examination of our income tax returns by the Internal Revenue Service (“IRS”) and other domestic and foreign tax authorities, including a current examination by the IRS of our fiscal 2008 and 2009 tax returns. These examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examination.examinations. We believe such estimates to be reasonable; however, there can be no assurance that the final determination of any of these examinations will not have an adverse effect on our operating results and financial position.
If we are unable to recruit and retain key personnel our business may be harmed.
Much 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 retain, hire and motivate talented, highly skilled personnel.personnel across all levels of our organization. Experienced personnel in the information technology industry are in high demand and competition for their talents is intense especially in the San Francisco Bay Area,many areas where many of our employees are located. We have relied on our ability to grant equity compensation as one mechanism for recruiting and retaining such highly skilled personnel. Accounting regulations requiring the expensing of equity compensation may impair our ability to provide these incentives without incurrin g significant compensation costs. If we are unable to continue to successfully attract and retain key personnel, our business may be harmed. Effective succession planning is also a key factor for our long-term success. Our failure to enable the effective transfer of knowledge and facilitate smooth transitions with regards to 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 believe fostershave built to foster innovation and teamwork. As we grow, including from the integration of employees and businesses acquired in connection with our previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture which could negatively affect our ability to retain and recruit personnel and otherwise adversely affect our future success.
Our investment portfolio may become impaired by deterioration of the capital markets.
Our cash equivalent and short-term investment portfolio as of December 3, 2010November 30, 2012 consisted of corporate bonds and commercial paper, foreign government securities, money market mutual funds U.S. Treasuryand repurchase agreements, municipal securities, time deposits, U.S. agency securities municipal securities, corporate bonds and foreign governmentU.S. Treasury securities. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes.

Should financial market conditions worsen in the future, investments in some financial instruments may pose risks arising from market liquidity and credit concerns. In addition, any deterioration of the capital markets could cause our other income and expense to vary from expectations. As of December 3, 2010,November 30, 2012, we had no material impairment charges associated with our short-term investment portfolio, and although we believe our current investment portfolio has very little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.
We may suffer losses from our equity investments which could harm our business.
We have investments and plan to continue to make future investments in privately held companies, many of which are considered to be in the start-up or development stages. These investments are inherently risky, as the market for the technologies or products these companies have under development is typically in the early stages and may never materialize. Our investment activities can impact our net income. Future price fluctuations in these securities and any significant long-term declines in value of any of our investments could reduce our net income in future periods.
ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.

48
49

ITEM 2.  PROPERTIES
The following table sets forth the location, approximate square footage and use of each of the principal properties used by Adobe during fiscal 2010.2012. We lease or sublease all of these properties with the exception of our property in Noida, India where we own the building and lease the land, our corporate offices in San Jose where we own the land and lease the buildings, and in San Francisco on Townsend, Waltham and WalthamLehi where we own the building and land. All leased properties are leased under operating leases. Such leases expire at various times through 2028, with the exception of theour land lease in Noida, India that expires in 2091.2091. The annual base rent expense (including operating expenses, property taxes and assessments, as applicable) for all leased facilities is currently approximately $86.7$90.8 million and is subject to annual adjustments as well as changes in interest rate s.
Location   
Approximate
Square
Footage
 Use
North America:      
345 Park Avenue
San Jose, CA 95110, USA
  378,000  Research, product development, sales and marketing, and administration
       
321 Park Avenue
San Jose, CA 95110, USA
  321,000  Research, product development, sales and marketing
       
151 Almaden Boulevard
San Jose, CA 95110, USA
  267,000  Product development, sales and administration
       
601 and 625 Townsend Street
San Francisco, CA 94103, USA
  272,000(1) Research, product development, sales, marketing and administration
       
801 N. 34th Street-Waterfront
Seattle, WA 98103, USA
  182,000(2) Product development, sales, technical support and administration
       
550 East Timpanagos Circle
Orem, UT 84097, USA
  148,000  Research, product development, sales, marketing and administration
       
10182 Telesis Court
San Diego, CA 92121, USA
  61,000(3) Product development, sales and marketing
       
21 Hickory Drive
Waltham, MA 02451, USA
  108,000(4) Research, product development, sales and marketing
       
250 Brannan Street
San Francisco, CA 94107, USA
  35,000  Product development, sales and marketing
       
7930 Jones Branch Drive
McLean, VA 22102, USA
  34,000  Sales and marketing
       
1540 Broadway
New York, NY 10036, USA
  27,000  Sales and marketing
       
343 Preston Street
Ottawa, Ontario K1S 5N4, Canada
  122,000  Research, product development, sales, marketing and administration
India:      
Adobe Towers, 1-1A, Sector 25A
Noida, U.P.
  191,000  Product development
       
Adobe Towers, Plot #6, Sector 127 Expressway, Noida, U.P.  65,000  Product development
       
Salapuria Infinity, 3rd Floor
#5, Bannerghatta Road
Bangalore
  126,000  Research and product development
rates.
50
Location Approximate
Square
Footage		 
Approximate
Square
Footage
 Use
Japan:North America:     
Gate City Osaki East Tower
1-11 Osaki
Shinagawa-ku, Tokyo
345 Park Avenue
San Jose, CA 95110, USA		378,000
  56,000Research, product development, sales, marketing and administration
321 Park Avenue
San Jose, CA 95110, USA		321,000
Research, product development, sales and marketing
151 Almaden Boulevard
San Jose, CA 95110, USA		267,000
Product development, sales and administration
601 and 625 Townsend Street
San Francisco, CA 94103, USA		346,000
(1)
Research, product development, sales, marketing and administration
801 N. 34th Street-Waterfront
Seattle, WA 98103, USA		182,000
(2)
Product development, sales, technical support and administration
3900 Adobe Way
Lehi, UT 84043, USA
280,000
Research, product development, sales, marketing and administration
21 Hickory Drive
Waltham, MA 02451, USA		108,000
(3)
Research, product development, sales and marketing
250 Brannan Street
San Francisco, CA 94107, USA		35,000
  Product development, sales and marketing
China:7930 Jones Branch Drive
McLean, VA 22102, USA		 34,000
(4)
Sales and marketing
1540 Broadway
New York, NY 10036, USA		37,000
Sales and marketing
343 Preston Street
Ottawa, Ontario K1S 5N4, Canada		122,000
(5)
Research, product development, sales, marketing and administration
India:
Adobe Towers, 1-1A, Sector 25A
Noida, U.P.		191,000
Product development
Adobe Towers, Plot #6, Sector 127
Expressway, Noida, U.P.
80,000
Product development
Salapuria Infinity, Ground Floor,
1st Floor, 3rd Floor
#5, Bannerghatta Road,
Bangalore
160,000
Research and product development
Japan:
Gate City Osaki East Tower
1-11 Osaki
Shinagawa-ku, Tokyo		56,000
Product development, sales and marketing

49
Table of Contents

LocationApproximate
Square
Footage		Use
China:     
Block A, SP Tower, 11th, 19th,
21st & 22nd Floors
Block B, SP Tower, 19th Floor
Block D, SP Tower, 10th Floor

Tsinghua Science Park, Yard 1

Zhongguancun Donglu, Haidian District

Beijing
 94,00077,000Research and product development
Germany:
Grosse Elbstrasse 27
Hamburg
36,000
  Research and product development
Romania:     
26 Z Timisoara Blvd, Anchor Plaza

Lujerului, Sector 6

Bucharest
 71,00044,000
  Research and product development
UK:     
3 Roundwood AvenueMarket House
Stockley Park, HeathrowMarket Street
Maidenhead, Berkshire, SL6 8AD

49,000
  22,000
Product development, sales, marketing and administration

Germany:
Grosse Elbstrasse 27
Hamburg		36,000
Research and product development

_________________________________________
(1)
(1)
The total square footage is 346,000, of which we occupy 272,000 square feet, or approximately 79% of this facility; 74,000 square feet is unoccupied basement space.
(2)
(2)
The total square footage is 182,000, of which we occupy 162,000 square feet, or approximately 89% of this facility. The remaining square footage is subleased.
(3)
(3)
Of the total square footage of 108,000, we occupy 36,000 square feet, or approximately 33% of this facility; 54,000 square feet is unoccupied and the remaining square footage is leased.
(4)
The total square footage is 61,000,34,000, of which we occupy 21,00031,000 square feet, or approximately 34%91% of this facility. The remaining square footage is subleased.
(4)Of the
(5)
The total square footage is 122,000, of 108,000,which we occupy 89,00065,000 square feet, or approximately 82%53% of this facility.facility; 42,000 square feet is unoccupied. The remaining square footage is leased.subleased.
In general, all facilities are in good condition, suitable for the conduct of our business and are operating at an average capacity of approximately 82%88%.

50
51

ITEM 3.  LEGAL PROCEEDINGS
Between September 23, 2009 and September 25, 2009, three putative class action lawsuits were filed in the Fourth Judicial District Court for Utah County, Provo Department, State of Utah, seeking to enjoin Adobe’s acquisition of Omniture, Inc. and to recover damages in the event the transaction were to close. The cases were captioned Miner v. Omniture, Inc., et. al. (“Miner”), Barrell v. Omniture, Inc. et. al., (“Barrell”), and Lodhia v. Omniture, Inc. et al., (“Lodhia”). At a hearing on October 20, 2009, the court consolidated the Miner, Barrell, and Lodhia cases into a single case under the Lodhia caption and denied the plaintiffs’ motion to preliminarily enjoin the closing of the transaction. On December 30, 2 009, the plaintiffs served the defendants with a consolidated amended complaint for damages arising out of the closing of the transaction. In the consolidated amended complaint, plaintiffs alleged that the members of Omniture’s board of directors breached their fiduciary duties to Omniture’s stockholders by failing to seek the highest possible price for Omniture and that both Adobe and Omniture induced or aided and abetted in the alleged breach. The plaintiffs also alleged that the Schedule 14D-9 Solicitation/Recommendation Statement filed by Omniture on September 24, 2009 in connection with the transaction contained inadequate disclosures and was materially misleading. Plaintiffs sought unspecified damages on behalf of the former public stockholders of Omniture. On March 8, 2010, Adobe and the other defendants moved to dismiss the complaint for failure to state a claim. The court heard oral argument on the motion in November 2010 and the court granted the defendants’ motion to dismiss the complaint with prejudice.
In October 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 by plaintiff purporting to cover “Distributed Hypermedia Method for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 5,838,906) and “Distributed Hypermedia Method and System for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 7,599,985) and seeks injunctive relief, monetary damages, costs and attorneys fees. We dispute these claims and intend to vigorously defend ourselves in this matter. As of December 3, 2010, no amounts have been accrued as a loss is not probable or estimable.
 
In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation may be very costly and can be disruptive to our anti-piracy efforts, conducted both internallybusiness operations by diverting the attention and through organizationsenergies of management and key technical personnel. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions 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.
In addition to intellectual property disputes, such as the Business Software Alliance, from time to timethose discussed above and others, we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other local laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any particular period by the resolution of one or more of these counter-claims.
Adobe isare subject to legal proceedings, claims and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, indemnification claims,relating to commercial, employment and other matters. Adobe makesSome of these disputes and legal proceedings may include speculative claims for substantial or indeterminate amounts of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed and discussed with our Audit Committee and our independent registered public accounting firm.
We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed here or in our Notes to Consolidated Financial Statements , we have determined that no provision for liability nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.
All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending agains t Adobe.against us. It is possible, nevertheless, that our consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.
In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software Alliance, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any particular period by the resolution of one or more of these counter-claims.
ITEM 4.  (REMOVED AND RESERVED)MINE SAFETY DISCLOSURES
Not applicable.

51
52

PART II
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS 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   Low 
Fiscal 2010:      
 Price Range
 High Low
Fiscal 2012:    
First Quarter $37.86  $31.45  $33.73
 $26.46
Second Quarter $36.51  $30.94  $34.70
 $29.82
Third Quarter $33.52  $26.34  $33.92
 $30.02
Fourth Quarter $33.11  $25.60  $34.61
 $31.44
Fiscal Year $37.86  $25.60  $34.70
 $26.46
        
Fiscal 2009:        
Fiscal 2011:  
  
First Quarter $24.29  $16.70  $35.39
 $27.72
Second Quarter $28.18  $15.98  $35.86
 $31.68
Third Quarter $33.43  $26.34  $33.01
 $22.69
Fourth Quarter $36.90  $31.00  $30.42
 $23.26
Fiscal Year $36.90  $15.98  $35.86
 $22.69
Stockholders
According to the records of our transfer agent, there were 1,6241,441 holders of record of our common stock on January 21, 2011.18, 2013. Because many of such shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividends
We did not declare or pay any cash dividends on our common stock during fiscal 20102012 or fiscal 2009.2011. Under the terms of our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless payment would trigger an event of default or one currently exists. We do not anticipate paying any cash dividends in the foreseeable future.

52

Issuer Purchases of Equity Securities
Below is a summary of stock repurchases for the three months ended December 3, 2010. November 30, 2012. See Note 1413 of our Notes to Consolidated Financial Statements for information regarding our stock repurchase programs.
 
Period
 
Shares
Repurchased
 
Average
Price
Per
Share
 
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
 
 
Approximate
Dollar Value
that May
Yet be
Purchased
Under the
Plan(1)
 
 
      (in thousands, except average price per share)
 
Beginning repurchase authority      2,000,000
 
September 1—September 28, 2012       
Shares repurchased—
 $—
 —
 $—
 
September 29—October 26, 2012 
  
  
  
 
Shares repurchased1,024
 $32.56
 1,024
 $(33,333)
(2) 
October 27—November 30, 2012 
  
  
  
 
Shares repurchased1,014
 $33.18
 1,014
 $(33,662)
(2) 
Total2,038
  
 2,038
 $1,933,005
 
_________________________________________
Period
   
Shares
Repurchased
   
Average
Price
Per
Share
   
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans
   
Approximate
Dollar Value
that May
Yet be
Purchased
Under the
Plan(1)
  
     (in thousands, except average price per share)  
Beginning repurchase authority
             $1,332,869  
September 4—October 1, 2010                 
Shares repurchased
  4,734  $28.06   4,734  $(132,869) 
October 2—October 29, 2010                 
Shares repurchased
  7,398  $27.04   7,398  $(200,000)(2)
October 30—December 3, 2010                 
Shares repurchased
  —  $—   —  $—  
Total
  12,132       12,132  $1,000,000  

(1)
(1)
In June 2010, ourApril 2012, the Board of Directors approved an amendment to change oura new stock repurchase program from a non-expiring share-based authority to a time-constrained dollar-based authority. As part of this amendment, the Board of Directors grantedgranting authority to repurchase up to $1.6$2.0 billion in common stock through the end of fiscal 2015. The new stock repurchase program approved by our Board of Directors is similar to our previous $1.6 billion stock repurchase program granted by the Board of Directors in June 2010, which was exhausted during fiscal 2012.
(2)
(2)
In October 2010,September 2012, as part of the amendednew stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $200.0 million.$100.0 million. As of December 3, 2010, noNovember 30, 2012, approximately $33.0 million of the prepayment remained under this agreement.



53
54

Stock Performance Graph(*)
Five-Year Stockholder Return Comparison
The line graph below compares the cumulative stockholder return on our common stock with the cumulative total return of the Standard & Poor’s 500 Index (“S&P 500”) and the S&P 500 Software & Services Index for the five fiscal year periods ending December 3, 2010. The stock price information shown on the graph below is not necessarily indicative of future price performance.
The following table and graph assume that $100.00 was invested on December 2, 2005 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.
   2005   2006   2007   2008   2009   2010 
Adobe Systems
 $100.00  $112.53  $120.50  $60.28  $101.17  $83.33 
S&P 500 Index
 $100.00  $112.51  $121.53  $75.24  $93.97  $107.62 
S&P 500 Software & Services Index $100.00  $104.44  $119.25  $68.41  $103.74  $115.44 

(*)The material in this report is not deemed “filed” with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such filings.

ITEM 6.  SELECTED FINANCIAL DATA
 
The following selected consolidated financial data (presented in thousands, except per share amounts and employee data) is derived from our consolidated financial statements. As our operating results are not necessarily indicative of future operating results, this data should be read in conjunction with the consolidated financial statements and notes thereto, and with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
    Fiscal Years  
  Fiscal Years
  2010   
2009(1)
   2008   2007   2006  2012 2011 2010 
2009(1)
 2008
Operations:                         
Revenue
 $3,800,000  $2,945,853  $3,579,889  $3,157,881  $2,575,300  $4,403,677
 $4,216,258
 $3,800,000
 $2,945,853
 $3,579,889
Gross profit
 $3,396,498  $2,649,121  $3,217,259  $2,803,187  $2,282,843  $3,919,895
 $3,778,385
 $3,396,498
 $2,649,121
 $3,217,259
Income before income taxes
 $943,151  $701,520  $1,078,508  $947,190  $679,727  $1,118,794
 $1,035,230
 $943,151
 $701,520
 $1,078,508
Net income
 $774,680  $386,508  $871,814  $723,807  $505,809  $832,775
 $832,847
 $774,680
 $386,508
 $871,814
Net income per share:                      
  
  
  
  
Basic
 $1.49  $0.74  $1.62  $1.24  $0.85  $1.68
 $1.67
 $1.49
 $0.74
 $1.62
Diluted
 $1.47  $0.73  $1.59  $1.21  $0.83  $1.66
 $1.65
 $1.47
 $0.73
 $1.59
Shares used to compute basic net income per share 494,731
 497,469
 519,045
 524,470
 539,373
Shares used to compute diluted net income per share 502,721
 503,921
 525,824
 530,610
 548,553
Cash dividends declared per common
share
 $—  $—  $—  $—  $—  $—
 $—
 $—
 $—
 $—
Financial position:(2)
                      
  
  
  
  
Cash, cash equivalents and short-term
investments
 $2,468,015  $1,904,473  $2,019,202  $1,993,854  $2,280,879  $3,538,353
 $2,911,692
 $2,468,015
 $1,904,473
 $2,019,202
Working capital
 $2,147,962  $1,629,071  $1,972,504  $1,720,441  $2,208,688  $3,059,608
 $2,520,672
 $2,147,962
 $1,629,071
 $1,972,504
Total assets
 $8,141,148  $7,282,237  $5,821,598  $5,713,679  $5,962,548  $9,974,523
 $8,991,183
 $8,141,148
 $7,282,237
 $5,821,598
Debt and capital lease obligations, non-
current
 $1,513,662  $1,000,000  $350,000  $—  $— 
Debt and capital lease obligations, non-current $1,496,938
 $1,505,096
 $1,513,662
 $1,000,000
 $350,000
Stockholders’ equity
 $5,192,387  $4,890,568  $4,410,354  $4,649,982  $5,151,876  $6,665,182
 $5,783,113
 $5,192,387
 $4,890,568
 $4,410,354
Additional data:                      
  
  
  
  
Worldwide employees
  9,117   8,660   7,544   6,794   6,068  11,144
 9,925
 9,117
 8,660
 7,544

_________________________________________
(1)
(1)
Fiscal 2009 includes the integration of Omniture into our operations which was not present in the prior years.
See Note 2 of our Notes to Consolidated Financial Statements for information regarding our Omniture acquisition.(2)
(2)Information associated with our financial position is as of the Friday closest to November 30 for the five fiscal periods through 2010.2012.

54
56

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with our consolidated financial statementsConsolidated Financial Statements and notesNotes thereto.
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements, including statements regarding product plans, future growth and market opportunities which involve risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors”Risk Factors in Part 1, Item 1A of this report. You should carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange Commission (“SEC”), including our Quarterly Reports on Form 10-Q to be filed in fiscal 2011.2013. When used in this report, the words “expects,“will,” “could,“expects,” “would,“could,” “ma y,“would,” “anticipates,“may,” “intends,“anticipates,” “plans,“intends,” “believes,“plans,” “seeks,“believes,” “targets, seeks,” “estimates,“targets,” “looks“estimates,”“looks for,” “looks to”“looks to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
BUSINESS OVERVIEW
Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world. We offer a line of creative, business, Web and mobile software and services used by creative professionals, marketers, knowledge workers, application developers, marketers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences across multiple operating systems, devices and media. We distribute our products through a network of distributors, VARs, systems integrators, ISVs and OEMs. We also market and license our software directly to enterprise customers through our sales force and to end users through app stores and through our own Websitewebsite at www.adobe.com. We also distribute our products through a network of distributors, value-added resellers (“VARs”), systems integrators, independent software vendors (“ISVs”), retailers and original equipment manufacturers (“OEMs”). In addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and providesolutions. We offer some of our solutionsproducts via SaaS, alsoa Software-as-a-Service (“SaaS”) model (also known as a hosted or “cloud-based” offerings.model) as well as through term subscription and pay-per-use models. Our software runs on PCspersonal computers (“PCs”) and server-based computers, as well as various non-PCon smartphones, tablets and mobileother devices, depending on the product. We have operations in the Americas, EMEAEurope, Middle East and Asia.Africa (“EMEA”) and Asia-Pacific (“APAC”).
ACQUISITIONS
On January 13, 2012, we completed the acquisition of privately held Efficient Frontier, a multi-channel digital ad buying and optimization company. During the first quarter of fiscal 2012, we began integrating Efficient Frontier into our Digital Marketing segment, however, the impact of this acquisition was not material to our consolidated balance sheets and results of operations.
During fiscal 2011, we completed six business combinations and two asset acquisitions with aggregate purchase prices totaling approximately $328.3 million. We have included the financial results of the business combinations in our consolidated results of operations beginning on the respective acquisition dates, however, the impact of these acquisitions was not material to our consolidated balance sheets and results of operations.
On October 28, 2010, we completed the acquisition of Day, a provider of WCM,Web Experience Management (“WEM”), digital asset management and social collaboration solutions based in Basel, Switzerland and Boston, Massachusetts for approximately $248.3 million. Day’s Web solutions combined with our existing enterprise portfolio will enable customers to better integrate their global Web presence and business applications in support of acquiring, servicing and retaining customers.$248.3 million. We have included the financial results of Day in our consolidated results of operations beginning on the acquisition date, however, the impact of this acquisition was not material to our consolidated balance sheets and results of operations.operations in fiscal 2010. Following the closing, we integrated Day as a product line within our EnterpriseDigital Marketing segment for financial reporting purposes.
On October 23, 2009, we completed the acquisition of Omniture, an industry leader in Web analytics and online business optimization based in Orem, Utah, for approximately $1.8 billion. Accordingly, we have included the results of the business operations acquired from Omniture in our consolidated results of operations beginning on October 24, 2009. Coinciding with the integration of Omniture, we created a new reportable segment for financial reporting purposes.
See Note 2 of our Notes to Consolidated Financial Statements for further information regarding these acquisitions.acquisitions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

55
Table of Contents

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, stock-based compensation, business combinations, goodwill impairment and income taxes have the greatest potential impact on our consolidated financial statements. These areas are key components of our results of operations and are based on complex rules which requirerequiring us to make judgments and estimates, so we consider these to be our critical accounting policies.

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.
Revenue Recognition
Our revenue is derived from the licensing of perpetual and time-based software products, associated software maintenance and support plans, custom software development and consulting services and training. To a lesser extent our revenue includes non-software related hosting services, custom hosting development and consulting services, training and technical support and training for hosting services.
support.
We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report.
We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades, maintenance and support, hosting services, and consulting.
For our software and software relatedsoftware-related multiple element arrangements, we must: (1) determine whether and when each element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence (“VSOE”), and (4) allocate the total price among the various elements. VSOE of fair value is used to allocate a portion of the price to the undelivered elements and the residual method is used to allocate the remaining portion to the delivered elements. Absent VSOE, revenue is deferred until the earlier of the point at which VSOE of fair value exists for any undelivered element or until all elements of the arrangement have been delivered. However, if the only undelivered element is maintenance and support, the entire arra ngementarrangement fee is recognized ratably over the performance period. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we report in a particular period.
In October 2009, the FASB amended the accounting standards for certain multiple deliverable revenue arrangements to:
·  
  provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;
·  
  require an entity to allocate revenue in an arrangement using BESP of deliverables if a vendor does not have VSOE of selling price or TPE of selling price; and
·  
  eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.
We electeddetermine VSOE for each element based on historical stand-alone sales to early adopt this accounting guidance atthird parties or from the beginningstated renewal rate for the elements contained in the initial arrangement. In determining VSOE, we require that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range.
We have established VSOE for our fiscal quarter of 2010 on a prospective basis for applicable transactions originating or materially modified after November 27, 2009. Our revenue from sales containing non-software related hostingsoftware maintenance and support services, custom hostingsoftware development and consultingservices, consulting services and related technical support and training are those impacted.training.
For multiple element arrangementsarrangements containing our non-software services, we mustmust: (1) determine whether and when each element has been delivered; (2) determine fair value of each element using the selling price hierarchy of VSOE of fair value, third-party evidence (“TPE”) or best-estimated selling price (“BESP”), as applicable,applicable; and (3) allocate the total price among the various elements based on the relative selling price method.
This guidance does not generally change the units of accounting for our revenue transactions. For multiple-element arrangements that contain software and non-software elements such as our hosted offerings, we allocate revenue to software or software relatedsoftware-related elements as a group and any non-software elements separately based on the selling price hierarchy. We determine the selling price for each deliverable using VSOE of selling price, if it exists, or TPE of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use its BESP for that deliverable. Once revenue is allocated to software or software relatedsoftware-related elements as a group, it follows historic software accounting guidance. Revenue is then recognized when the basic revenue recognition criteria are met for each element.
Consistent with our methodology under previous accounting guidance, we determine VSOE for each element based on historical stand-alone sales to third-parties or from the stated renewal rate for the elements contained in the initial arrangement. In determining VSOE, we require that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range.

In certain instances, we are not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to infrequently selling each element separately, not pricing products or services within a narrow range, or only having a limited sales history. When VSOE cannot be established, we attempt to establish the selling price of each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our offerings contain significant differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, we typically are not able to obtain TPE of selling price.
When we are unable to establish selling prices using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. BESP isWe are generally usedunable to establish VSOE or TPE for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings.
non-software elements and as such, we use BESP.
We determine BESP for a product or service by considering multiple factors including, but not limited to major product groupings, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. Significant pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable and our price lists. The most common fact pattern that emerged through analyzing these factors supports a BESP closely tied to Adobe’s list prices. The determination


56
Table of BESP is made through consultation with and formal approval by our management, taking into consideration our go-to-market strategy.Contents

We regularly review VSOE and have established a review process for TPE and BESP and maintain internal controls over the establishment and updates of these estimates. There was no material impact to revenue during the year ended December 3, 2010 resulting from changes in VSOE, TPE or BESP, nor do we expect a material impact from such changes in the near term.
We have established VSOE for our software maintenance and support services, custom software development services, and training. We have established BESP for all other offerings, including software products, non-software related hosting services, custom hosting development and consulting services, and technical support and training for hosting services.
Given the nature of our transactions, which are primarily software and software-related, our go-to-market strategies and our pricing practices, total net revenue as reported during the year ended December 3, 2010 is materially consistent with total net revenue that would have been reported if the transactions entered into or materially modified after November 27, 2009 were subject to previous accounting guidance. Additionally, the new accounting standards for revenue recognition, if applied in the same manner to the year ended November 27, 2009, would not have had a material impact on total net revenues for that fiscal year.
We do expect that this new accounting guidance will facilitate our efforts to optimize our offerings due to better alignment between the economics of an arrangement and the accounting. This may lead us to engage in new go-to-market practices in the future. In particular, we expect that the new accounting standards will enable us to better integrate products and services without VSOE into existing offerings and solutions. As these go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in selling prices, including both VSOE and BESP. As a result, our future revenue recognition for multiple element arrangements could differ materially from the results in the current period. Changes in the allocation of the sales price between elements may impact the timing of revenue recognition, but will not change the total revenue recognized on the contract. We are currently unable to determine the impact that the newly adopted accounting principles could have on our revenue as these go-to-market strategies evolve.
In addition to multiple element arrangements, we must estimate certain royalty revenue amounts due to the timing of securing information from our customers. While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, our assumptions and judgments regarding future products and services as well as our estimates of royalty revenue could differ from actual events, thus materially impacting our financial position and results of operations.
Product revenue is recognized when the above criteria are met. We reduce the revenue recognized for estimated future returns, price protection and rebates at the time the related revenue is recorded. In determining our estimate for returns and in accordance with our internal policy regarding global channel inventory which is used to determine the level of product held by our distributors on which we have recognized revenue, we rely upon historical data, the estimated amount of product inventory in our distribution channel, the rate at which our product sells through to the end user, product plans and other factors. Our estimated provisions for returns can vary from what actually occurs. Product returns may be more or less than what was estimated. The amount of inventory in the channel could be different than what is estimated. Our est imateestimate of the rate of sell throughsell-through for product in the channel could be different than what actually occurs. There could be a delay in the

release of our products. These factors and unanticipated changes in the economic and industry environment could make our return estimates differ from actual returns, thus materially impacting our financial position and results of operations.
We offer price protection to our distributors that allows for the right to a credit if we permanently reduce the price of a software product. When evaluating the adequacy of the price protection allowance, we analyze historical returns, current sell-through of distributor and retailer inventory of our products, changes in customer demand and acceptance of our products and other related factors. In addition, we monitor the volume of sales to our channel partners and their inventories. Changes to these assumptions or in the economic environment could result in higher returns or higher price protection costs in subsequent periods.
In the future, actual returns and price protection may materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing products. While we believe we can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, if our estimates change, our returns and price protection reserves would change, which would impact the total net revenue we report.
We recognize revenues for 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, are billed in accordance with contract terms as these fees are incurred. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
Our consulting revenue is recognized on a time and materials basis and is measured monthly based on input measures, such as on hours incurred to date compared to total estimated hours to complete, with consideration given to output measures, such as contract milestones, when applicable.
Stock-based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.
For our on-going traditional employeeIn fiscal 2012, the Executive Compensation Committee of Adobe's Board of Directors eliminated the use of stock option grants for all employees and stock option grants to non-employee directors were minimal. In lieu of stock options, we granted restricted stock units as the primary form of equity awards weto employees. Stock option grants prior to fiscal 2012 continue to vest over the requisite service period and had a material impact to stock-based compensation cost for fiscal 2012 and are expected to have a material impact to stock-based compensation cost until the majority of stock options are fully vested.
We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan (“ESPP”) shares. The determination of theThis fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors,the expected term of the awards, the risk-free interest rate, estimated forfeitures and expected dividends.
We estimate theuse a 24-month expected term, of options granted by calculating the average term fromwhich approximates our historical stock option exercise experience.offering period. We estimate the volatility of our common stock by using implied volatility in market traded options. Our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. We base the risk-free interest rate on zero-coupon yields implied from U.S. Treasury issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model.
We are required to estimate forfeitures at the time of g rantgrant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
If we use different assumptions for estimating stock-based compensation expense for ESPP shares in future periods or if actual forfeitures differ materially from our estimated forfeitures for both ESPP shares and existing stock option grants that continue

57
Table of Contents

to vest, the change in our stock-based compensation expense could materially affect our operating income, net income and net income per share.
Business Combinations
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, assumed equity awards, as well as to in-process research and development based upon their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, deferred revenue obligations and equity assumed.


Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
future expected cash flows from software license sales, subscriptions, support agreements, consulting contracts and acquired developed technologies and patents;
·  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 projects when completed;
the acquired company’s trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company’s product portfolio; and
·  expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed;
discount rates.
·  the acquired company’s trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company’s product portfolio; and
·  discount rates.
In connection with the purchase price allocations for our acquisitions, we estimate the fair value of the deferred revenue obligations assumed. The estimated fair value of the support obligations is determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The estimated costs to fulfill the obligations are based on the historical costs related to fulfilling the obligations.
In connection with the purchase price allocations for our acquisitions, we estimate the fair value of the equity awards assumed. The estimated fair value is determined utilizing a modified binomial option pricing model which assumes employees exercise their stock options when the share price exceeds the strike price by a certain dollar threshold. If the acquired company has significant historical data on their employee’s exercise behavior, then this threshold is determined based upon the acquired company’s history. Otherwise, our historical exercise experience is used to determine the exercise threshold. Zero coupon yields implied by U.S. Treasury issues,issuances, implied volatility for our common stock and our historical forfeiture rate are other inputs to the binomial model.
Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
Goodwill Impairment
We complete our goodwill impairment test on an annual basis, during the second quarter of our fiscal year, or more frequently, if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist. In order to estimate the fair value of goodwill, we typically estimate future revenue, consider market factors and estimate our future cash flows. Based on these key assumptions, judgments and estimates, we determine whether we need to record an impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value. Assumptions, judgments and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as c hangeschanges in our business strategy or our internal forecasts. Although we believe the assumptions, judgmentsassumptions, judgments and estimates we have made in the past have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect our reported financial results.
We completed our annual impairment test in the second quarter of fiscal 20102012 and determined there was no impairment. We currently believe thatThe results of our annual impairment test indicate there is no significant risk of future material goodwill impairment in any of our reporting units.
Accounting for Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and

58
Table of Contents

liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset.
Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. In addition, we are subject to the continual examination of our income tax returns by the IRS and other domestic and foreign tax authorities, including a current examination by the IRS for our
fiscal 2008 and 2009 tax returns. These examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of the current and any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.
Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S. income taxes on earnings from the U.S., we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries' earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.
Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to discrete items and to earnings considered as permanently reinvested in foreign operations. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in, or our interpretation of, tax rules and regulations in the jurisdictions in which we do business, by unanticipated decreases in the amount of earnings in countries with low statutory tax 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
There have been no new accounting pronouncements made effective during the year ended November 30, 2012, that are of significance, or potential significance, to us.
Recent Accounting Pronouncements Not Yet Effective
There have been no new accounting pronouncements not yet effective that have significance, or potential significance, to our consolidated financial statements.
RESULTS OF OPERATIONS
Overview of 2012
Effective in the first quarter of fiscal 2012, we modified our segments due to changes in how we operate our business. We combined our Creative and Interactive Solutions segment with our Digital Media Solutions segment and our Knowledge Worker segment, and named it Digital Media. We also renamed our Omniture segment to Digital Marketing and combined it with our Enterprise segment. These changes reflect our focus on our two strategic growth opportunities. Our Print and Publishing segment, which contains many of our mature products and solutions, continues to be reported as it was in fiscal 2011 and 2010. See Note 118 of our Notes to Consolidated Financial Statements for information regarding the effect of new accounting pronouncements on our financial statements.
Recent Accounting Pronouncements Not Yet Effective
In December 2010, the FASB issued updated accounting guidance related to the calculation of the carrying amount of a reporting unit when performing the first step of a goodwill impairment test. More specifically, this update will require an entity to use an equity premise when performing the first step of a goodwill impairment testfurther segment and if a reporting unit has a zero or negative carrying amount, the entity must assess and consider qualitative factors and whether it is more likely than not that a goodwill impairment exists. The new accounting guidance is effective for public entities, for impairment tests performed during entities’ fiscal years (and interim periods within those years) that begin after December 15, 2010. Early application is not permitted. We will adopt the new disclosures in the first quarter of fiscal 2012, howev er as we currently do not have any reporting units with a zero or negative carrying amount, we do not expect the adoption of this guidance to have an impact on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance to clarify that pro forma disclosures should be presented as if a business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting period and the prior reporting period pro forma financialgeographical information. These disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. The new accounting guidance is effective for business combinations consummated in periods beginning after December 15, 2010, and should be applied prospectively as of the date of adoption. Early adoption is permitted. We will adopt the new disclosures in the second quarter of fiscal 2011. We do not believe that the adoption of this guidance will have a material impact to ou r consolidated financial statements.
RESULTS OF OPERATIONS
Overview of 2010
Effective in the first quarter of fiscal 2010, to better align our marketing efforts and go-to-market strategies, we moved management responsibility for the Connect Solutions product line from our Knowledge Worker segment to our Enterprise segment. Prior year information below has been updated to reflect this change.these changes.
For fiscal 2010,2012, we reported record revenue with strongsolid financial results including exceeding $1and executed against our two strategic growth areas, Digital Media and Digital Marketing, while continuing to market and license a broad portfolio of products and solutions.
In May 2012, we launched Adobe Creative Suite 6 (“CS6”) which is at the center of Adobe Creative Cloud, our new subscription-based offering for creating and publishing content and applications that was also released in May 2012. The launch of CS6 included major updates to all of our core Creative Suite (“CS”) point products as well as four suite versions. Over time,

59
Table of Contents

we expect Creative Cloud to transform our business model and drive higher revenue growth through an expansion of our customer base by acquiring new users through a lower cost of entry, as well as keeping existing customers current on our latest release.
We anticipate accelerated adoption of Creative Cloud in fiscal 2013, which we expect will cause our traditional perpetual license revenue and, in turn, total net revenues in fiscal 2013, to decline. During this transition we do not anticipate a corresponding decrease in expenses, which we believe will adversely affect our net income and operating margin in fiscal 2013. However, over time we expect this business model transition will significantly increase our long-term revenue growth rate by (1) attracting new users, (2) keeping our end user base current and (3) thereby driving higher average revenue per user. Additionally, our shift to a subscription model will increase the amount of our recurring revenue that is ratably reported, driven by broader Creative Cloud adoption over the next several years.
We plan to continue to offer the perpetual licensing model as we transition our customers to this new subscription-based model.
To assist with the understanding of this transition and the related shift in revenue described above, we have introduced the use of certain performance metrics which we will use to assess the health and trajectory of our overall Digital Media segment.
These metrics include the total number of paid, active subscribers and Annualized Recurring Revenue (“ARR”). We define ARR as the sum of:
the number of paid, active subscribers, multiplied by the average subscription price paid per user per month, multiplied by twelve months; plus,
twelve months of contract value of Enterprise Term License Agreements (“ETLAs”) where the revenue is ratably recognized over the life of the contract.
In addition, we expect renewal rates associated with Creative Cloud, and potentially other subscription offerings, will become key metrics used to measure their performance. Because the majority of Creative Cloud subscriptions have been annual and the Creative Cloud launched in May 2012, we have not yet reached the first anniversary of these annual subscriptions and, therefore, we anticipate that meaningful data regarding subscription renewal rates will first become available later in fiscal year 2013.
Financial Performance Summary for Fiscal 2012
We continue to derive the majority of our revenue from perpetual licenses. However, our subscription revenue, as a percentage of total revenue, has increased to 15% in fiscal 2012 from approximately 11% and 10% in fiscal 2011 and fiscal 2010, respectively, as we transition more of our business to a subscription-based model.
Our total revenue of $4.4 billion increased $187.4 million and $603.7 million, or 4% and 11%, from $4.2 billion and $3.8 billion in quarterlyfiscal 2011 and fiscal 2010, respectively. The increase is primarily due to the continued success of our Adobe Marketing Cloud and Creative Suite family of products.
Cost of revenue for the first timeand operating expenses of $3.2 billion increased by $106.5 million and $416.6 million, or 3% and 15%, from $3.1 billion and $2.8 billion in company history. Our performance wasfiscal 2011 and 2010, respectively. These increases are primarily due to increases in costs associated with compensation and related benefits driven by continued adoptionadditional headcount.
Income before income taxes of CS5, which is our flagship product family that began shipping$1.1 billion increased by $83.6 million and $175.6 million, or 8% and 19%, from $1.0 billion and $943.2 million in the second quarterfiscal 2011 and 2010, respectively.
Net income of $832.8 million remained stable compared to fiscal 2011 and increased $58.1 million, or 7%, from $774.7 million in fiscal 2010. Our
Net cash flow from operations of $1.5 billion remained stable compared to fiscal 2010 performance also benefitted2011 and increased $386.6 million, or 35%, from strength in other key business segments including our Knowledge Worker, Omniture, Enterprise and Print and Publishing segments. Fiscal 2010 financial results also benefitted from an extra week in the first quarter of fiscal 2010 due to our 52/53 week financial calendar whereby fiscal 2010 is a 53-week year compared with fiscal 2009 which was a 52-week year.
In our Creative Solutions segment, broad adoption of CS5 continued to drive the overall performance of our creative business and contributed to strong revenue growth$1.1 billion in fiscal 2010 as compared with fiscal 2009. Since its release, CS5 revenue has grown approximately 21% when compared to a comparable period of time for CS4 products. The successful launch of Adobe Lightroom version 3 also contributed to our success in our creative business.
Our Knowledge Worker segment achieved 17% growth in fiscal 2010 when compared to fiscal 2009 due to continued solid demand for our Acrobat product family. We attribute this performance to strength in enterprise licensing of Acrobat across all geographies as well as the improved economic conditions in certain markets and geographies where we focus on Acrobat adoption.
We achieved strong growth in fiscal 2010 with our Enterprise segment, which grew 18% when compared to fiscal 2009. We believe our increased investment in this business over the past several years is beginning to result in improved financial performance in the segment. Further, we believe the CEM value proposition of our enterprise products is resonating with industry analysts and customers, including Adobe Connect for efficient Web-conferencing, and Adobe LiveCycle which makes it easier for people to interact with information from enterprise systems through intuitive user experiences, improve efficiencies through business process automation, and enhance customer service through personalized communications management.
In our Omniture business, we maintained strong momentum in fiscal 2010. Driving this success was increased awareness of our Online Marketing Suite value proposition in the marketplace as well as strong bookings performance. The number of Omniture user transactions in fiscal 2010 was 5.07 trillion, an increase of 12% when compared to fiscal 2009.
Our Platform business declined slightly in fiscal 2010 as compared with fiscal 2009 primarily due to lowerincreases in net income and deferred revenue and decreases in trade receivables from OEM relationships.increased cash collections.

60
Our Print and Publishing business segment grew in fiscal 2010 as compared with fiscal 2009 primarily due to a non-recurring revenue deal as well as the launch
Table of new products, including Adobe eLearning Suite version 2 and Adobe Captivate version 5.Contents

Revenue (dollars in millions)
  
Fiscal
2010
   
Fiscal
2009
   
Fiscal
2008
  
% Change
2010-2009
  
% Change
2009-2008
Product
$3,159.2  $2,684.8  $3,354.6  18%  (20)%
Percentage of total revenue
 83%  91%  94%       
Subscription
 386.8   74.6   41.9  *   78%
Percentage of total revenue
 10%  3%  1%       
Services and support
 254.0   186.5   183.4  36%  2%
Percentage of total revenue
 7%  6%  5%       
Total revenue
$3,800.0  $2,945.9  $3,579.9  29%  (18)%

*Percentage is greater than 100%.
  Fiscal
2012		 Fiscal
2011		 Fiscal
2010		 
% Change
2012-2011
 
% Change
2011-2010
Product $3,342.8
 $3,416.5
 $3,159.2
 (2)% 8%
Percentage of total revenue 76% 81% 83%    
Subscription 673.2
 458.6
 386.8
 47 % 19%
Percentage of total revenue 15% 11% 10%    
Services and support 387.7
 341.2
 254.0
 14 % 34%
Percentage of total revenue 9% 8% 7%    
Total revenue $4,403.7
 $4,216.3
 $3,800.0
 4 % 11%
As described in Note 18 of our Notes to Consolidated Financial Statements, we have the following segments: Digital Media, Digital Marketing and Print and Publishing.
Our subscription revenue is comprised primarily of fees we charge for our subscription and hosted service offerings including our hosted online business optimization services.digital marketing services and Creative Cloud. We recognize subscription revenuesrevenue ratably over the term of agreements with our customers, beginning on the commencement of the service. We expect our subscription revenue will continue to increase as a result of our investments in new SaaS and subscription models. We also expect this to increase the amount of recurring revenue we generate as a percent of our total revenue. Of the $386.8$673.2 million, $458.6 million and $74.6$386.8 million in subscription revenue for the fiscal years 20102012, 2011 and 2009,2010, respectively, approximately $309.1$553.2 million, $429.2 million and $22.2$375.3 million, respectively, is from our OmnitureDigital Marketing segment, with the remaining amounts representing our other businessDigital Media segment offerings.
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 optimizationdigital marketing services. Our support revenue also includes technical support and developer support to partners and developer organizations related to our desktop products. Our maintenance and support offerings, which entitle customers to receive product upgrades and enhancements or technical support, depending on the offering, are recognized ratably over the term of the arrangement.
Segments
Segments
In fiscal 2010,2012, we categorized our products into the following segments: Creative Solutions, Knowledge Worker, Enterprise, Omniture, Platform,
Digital Media—Our Digital Media segment provides tools and Printsolutions that enable individuals, small businesses and Publishing products.
Effectiveenterprises 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 the first quarter of fiscal 2010, to better align our marketing effortsdepartments and go-to-market strategies, we moved management responsibility for the Adobe Connect product line from our Knowledge Worker segment to our Enterprise segment.
·  
Creative Solutionsagencies, companies and publishers.—Our Creative Solutions segment focuses on delivering a complete professional line of integrated tools for a full range of creative and developer tasks to an extended set of customers.
63
TABLE OF CONTENTSDigital Marketing
—Our Digital Marketing segment provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized. Our customers include digital marketers, advertisers, publishers, merchandisers, web analysts, chief marketing officers and chief revenue officers.
·  
Knowledge Worker—Our Knowledge Worker segment focuses on the needs of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains our Adobe Acrobat family of products.
·  
Enterprise—Our Enterprise segment provides server-based CEM solutions to enterprise and government customers to optimize their information intensive customer-facing processes and improve the overall customer experience of their constituents. This segment contains our Adobe LiveCycle and Adobe Connect product lines.
·     
Omniture—Our Omniture segment provides Web analytics and online business optimization products and services to manage and enhance online, offline and multi-channel business initiatives.
·  
Platform—Our Platform segment includes client and developer technologies, such as Adobe Flash Player, Adobe Flash Lite, Adobe AIR, Adobe Flex, Adobe Flash Builder, ColdFusion, and also encompasses products and technologies created and managed in other Adobe segments.
·  
Print and Publishing—Our Print and Publishing segment addresses market opportunities ranging from the diverse publishing needs of technical and business publishing to our legacy type and OEM printing businesses.
Segment Information (dollars in millions)
 
Fiscal
2010
 
Fiscal
2009
 
Fiscal
2008
 
% Change
2010-2009
  
% Change
2009-2008
Creative Solutions
$2,056.5  $1,702.1  $2,072.8 21% (18)%
 Fiscal
2012		 Fiscal
2011		 Fiscal
2010		 
% Change
2012-2011
 
% Change
2011-2010
Digital Media $3,128.5
 $3,088.6
 $2,834.4
 1 % 9 %
Percentage of total revenue
 54% 58% 58%       71% 73% 75%    
Knowledge Worker
 654.4 557.6 757.7 17% (26)%
Percentage of total revenue
 18% 19% 21%      
Enterprise
 355.0 300.9 306.2 18% (2)%
Percentage of total revenue
 9% 10% 9%      
Omniture
 360.6 26.3 — *  * 
Percentage of total revenue
 9% 1% —%      
Platform
 178.9 181.0 231.6 (1)% (22)%
Digital Marketing 1,058.4
 909.4
 739.4
 16 % 23 %
Percentage of total revenue
 5% 6% 6%       24% 22% 19%    
Print and Publishing 194.6 178.0 211.6 9% (16)% 216.8
 218.3
 226.2
 (1)% (3)%
Percentage of total revenue
 5% 6% 6%       5% 5% 6%    
Total revenue
$3,800.0  $2,945.9  $3,579.9 29% (18)% $4,403.7
 $4,216.3
 $3,800.0
 4 % 11 %


*Percentage is greater than 100%.
61

Fiscal 20102012 Revenue Compared to Fiscal 20092011 Revenue
Digital Media
Revenue from Creative Solutions increased $354.4 millionDigital Media remained relatively stable during fiscal 20102012 as compared to fiscal 2009 primarily2011, due to strong licensingsolid demand for our Acrobat family of CS4 during fiscal 2010 until the release of CS5,products as well as strong adoptionthe continued momentum of CS5 beginningthe CS6 launch in the second quarter of fiscal 2012, offset by better than expected growth associated with our subscription offerings.
Revenue related to our creative professional products, which included our Creative Suite editions and CS point products as well as the recently released Creative Cloud, decreased slightly during fiscal year. The increase was driven largely by a 23% increase in both Creative Suites and Photoshop point product revenue2012 as compared to fiscal 2011 due to higher than expected customer adoption of Creative Cloud and point product subscriptions. We anticipate accelerated adoption of Creative Cloud and point product subscriptions, for which revenue is recognized over time, and that this adoption will cause our traditional perpetual license revenue to decline. The decreases in revenue associated with our creative professional products were offset in part by growth associated with the prior year. The overallMay 2012 release of new Photoshop point products for which the previous release occurred in fiscal 2010.
Revenue associated with our other creative products increased during fiscal 2012 as compared to fiscal 2011 primarily due to increases associated with third-party toolbar distribution via Flash Player downloads as well as continued demand related to the May 2012 release of Adobe Lightroom 4.
For our creative offerings, the total number of perpetual units licensed remained relatively stable while the number of subscription units licensed increased 23% whenduring fiscal 2012 as compared to fiscal 2009.2011. Unit average selling prices, excluding subscriptions, decreased during fiscal 2012 as compared to fiscal 2011.
Document Services revenue, which includes our Acrobat product family, also increased during fiscal 2012 as compared to fiscal 2011 primarily due to increased Document Exchange Services revenue including revenue generated from our EchoSign eSignatures service and the launch of Adobe Acrobat XI in the fourth quarter of fiscal 2012.
Within Document Services, excluding large enterprise license agreement (“ELA”) deals, the number of units licensed remained relatively stable while the unit average selling prices increased for our Acrobat offerings for fiscal 2012 as compared to fiscal 2011.
Digital Marketing
Revenue from Digital Marketing increased $149.0 million, or 16% during fiscal 2012when compared to fiscal 2011, primarily due to continued growth of our Adobe Marketing Cloud, which increased 35% year-over-year and includes our Adobe CQ WEM offerings and revenue generated from products associated with our recent acquisition of Efficient Frontier. Also contributing to the growth in revenue was our Adobe Connect hosted offering. As expected, increases in these areas were offset in part by a decrease in revenue associated with Adobe LiveCycle product offerings as we continue to shift our focus to our Adobe Marketing Cloud including our WEM solution.
Print and Publishing
Revenue from Print and Publishing remained relatively stable during fiscal 20102012 as compared to fiscal 2009.2011 primarily due to decreases in legacy product revenue, offset by increases in fees received for consulting services and royalties related to PostScript products.
Fiscal 2011 Revenue Compared to Fiscal 2010 Revenue 
Digital Media
Revenue from Knowledge WorkerDigital Media increased $96.8$254.2 million, or 9%, during fiscal 20102011 as compared to fiscal 2009.2010. The year-over-year increase in revenue was driven by continued licensing of the CS5 product family.
Revenue related to our creative professional products, which included our Creative Suite editions and CS point products, increased during fiscal 2011 as compared to fiscal 2010 primarily due to an increase in suite revenue associated with our Master Collection, and to a lesser extent, our design and video authoring suites. Also contributing to the growth was an increase in revenue associated with our Illustrator and InDesign point products.
Revenue associated with our other creative products increased during fiscal 2011 as compared to fiscal 2010 primarily due to increases associated with third-party toolbar distribution via Adobe Reader and Flash Player downloads as well as our Digital Publishing solution which was made available to all enterprise customers during fiscal 2011.

62

For our creative offerings, both the total number of units licensed and unit average selling prices remained relatively stable during fiscal 2011 as compared to fiscal 2010.
Document Services revenue increased during fiscal 2011 as compared to fiscal 2010. We attribute this success to strengthstrong adoption of our Acrobat X product, which was released in enterprise licensingthe fourth quarter of Acrobatfiscal 2010.
During fiscal 2011 as compared to fiscal 2010, unit average selling prices for Document Services increased and improved economic conditions in certain markets and geographies where we focus on Acrobat adoption. A 19% increase in the number of units licensed also contributed to the increase in revenue. Unit average selling prices, excluding large ELA deals, have remained relatively stable.
Digital Marketing
Revenue from EnterpriseDigital Marketing increased $54.1$170.0 million, or 23%, during fiscal 20102011 as compared to fiscal 20092010. The increase was primarily due to increasedcontinued customer adoption of our LiveCycle and Connect products as well asAdobe Marketing Cloud, which includes our WEM offerings resulting from the acquisition of Day, which closed late in the fourth quarter of fiscal 2010.
Print and contributed $5.4 million in revenue.Publishing
Revenue from Omniture increased $334.3 million during fiscal 2010 as compared to fiscal 2009. We acquired Omniture in the fourth quarter of fiscal 2009 and therefore do not have a full fiscal year of revenue for 2009 in which to provide a comparison between fiscal years.
Revenue from Platform decreased $2.1 million during fiscal 2010 as compared to fiscal 2009. The decrease was due to lower developer tool revenue based on the inclusion of developer tools within some CS5 suites, offset in part by an increase in distribution revenue from OEM relationships with companies such as Google, where we offer their technologies as part of the download of Flash Player, Shockwave Player and Reader and generate revenue through successful installations of these technologies.
Revenue from Print and Publishing increased $16.6decreased $7.9 million, or 3%, during fiscal 20102011 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.
Fiscal 2009 Revenue Compared to Fiscal 2008 Revenue
Revenue from Creative Solutions decreased $370.7 million during fiscal 2009 as compared to fiscal 20082010. The decrease was primarily due to reduced adoption of our CS family of products because of the global recession and generally weak macro-economic environment in fiscal 2009. The decrease was driven largely by a 15% decline in Creative Suites relatedlower Shockwave revenue and the release of ColdFusion 9 at the end of fiscal 2009 for which a decline of 27%comparable release did not occur in Photoshop point product revenue.the current year. Also contributing to the decreasedecline was an overall declinea one-time large deal in the number of units licensed. Average unit selling prices remained relatively consistent.
Revenue in Knowledge Worker decreased $200.1 millionAdobe Captivate and our Tech Communications products during fiscal 2009 as compared to fiscal 2008 for similar reasons as Creative Solutions in addition to a decrease in the licensing of our Acrobat family of products. We attribute the decline in revenue to lower volume licensing by our enterprise customers, as well as a decrease in the number of units sold through our shrink-wrap distribution channel. Average unit selling prices remained relatively consistent.
Revenue from Enterprise decreased $5.3 million during fiscal 2009 as compared to fiscal 2008 primarily due to the economic slowdown2010 that did not recur in fiscal 2009 which resulted in reduced spending by our enterprise customers.2011.
We acquired Omniture in the fourth quarter of fiscal 2009, and as such, there is no prior fiscal 2008 period with which to compare Omniture fiscal 2009 revenue.
Revenue from Platform decreased $50.6 million during fiscal 2009 as compared to fiscal 2008 due to the impact of the OSP which we announced on May 1, 2008, and involves the removal of certain licensing fees of our Flash Lite client with OEMs.
Revenue in Print and Publishing decreased $33.6 million during fiscal 2009 as compared to fiscal 2008 due to reduced demand because of the global macro-economic downturn in fiscal 2009.
GeographicGeographical Information (dollars in millions)
 
Fiscal
2010
 
Fiscal
2009
 
Fiscal
2008
 
% Change
2010-2009
  
% Change
2009-2008
 Fiscal
2012		 Fiscal
2011		 Fiscal
2010		 
% Change
2012-2011
 
% Change
2011-2010
Americas
$1,859.0  $1,382.6  $1,632.8 34% (15)% $2,196.4
 $2,044.6
 $1,835.3
 7 % 11%
Percentage of total revenue
 49% 46% 46%       50% 49% 48%    
EMEA
 1,168.2 928.9 1,229.2 26% (24)% 1,294.6
 1,317.4
 1,191.9
 (2)% 11%
Percentage of total revenue
 31% 32% 34%       29% 31% 32%    
Asia
 772.8 634.4 717.9 22% (12)%
APAC 912.7
 854.3
 772.8
 7 % 11%
Percentage of total revenue
 20% 22% 20%       21% 20% 20%    
Total revenue
$3,800.0  $2,945.9  $3,579.9 29% (18)% $4,403.7
 $4,216.3
 $3,800.0
 4 % 11%
Fiscal 20102012 Revenue by Geography Compared to Fiscal 20092011 Revenue by Geography
Overall revenue for fiscal 2012 increased in the Americas and APAC and declined slightly in EMEA when compared to fiscal 2011. Revenue in the Americas increased during fiscal 2012 primarily due to revenue increases in Digital Media and Digital Marketing, offset slightly by a decline in Print and Publishing revenue. Despite the launch of CS6 in May 2012, the current economic conditions in Europe and the weakening of the Euro and British Pound against the U.S. Dollar caused revenue in EMEA to decline slightly during fiscal 2012 compared with fiscal 2011. Revenue in APAC increased across all reportable segments during fiscal 2012 as compared with fiscal 2011. Within each geographical region, the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.
Fiscal 2011 Revenue by Geography Compared to Fiscal 2010 Revenue by Geography
Overall revenue for fiscal 2011 increased in each of the geographic segments for fiscal 2010 increasedregions when compared to fiscal 2009 primarily due to the launch of CS5 in the second quarter of fiscal 2010 as well as additional revenue from Omniture which we acquired in the fourth quarter of fiscal 2009. Increased revenue in our Knowledge Worker and Enterprise business segments also2010. Within each geographic region, every reportable segment contributed to the increase in revenue with the exception of Print and Publishing, which experienced decreases in EMEA and APAC. The increase in revenue during fiscal 2011 as well as an improved economy across all geographies.compared to fiscal 2010 in the Americas, EMEA and APAC was attributable to the factors noted in the segment information above.

63

Included in the overall increase in revenue for fiscal 2012 and fiscal 2011were impacts associated with foreign currency. The U.S. dollar strengthened against both the Euro and British pound causing revenue in EMEA measured in U.S. dollars to decrease by approximately $18.4 million and $3.3 million, respectively,currency as compared to fiscal 2009. Revenue in Japan measured in U.S. dollars was favorably impacted by approximately $23.7 million due to the strength of the Yen against the U.S. dollar as compared to fiscal 2009. The Australian dollar also strengthened against the U.S. dollar resulting in a favorable impact to revenue of approximately $12.1 million during fiscal 2010. We had no comparable impact to revenue from the Australian dollar during fiscal 2009.shown below. Our currency hedging program is used to mitigate a portion of the foreign currency impact to rev enue. During revenue.
(in millions)Fiscal
2012		 Fiscal
2011
Revenue impact: Increase/(Decrease)
EMEA:   
Euro$(46.9) $16.4
British Pound(1.8) 6.5
Other currencies(1.1) 2.9
Total EMEA(49.8) 25.8
Japanese Yen6.0
 38.5
Other currencies1.5
 14.6
Total revenue impact(42.3) 78.9
Hedging impact:   
EMEA23.4
 3.6
Japanese Yen7.3
 0.2
Total hedging impact30.7
 3.8
Total impact$(11.6) $82.7
65
During fiscal 2010, our currency hedging program related to2012, the U.S. Dollar strengthened against the Euro, British Pound and other EMEA and Japan resulted in hedging gains of $19.5 million and $0.6 million, respectively.
Fiscal 2009 Revenue by Geography Compared to Fiscal 2008 Revenue by Geography
Overallcurrencies causing revenue in each of the geographic segments for fiscal 2009 decreased compared to fiscal 2008 primarily due to the global economic recession, which resulted in reduced adoption of many of our major products.

Included in the overall decrease in revenue were impacts associated with foreign currency. Revenue in EMEA measured in U.S. dollars decreased approximately $47.1 million, dueDollar equivalents to decrease compared with the strength ofsame reporting period last year. This decrease was offset in part by the favorable impact to revenue measured in Japanese Yen and other Asian currencies as the U.S. dollarDollar weakened against the Euro, as compared to fiscal 2008.these currencies. Our EMEA and Yen currency hedging program is used to mitigate a portion of the foreign currency impact to revenue. Revenue in Asia measured in U.S. dollars was favorably impacted by approximately $32.8 million due to the strength of the Yen against the U.S. dollar as compared to fiscal 2008. During fiscal 2009, our currency hedging program related to the Euro and Yenprograms resulted in hedging gains of $25.8 millionduring fiscal 2012 as noted in the table above.
During fiscal 2011, the Euro, British Pound and $1.2 million, respectively.
other EMEA currencies were favorably impacted as the U.S. Dollar weakened against these currencies causing revenue in EMEA measured in average U.S. Dollar equivalents to increase compared to fiscal 2010. Revenue measured in both the Japanese Yen and other currencies also were favorably impacted as the U.S. Dollar weakened against these currencies. During fiscal 2011, our EMEA and Japanese Yen currency hedging programs resulted in hedging gains as noted above.
See Item 7A, Quantitative and Qualitative Disclosures About Market Risk regarding foreign currency risks.
Note 18 of our Notes to Consolidated Financial Statements for further geographic information.
Product Backlog
The actual amount of product backlog at any particular time may not be a meaningful indicator of future business prospects. Shippable backlog is comprised of unfulfilled orders, excluding those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy. Our shippable backlog at the end of the fourth quarter of fiscal 2010 was approximately 5% of fourth quarter fiscal 2010 revenue. We had minimal shippable backlog at the end of the thirdfourth quarter of fiscal 2010. Our2012. We expect that our shippable backlog at the end of the fourth quarter of fiscal 2009 was approximately 9% of fourth quarter fiscal 2009 revenue.will continue to be insignificant in future periods.
Cost of Revenue (dollars in millions)
 
Fiscal
2010
 
Fiscal
2009
 
Fiscal
2008
 
% Change
2010-2009
  
% Change
2009-2008
 Fiscal
2012		 Fiscal
2011		 Fiscal
2010		 
% Change
2012-2011
 
% Change
2011-2010
Product
$127.5  $180.6  $243.2 (29)% (26)% $121.7
 $125.7
 $127.5
 (3)% (1)%
Percentage of total revenue
 3% 6% 7%       3% 3% 3%    
Subscription
 195.6 48.3 23.2 *  *  219.1
 194.0
 195.6
 13 % (1)%
Percentage of total revenue
 5% 2% 1%       5% 5% 5%    
Services and support
 80.4 67.8 96.2 19% (30)% 143.0
 118.2
 80.4
 21 % 47 %
Percentage of total revenue
 2% 2% 3%       3% 3% 2%    
Total cost of revenue
$403.5  $296.7  $362.6 36% (18)% $483.8
 $437.9
 $403.5
 10 % 9 %


*Percentage is greater than 100%.
64
Table of Contents

Product
Cost of product revenue includes product packaging, third-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
2010-2009
  
% Change
2009-2008
% Change
2012-2011
 
% Change
2011-2010
Cost of sales(6)% — %
Excess and obsolete inventory2
 —
Amortization of purchased intangibles
 (23)% (12)%(1) 6
Amortization of acquired rights to use technology
 1 (8)
Localization costs related to our product launches
 (7) (1)
Royalty cost
 (5) (1)—
 (3)
Cost of sales
 4 (2)
Various individually insignificant items
 1  (2)2
 (4)
Total change
 (29)% (26)%(3)% (1)%
Cost of product revenue decreased during fiscal 2012 as compared to fiscal 2011 primarily due to decrease in cost of sales and amortization of purchase intangibles, offset by increases in excess and obsolete inventory. Cost of sales decreased primarily due to a decrease in packaging costs associated with our CS6 products. Amortization of purchased intangibles decreased primarily due to certain intangible assets purchased through our acquisitions in prior years that were fully amortized in fiscal 2012. Excess and obsolete inventory increased primarily due to increased reserve requirements for Adobe Creative Suite 5 and Adobe Creative Suite 5.5 products necessitated by the launch of CS6 in the second quarter of fiscal 2012.
Cost of product revenue decreased during fiscal 20102011 as compared to fiscal 2009 and decreased during fiscal 2009 as compared to fiscal 2008,2010 primarily due to decreasesdecrease in royalty costs, offset by increase in amortization of $46.4 million and $80.0 million, respectively,purchase intangibles. Royalty costs decreased primarily due to a decrease in obligations to certain key vendors. Amortization of purchased intangibles increased primarily due to amortization expense associated with intangible assets purchased through the Macromedia acquisition which were fully amortizedacquisitions during fiscal 2009.
The decrease in amortization of acquired rights to use technology during fiscal 2009 as compared to fiscal 2008 primarily related to a charge for historical use of licensing rights associated with certain technology licensing arrangements entered into in fiscal 2008 that did not recur in fiscal 2009. In fiscal 2008 we entered into certain technology licensing arrangements totaling $100.4 million. Of this cost, an estimated $56.4 million was related to future licensing rights that were capitalized2011 and amortized on a straight-line basis over the estimated useful lives up to fifteen years. Of the remaining costs, we estimated that approximately $27.2 million was related to historical use of licensing rights which was expensed as cost of sales and the residual of $16.8 million for fiscal 2008 was expensed as general and administrativ e costs. In connection with these licensing arrangements, we have the ability to acquire additional rights to use technologyour Day acquisition in the future. 
The decrease in localization costs during fiscal 2010 as compared to fiscal 2009 was primarily due to CS4 products becoming fully amortized at the endfourth quarter of fiscal 2009, offset in part by the launch of CS5 products during fiscal 2010.
The decrease in royalty costs during fiscal 2010 as compared to fiscal 2009 primarily related to obligations to certain key vendors that were incurred during fiscal 2009 and did not recur during fiscal 2010.
Cost of sales increased during fiscal 2010 as compared to fiscal 2009 primarily due to the associated increase in shrink-wrap shipments as a result of the launch of our CS5 products during fiscal 2010.
Subscription
Cost of subscription revenue consists of expenses related to operating our network infrastructure, including depreciation expenses and operating lease 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 of their data center facilities and our data center costs largely consist of the amounts we pay to these third-parties for rack space, power and similar items.
 
Cost of subscription revenue increased in fiscal 2010 as compared2012 due to fiscal 2009 as a result of our acquisition of Omniture in the fourth quarter of fiscal 2009 and the addition of its 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.following:
% Change
2012-2011
Amortization of purchased intangibles6%
Hosted server costs7
Total change13%
Cost of subscription revenue increased induring fiscal 20092012 as compared to fiscal 20082011 primarily due to increased amortization of purchased intangibles and hosted server costs. Amortization of purchased intangibles increased primarily due to increased amortization of intangible assets associated with our acquisition of Efficient Frontier in the first quarter of fiscal 2012. Hosted server costs increased primarily due to increases in compensation and related benefits driven by additional headcount and hosting expenses associated with the launch of our Creative Cloud services in the second quarter of fiscal 2012. Also contributing to the increase in hosted server costs is the increase in depreciation expense from higher capital expenditures in prior years and data center costs related to higher transaction volumes in our Adobe Marketing Cloud services and Creative Cloud.
Cost of subscription revenue remained relatively stable during fiscal 2011 as a resultcompared to fiscal 2010 primarily due to decreased amortization of purchased intangibles resulting from certain intangible assets purchased through our acquisition of Omniture that were fully amortized in the fourth quarter of fiscal 20092011. This was offset in part by increases in costs associated with compensation and the addition of its related benefits driven by additional headcount and increases in data center costs.costs related to higher transaction volumes in our Adobe Marketing Cloud services.

65
Table of Contents

Services and Support
Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to provide consulting services, training and product support.
Cost of services and support revenue increased during fiscal 20102012 as compared to fiscal 2009,2011 and fiscal 2011 as compared to fiscal 2010, primarily due to increases in costs associated with compensation and related benefits driven by additional headcount, as a result ofincluding headcount from our acquisition of Omniture.Efficient Frontier.
Cost of services and support revenue decreased during fiscal 2009 as compared to fiscal 2008, due to decreases in compensation and related benefits driven by headcount reductions as well as increased consulting support provided by third- party systems integrators resulting in the downsizing of our consulting organization.
Operating Expenses (dollars in millions)
  
Fiscal
2010
   
Fiscal
2009
   
Fiscal
2008
  
% Change
2010-2009
  
% Change
2009-2008
Research and development
$680.3  $565.1  $662.1  20%  (15)%
Percentage of total revenue
 18%  19%  18%       
Sales and marketing
$1,244.2  $981.9  $1,089.3  27%  (10)%
Percentage of total revenue
 33%  33%  30%       
General and administrative
$383.5  $298.7  $337.3  28%  (11)%
Percentage of total revenue
 10%  10%  9%       
Restructuring charges
$23.3  $41.3  $32.1  (44)%  29%
Percentage of total revenue
 1%  1%  1%       
Amortization of purchased intangibles and incomplete technology$72.1  $71.6  $68.2  1%  5%
Percentage of total revenue
 2%  2%  2%       
Total operating expenses
$2,403.4  $1,958.6  $2,189.0  23%  (11)%
67
  Fiscal
2012		 Fiscal
2011		 Fiscal
2010		 
% Change
2012-2011
 
% Change
2011-2010
Research and development $742.8
 $738.1
 $680.3
 1% 8 %
Percentage of total revenue 17% 18% 18%    
Sales and marketing 1,516.1
 1,385.8
 1,244.2
 9% 11 %
Percentage of total revenue 34% 33% 33%    
General and administrative 435.0
 414.6
 383.5
 5% 8 %
Percentage of total revenue 10% 10% 10%    
Restructuring and other related charges (credits) (2.9) 97.8
 23.3
 *
 *
Percentage of total revenue —% 2% 1%    
Amortization of purchased intangibles 48.7
 42.8
 72.1
 14% (41)%
Percentage of total revenue 1% 1% 2%    
Total operating expenses $2,739.7
 $2,679.1
 $2,403.4
 2% 11 %
TABLE OF CONTENTS_________________________________________
(*)
Percentage is greater than 100%.
Research and Development Sales and Marketing and General and Administrative Expenses
The increase in research and development, sales and marketing and general and administrative expenses during fiscal 2010 as compared to fiscal 2009 was primarily driven by increases in compensation expense due to additional headcount as a result of our acquisition of Omniture and to higher employee compensation including bonuses based on company performance to date when compared to fiscal 2009. The decrease in research and development, sales and marketing and general and administrative expenses in fiscal 2009 as compared to fiscal 2008 was primarily driven by decreases in compensation expense and a decrease in the costs associated with acquired rights to use technology. The decrease in compensation costs during fiscal 2009 as compared to fiscal 2008 wa s primarily due to lower profit sharing and employee bonuses based on company performance.
Research and Development
Research and development expenses consist primarily of salary and benefit expenses for software developers, contracted development efforts, related facilities costs and expenses associated with computer equipment used in software development.
Research and development expenses increased (decreased) dueremained relatively stable during fiscal 2012 as compared to the following:
   
% Change
2010-2009
  
% Change
2009-2008
Compensation associated with incentive compensation and stock-based compensation  16%  (13)%
Compensation and related benefits associated with headcount growth  2   1 
Various individually insignificant items  2   (3)
Total change
  20%  (15)%

fiscal 2011. The increase in research and development expenses during fiscal 2011 as compared to fiscal 2010 was primarily driven by higher employee compensation associated with headcount growth.
We believe that investments in research and development, including the recruiting and hiring of software developers, are critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced products. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our 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 supply chain management personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. Given the strength of our business during the first half of fiscal 2010, we made additional investments in sales and marketing which is reflected in the table below under marketing spending related to product launches and marketing efforts.
Sales and marketing expenses increased (decreased) due to the following:
  
% Change
2010-2009
  
% Change
2009-2008
% Change
2012-2011
 
% Change
2011-2010
Compensation and related benefits associated with headcount2% 5%
Marketing spending related to product launches and overall marketing efforts to further
increase revenue		2
 3
Compensation associated with incentive compensation and stock-based compensation 16% (8)%3
 1
Compensation and related benefits associated with headcount growth 3 2 
Marketing spending related to product launches and overall marketing efforts to
further increase revenue
 3 (4)
Various individually insignificant items 5  — 2
 2
Total change
 27% (10)%9% 11%

66
Table of Contents

 
General and Administrative
General and administrative expenses consist primarily of compensation and benefit expenses, travel expenses and related facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, expenses associated with 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:
68
 
 % Change
2012-2011
 
 % Change
2011-2010
Compensation and related benefits associated with headcount growth4 % 3 %
Professional and consulting fees(3) 5
Compensation associated with incentive compensation and stock-based compensation1
 2
Various individually insignificant items3
 (2)
Total change5 % 8 %

General and administrative expenses increased (decreased) due to the following:
   
% Change
2010-2009
  
% Change
2009-2008
Compensation associated with incentive compensation and stock-based compensation  15%  (8)%
Allocation of costs associated with acquired rights to use technology  —   (5)
Compensation and related benefits associated with headcount growth  5   2 
Charitable contributions                                                                                                            —   (3)
Professional and consulting fees  4   1 
Depreciation and amortization  3   1 
Various individually insignificant items  1   1 
Total change  28%  (11)%
The decrease in allocation of costs associated with acquired rights to use technology inProfessional and consulting fees decreased during fiscal 20092012 as compared to fiscal 2008 primarily relates to the historical use of licensing rights associated with certain technology licensing arrangements entered into in fiscal 2008 that did not recur in fiscal 2009. Allocation of costs associated with acquired rights to use technology increased in fiscal 20082011 primarily due to the fact that we entered into certain technology licensing arrangements totaling $100.4 million. Of this cost, an estimated $56.4 million was related to future licensing rights and has been capitalized and will be amortized on a straight-line basis over the estimated useful lives up to fifteen years. Of the remaining costs, we estimated that approximately $27.2 million was related to historical use of licensing rights whi ch was expensed as cost of sales and the residual of $16.8 million for fiscal 2008 was expensed as general and administrative costs. In connection with these licensing arrangements, we have the ability to acquire additional rights to use technology in the future. 
Charitable contributions represent funding of the Adobe Foundation which is a private foundation created to leverage human, technological and financial resources to drive social change and improve the communities in which we live and work. The decrease in charitable contributions during fiscal 2009 as compared to fiscal 2008 reflects a change in the timing of contributions to the Adobe Foundation.
decreased litigation expense. Professional and consulting fees increased during fiscal 20102011 as compared to fiscal 20092010 primarily due to increase in informationfees for various technology services to support our business.projects and increased litigation expense.  
Restructuring and Other Related Charges (Credits)
Restructuring Charges
Fiscal 2009 Restructuring Plan
On November 10, 2009, in order to appropriately align our costsDuring the past several years, we have initiated various restructuring plans. During fiscal 2012, in connection with our fiscal 2010 operating plan, we initiated a restructuring plan consisting of reductions of up to approximately 630 full-time positions worldwide. In connection with this restructuring plan, in the fourth quarter of fiscal 2009,Fiscal 2011 Restructuring Plan and Other Restructuring Plans, we recorded restructuring charges of approximately $25.5$17.4 million related to ongoing associated with termination benefits for the elimination of approximately 340 of these full-time positions worldwide. The restructuring activities related to this program affect only those employees and facilities that were associated with Adobe prior to the acquisition of Omniture on October 23, 2009.
During fiscal 2010, we continued to implement restructuring activities under this plan. We vacated approximately 50,000 square feet of sales and or research and development facilities in Australia, Canada, Denmark and the U.S. We accrued $7.0 million for the fair value of our future contractual obligations under these operating leases using our credit-adjusted risk-free interest rate, estimated at approximately 7% as of the date we ceased to use the leased properties. This amount is net of the fair value of future estimated sublease income of approximately $7.1 million.closing redundant facilities. We also recorded charges of $18.4$20.3 million in net favorable employee termination benefitsand facility related adjustments for changes in previous estimates during the elimination of substantially all of the remaining full-time positions expected to be terminated worldwide. We alsofiscal year. During fiscal 2011, in connection with our 2011 Restructuring Plan and Other Restructuring Plans, we recorded net adjustments of approximately $2.2$85.6 million to reflect net decreases in previously recorded estimates for associated with termination benefits and facilities-related liabilities in addition to minor adjustments for fluctuationsclosing redundant facilities as well as $12.7 million related to foreign currency translation.
Fiscal 2008 Restructuring Plan
In the fourth quarterwrite-off of fiscal 2008, we initiated a restructuring program, consisting of reductionscertain assets that were no longer useful to the company based on changes in workforce of approximately 560 full-time positions globally and the consolidation of facilities, in order to reduce our operating costs and focus our resources on key strategic priorities. In connection with this restructuring program, we recorded restructuring charges totaling $29.2 million related to ongoing termination benefits for the elimination of approximately 460 of the 560 full-time positions globally.

During fiscal 2009, we continued to implement restructuring activities under this program. We vacated approximately 89,000 square feet of research and development and sales facilities in the U.S., the United Kingdom and Canada. We accrued $8.5 million for the fair value of our future contractual obligations under these operating leases using our credit-adjusted risk-free interest rate, estimated at approximately 6% as of the date we ceased to use the leased properties. This amount is net of the fair value of future estimated sublease income of approximately $4.4 million. We also recorded additional charges of $6.7 million for termination benefits for the elimination of substantially all of the remaining 100 full-time positions expected to be terminated.business. We also recorded minor favorable adjustments for fluctuations related to foreign currency tr anslation.
Macromediachanges in previous estimates. During 2010, in connection with our Fiscal 2009 Restructuring Plan
We completed our acquisition of Macromedia on December 3, 2005. In connection we recorded $23.3 million associated with this acquisition, we initiated plans to restructure both the pre-merger operations of Adobe and Macromedia to eliminate certain duplicative activities, focus our resources on future growth opportunities and reduce our cost structure. In connection with the worldwide restructuring plan, we recognized costs related to termination benefits for employee positions that were eliminated and for the closureclosing redundant facilities which is net of duplicative facilities. During fiscal 2008, we recorded charges of $2.9 million related tominor favorable adjustments for changes in estimates related to Macromedia facilities restructuring charges due to changes in sub-lease incomeprevious estimates.
SeeNote 1110 of our Notes to Consolidated Financial Statements for further information regarding our restructuring charges.
plans.
Amortization of Purchased Intangibles
During the last several years, we have completed a number of business combinations and Incomplete Technology
asset acquisitions including Macromedia in fiscal 2006, Omniture in fiscal 2009, Day in fiscal 2010, eight smaller acquisitions in fiscal 2011 and Efficient Frontier in fiscal 2012. As a result of our acquisition of Omniture in fiscal 2009,these acquisitions, we acquired purchased intangibles whichintangible assets that are being amortized over their estimated useful lives ofranging from one to twelve years. In addition,
Amortization expense increased 14% during fiscal 2012 as a result ofcompared to fiscal 2011 primarily due to amortization expense associated with intangible assets purchased through our smaller acquisitions in fiscal 2011 and Efficient Frontier in fiscal 2012.
Amortization expense decreased 41% during fiscal 2011 as compared to fiscal 2010 primarily due to amortization expense associated with certain intangible assets purchased through our acquisition of Macromedia that were fully amortized at the end of fiscal 2010. This decrease was offset in fiscal 2006, we acquired purchased intangibles which are amortized over their estimated useful lives of two to four years. During fiscal 2009, we completed one business combination,part by an increase in addition to Omniture. In addition, during fiscal 2008 we completed one business combination. We acquired purchased intangibles through these acquisitions which are amortized over their estimated useful lives.
Amortizationamortization expense increased 1% during fiscal 2010 as compared to fiscal 2009, as a result of intangible assets purchased through our acquisition of OmnitureDay in the fourth quarter of fiscal 2009 offset by a decrease2010 as well as an increase in amortization expense associated with the intangible assets purchased through our Macromedia acquisition which were fully amortized at the endfiscal 2011 acquisitions.

67
Table of fiscal 2009.Contents
Amortization expense increased 5% during fiscal 2009 as compared to fiscal 2008, primarily due to amortization expense associated with intangibles assets purchased through the acquisition of Omniture in the fourth quarter of fiscal 2009.

Non-Operating Income (Expense), Net (dollars in millions)
  
Fiscal
2010
   
Fiscal
2009
   
Fiscal
2008
  
% Change
2010-2009
  
% Change
2009-2008
Interest and other income (expense), net$13.1  $31.4  $43.8  (58)%  (28)%
Percentage of total revenue
 *   1%  1%       
Interest expense
 (56.9)   (3.4)   (10.0)  *   (66)% 
Percentage of total revenue
 (2)%  *   *        
Investment gains (losses), net
 (6.1)   (17.0)  ��16.4  (64)%  (204)%
Percentage of total revenue
 *   (1)%  *        
Total non-operating income (expense), net$(49.9) $11.0  $50.2  (554)%  (78)%

  Fiscal
2012		 Fiscal
2011		 Fiscal
2010		 
% Change
2012-2011
 
% Change
2011-2010
Interest and other income (expense), net $(3.4) $(3.0) $13.1
 13 % (123)%
Percentage of total revenue *
 *
 *
    
Interest expense (67.5) (67.0) (56.9) 1 % 18 %
Percentage of total revenue (2)% (2)% (1)%    
Investment gains (losses), net 9.5
 5.9
 (6.1) 61 % (197)%
Percentage of total revenue *
 *
 *
    
Total non-operating income (expense), net $(61.4) $(64.1) $(49.9) (4)% 28 %
_________________________________________
*
(*)
Percentage is not meaningful.
Interest and Other Income (Expense), Net
 
Interest and other income (expense), net consists primarily of interest earned on cash, cash equivalents and short-term fixed income investments. Interest and other income (expense), net also includes foreign exchange gains and losses, including those from hedging revenue transactions primarily denominated in Euro and Yen currencies, and gains and losses on fixed income investments.
Interest and other income (expense), net increased in net expense in fiscal 2012 as compared to fiscal 2011 primarily due to lower average interest rates on our investments.
Interest and other income (expense), net decreased duringchanged from net income in fiscal 2010 as compared to net expense in fiscal 20092011 primarily due to a reduction in interest earnedgain of $12.8 million resulting from lower average interest rates on our investments and $5.8 million lower realized gains on our investments. During fiscal 2010, we also recorded a $20.8 million gainrecorded in fiscal 2010 associated with a forward

contract purchased to hedge our economic exposure related to our acquisition of Day which was primarily offset by foreign exchange losses andthat did not recur during fiscal 2011, as well as increased cash flow hedging costs.
Interest and other income (expense),costs in fiscal 2011. The increase in net decreased duringexpense in fiscal 2009 as compared to fiscal 2008 primarily due to lower interest rates,2011 was partially offset by increased interest income of $2.4 million due to higher average invested balances, realized gainsinterest rates on sales of fixed income securities and lower foreign exchange losses.
our investments.
Interest Expense
In February 2010, we issued $600.0$600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900.0$900.0 million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). As of November 27, 2009, we had an outstanding credit facility of $1.0 billion, whichOn February 1, 2010, we repaid on February 1, 2010the outstanding balance under our then existing $1.0 billion credit facility with a portion of the proceeds from ourthe Notes.
Interest expense remained relatively stable during fiscal 2012 as compared to fiscal 2011. The increase in interest expense forduring fiscal 2011 as compared to fiscal 2010 iswas primarily due to interest associated with higher borrowings resulting from the issuance of the Notes as well as an increase in our average borrowing rate due to the Notes.
Interest expense for fiscal 2009 and 2008, primarily represents interest associated with our credit facility. Interest due under the credit facility is paid upon expiration of the London interbank offered rate (“LIBOR”) contract or at a minimum, quarterly. The decline in interest expense was primarily due to lower interest rates.
Investment Gains (Losses), Net
Investment gains (losses), net consists principally of realized gains andor losses from the sale of marketable equity investments, other-than-temporary declines in the value of marketable and non-marketable equity securities and unrealized holding gains and losses associated with our deferred compensation plan assets (classified as trading securities), and gains and losses of Adobe Ventures.
associated with our direct and indirect investments in privately held companies.
Investment gains and (losses), net fluctuated due to the following (in millions):
 2010  2009  2008 
Net (losses) gains related to our investments in Adobe Ventures and
cost method investments
 $(11.3) $(18.7) $15.9 
 Fiscal
2012		 Fiscal
2011		 Fiscal
2010
Net gains (losses) related to our direct and indirect investments in privately
held companies
 $(0.2) $5.3
 $(11.3)
Gains from sale of marketable equity securities  4.0   —   5.4  8.2
 0.8
 4.0
Write-downs due to other-than-temporary declines in value of our
marketable equity securities
  —   (0.3)  (4.9) (0.1) (0.2) —
Net gains related to our trading securities  1.2   2.0   —  1.6
 —
 1.2
Total investment gains (losses), net $(6.1) $(17.0) $16.4  $9.5
 $5.9
 $(6.1)
 

68
Table of Contents

During fiscal 2010,2012, total investment gains (losses), net losses on our investments improved primarily due to a decrease in net unrealized losses incurred on certain of our cost method investments during fiscal 2009 offset in part by an increase in net realized lossesgains from the sale of marketable equity securities. This was offset in part by a decrease in realized gains related to our Adobe Ventures portfolio ofdirect investments in privately held companies in fiscal 2010.
2011 that did not recur during fiscal 2012.
During fiscal 2009,2011, total investment gains (losses), net losses on our investments increased as comparedimproved to fiscal 2008net gains primarily due to an increase on net unrealized losses related to our Adobe Ventures and cost methodindirect investments in privately held companies in fiscal 2010 that did not recur during fiscal 2011. This was offset in part by a decrease in net realized gains from the sale of marketable equity securities during fiscal 2011 due to less sales of these investments.
Provision for Income Taxes (dollars in millions)
  
Fiscal
2010
   
Fiscal
2009
   
Fiscal
2008
  
% Change
2010-2009
  
% Change
2009-2008
Provision
$168.5  $315.0  $206.7  (47)%  52%
Percentage of total revenue
 4%  11%  6%       
Effective tax rate
 18%  45%  19%       
Our effective tax rate decreased approximately 27 percentage points during fiscal 2010 as compared to fiscal 2009. The decrease was primarily due to tax benefits recognized as a result of the completion in the fourth quarter of fiscal 2010 of a U.S. income tax examination covering fiscal years 2005 through 2007 and stronger international profits, partially offset by the expiration of the research and development credit on December 31, 2009.
  Fiscal
2012		 Fiscal
2011		 Fiscal
2010		 
% Change
2012-2011
 
% Change
2011-2010
Provision $286.0
 $202.4
 $168.5
 41% 20%
Percentage of total revenue 6% 5% 4%    
Effective tax rate 26% 20% 18%    
Our effective tax rate increased by approximately 26six percentage points during fiscal 20092012 as compared to fiscal 2008.2011. In fiscal 2011, the increase was primarily related to the expiration of the U.S. research and development credit, as well as tax benefits associated with a favorable state income tax ruling and tax costs associated with licensing acquired company assets to Adobe's trading companies.
Our effective tax rate increased by approximately two percentage points during fiscal 2011 as compared to fiscal 2010. The increase was primarily due to a one-time chargetax costs of licensing acquired company assets to Adobe's trading companies. These costs were partially offset by tax benefits related to our acquisitiona favorable state income tax ruling and the reinstatement of Omniture. The charge represented the federal research and development tax cost of inter-company transactions necessary to license certain Omniture assets to Adobe’s trading companies so that Omniture’s services can be offered to customers from Adobe companies.credit.

In December 2010,January 2013, the United States Congress passed an extension of the federal research and development tax credit through December 31, 2011.2013. As a result, we expect that our income tax provision for the first quarter of fiscal 20112013 will include a discrete tax benefit which will reduce our effective tax rate for the quarter and to a lesser extent the effective annual tax rate.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S. income taxes on earnings from the U.S., we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries' earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. Currently, there are a significant amount of foreign earnings upon which U.S. income taxes have not been provided.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at December 3, 2010November 30, 2012 was $156.9$160.5 million, exclusive of $15.4 million of interest and penalties.
In October 2010, a U.S. income If the total unrecognized tax examination covering our fiscal years 2005 through 2007 was completed. Our accruedbenefits at November 30, 2012 were recognized in the future, $147.6 million of unrecognized tax and interestbenefits would decrease the effective tax rate, which is net of an estimated $12.9 million federal benefit related to these yearsdeducting certain payments on future state tax returns.
As of November 30, 2012, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns was $59approximately $12.5 million and was previously reported. This amount is included in long-termnon-current income taxes. We paid $20 million in conjunction with the aforementioned resolution. A net income statement tax benefit in the fourth quarter of fiscal 2010 of $39 million resulted.taxes payable.
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 classification of current and non-current assets and liabilities. We believe that beforewithin the end of fiscal 2011,next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the uncertainties described above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0$0 to approximately $5 million. $5 million.

69
Table of Contents

LIQUIDITY AND CAPITAL RESOURCES
This data should be read in conjunction with our Consolidated Statements of Cash Flows.
 As of
(in millions)November 30, 2012 December 2, 2011
Cash and cash equivalents$1,425.1
 $989.5
Short-term investments$2,113.3
 $1,922.2
Working capital$3,059.6
 $2,520.7
Stockholders’ equity$6,665.2
 $5,783.1
(in millions)  
Fiscal
2010
   
Fiscal
2009
 
Cash and cash equivalents
 $749.9  $999.5 
Short-term investments
 $1,718.1  $905.0 
Working capital
 $2,148.0  $1,629.1 
Stockholders’ equity $5,192.4  $4,890.6 
A summary of our cash flows is as follows:
(in millions)Fiscal
2012		 Fiscal
2011		 Fiscal
2010
Net cash provided by operating activities$1,499.6
 $1,543.3
 $1,113.0
Net cash used for investing activities(834.7) (757.4) (1,159.3)
Net cash used for financing activities(234.7) (550.4) (215.3)
Effect of foreign currency exchange rates on cash and cash equivalents5.4
 4.1
 12.0
Net increase (decrease) in cash and cash equivalents$435.6
 $239.6
 $(249.6)
(in millions)  
Fiscal
2010
   
Fiscal
2009
   
Fiscal
2008
 
Net cash provided by operating activities
 $1,113.0  $1,117.8  $1,280.7 
Net cash used for investing activities
  (1,159.3)  (1,497.1)  (304.7)
Net cash (used for) provided by financing activities
  (215.3)  477.6   (1,021.6)
Effect of foreign currency exchange rates on cash and cash equivalents  12.0   14.7   (14.4)
Net (decrease) increase in cash and cash equivalents
 $(249.6) $113.0  $(60.0)
 
Our primary source of cash is receipts from revenue. The primary uses of cash are payroll related expenses;expenses, general operating expenses including marketing, travel and office rent;rent, and cost of product revenue. Other sources of cash are proceeds from the exercise of employee options and participation in the ESPP. Another useOther uses of cash isinclude our stock repurchase program, which is described below.
below, business acquisitions and purchases of property and equipment. 
Cash flowsFlows from Operating Activities
For fiscal 2012, net cash provided by operating activities of $1.5 billion was primarily comprised of net income plus the net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in deferred revenue and decreases in trade receivables. Deferred revenue increased primarily due to an increase in activity for both 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 offset in part by higher revenue levels due to the CS6 product release which occurred late in the second quarter of fiscal 2012.
The primary working capital uses of cash were decreases in accrued restructuring and trade payables. Decreases in accrued restructuring primarily related to payments and adjustments for employee terminations and facility exit costs associated with the Fiscal 2011 Restructuring Plan, a significant portion of which were paid and adjusted in the first and second quarters of fiscal 2012. Trade payables decreased primarily due to the timing of payments as a greater number of invoices were paid prior to the fiscal year end in fiscal 2012 as compared to fiscal 2011.
For fiscal 2011, net cash provided by operating activities of $1.5 billion was primarily comprised of net income plus the net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in deferred revenue and accrued restructuring. Increases in deferred revenue related primarily to an 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 2011 Restructuring Plan which occurred in the fourth quarter of fiscal 2011 for which a majority was paid and adjusted in the first and second quarters of fiscal 2012.
The primary working capital uses of cash for fiscal 2011 were increases in trade receivables coupled with decreases in accrued expenses and taxes payable. Trade receivables increased primarily as a result of overall higher sales levels and billing occurring during the latter half of the fourth quarter of fiscal 2011, offset in part by an increased rate of collection for Digital Marketing services. Decreases in accrued expenses were primarily related to lower accrued bonus levels in fiscal 2011, coupled with payment of our second and third semi-annual interest payments associated with our Notes totaling $62.3 million. The resulting reduction in accrued interest was partially offset by additional interest accruals made during the period. Taxes payable decreased primarily due to the resolution of a Canadian Tax audit offset in part by quarterly increases to the tax provision in excess of taxes paid.

70
Table of Contents

For fiscal 2010, net cash provided by operating activities of $1.1$1.1 billion was primarily comprised of net income plus the net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in accrued expenses and deferred revenue. Accrued expenses increased primarily due to amounts due under our fiscal 2010 annual incentive plan and interest on our Notes, both of which will bewere paid in the first quarter of fiscal 2011. During fiscal 2010, we made our first semi-annual interest payment associated with our Notes totaling $31.1 million.$31.1 million. The resulting reduction in accrued interest was partially offset by additional interest accruals made during the period. Increases in deferred revenue 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 cust omercustomer billing terms.
The primary working capital uses of cash for fiscal 2010 were increases in trade receivables, prepaid expenses and other current assets as well as decreases in taxes payable, accrued restructuring and trade payables. Trade receivables increased as a result of products shipped and billed during the latter half of the fourth quarter of fiscal 2010 as a result of the launch of Acrobat X and slower receivable payments pertaining to Omniture services. Increases in prepaid expenses and other current assets

related primarily to higher valuations on our cash flow and balance sheet hedges due to the strengthening of the U.S. dollar. Income taxes payable decreased primarily due to payments of approximately $200.0$200.0 million for tax liabilities associated with the repatriation of undistributed foreign earnings as well as a $20.0$20.0 million settlement of an IRS exam in the fourth quarter of fiscal 2010. Accrued restructuring decreased primarily due to payments made related to the fiscal 2009 restructuring plan that was initiated in the fourth quarter of fiscal 2009 in addition to adjustments made to previously recorded estimates, offset in part by new charges.
Cash Flows from Investing Activities
For fiscal 2009,2012, net cash provided by operatingused for investing activities of $1.1 billion$834.7 million was primarily comprised of net income plus the net effect of non-cash expenses. The primary working capital sources of cash were net income coupled with decreases in trade receivables, prepaid expenses and other current assets and increases in income taxes payable. Trade receivables decreased primarily from CS4 revenue that was shipped in the latter half of the fourth quarter of fiscal 2008 and collected during the first quarter of fiscal 2009, in addition to lower overall gross revenue and improved collections.
The primary working capital uses of cash were decreases in accrued expenses, deferred revenue, trade payables and accrued restructuring. Accrued expenses decreased primarily due to payments for employee bonuses and commissions related to fiscal 2008. Decreases in deferred revenue related primarily to deferred revenue that was recognizedour acquisition of Efficient Frontier in the first quarter of fiscal 2009 associated with our free2012. Other uses of charge upgrades for CS4cash during fiscal 2012 represented purchases of short-term investments and Adobe Photoshop Lightroom products, as well as declines in maintenanceproperty and support orders. Accrued restructuring decreased primarily due to payments related to the 2008 restructuring program that was initiated in the fourth quarter of fiscal 2008,equipment, offset in part by new charges relatedsales and maturities of short-term investments. See Note 2 of our Notes to the Consolidated Financial Statements for further information regarding our 2009 restructuring program and acquisition of Omniture.
Efficient Frontier.
For fiscal 2008,2011, net cash provided by operatingused for investing activities of $1.3 billion$757.4 million was primarily comprised of net income plus the net effect of non-cash expenses. The primary working capital sources of cash were increases in net income, deferred revenue, accrued restructuring and trade payables. Increases in deferred revenue related to maintenance and support and free of charge upgrade plan purchases which offset in part, decreases in deferred revenue related to royalties. Accrued restructuring costs increased due to the restructuring program initiated in the fourth quarterpurchases of fiscal 2008short-term investments and multiple business acquisitions, offset in part by paymentsmaturities and sales of facility costs during fiscal 2008 associated with the Macromedia acquisition. See Note 11 of our Notes to Consolidated Financial Statements for information regarding our restruct uring charges.
The primary working capitalshort-term investments. Other uses of cash were increases in trade receivablesduring fiscal 2011 represented purchases of property, plant and prepaid expensesequipment and long-term investments, intangibles and other current assets coupled with decreases in income taxes payable and accrued expenses. Trade receivables increased primarily as a result of high sales of our CS4 family of products at the end of fiscal 2008.  Income taxes payable decreased primarily due to payments made as the result of the completion of a U.S. income tax examination covering our fiscal years 2001 through 2004. Accrued expenses decreased primarily due to payments for employee bonuses and profit sharing offset in part by increases in royalty accruals and charitable contributions.
Cash flows from investing activities
assets.
For fiscal 2010, net cash used for investing activities of $1.2$1.2 billion was primarily due to purchases of short-term investments and the acquisition of Day, offset in part by maturities and sales of short-term investments. Other uses of cash during fiscal 2010 represented purchases of property and equipment and long-term investments and other assets and the acquisition of Day.assets. These uses of cash were offset in part by proceeds from the sale of equipment under our sale lease-back transaction and the sale of long-term investments and other assets. investments. See Note 16 of our Notes to Consolidated Financial Statements for information regarding our sale lease-back transaction.
Cash Flows from Financing Activities
For fiscal 2009,2012 and fiscal 2011, net cash used for investingfinancing activities of $1.5 billion$234.7 million and $550.4 million, respectively, was primarily due to the acquisition of Omniture, purchases of short-term investments and property and equipment, offset in part by maturities and sales of short-term investments. Purchases of long-term investments and other assets during fiscal 2009 were less than fiscal 2008 primarily due to $56.0 million paid in the third quarter of fiscal 2008 for future licensing rights acquired through certain technology licensing arrangements which did not recur in fiscal 2009.
For fiscal 2008, net cash used for investing activities of $304.7 million was primarily due to purchases of short-term investments offset in part by maturities and sales of short-term investments. Other uses of cash during fiscal 2008 represented purchases of property and equipment, long-term investments and other assets and one business combination offset in part by proceeds from the sale of other investments in equity securities. The uses associated with the purchase of long-term investments and other assets related primarily to cash paid for future licensing rights acquired through certain technology licensing arrangements totaling $56.0 million in fiscal 2008.

Cash flows from financing activities
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 and $900.0 million of 4.75% senior notes due February 1, 2020. Our proceeds were approximately $1.5 billion and were net of an issuance discount of $6.6 million. The Notes rank equally with our other unsecured and unsubordinated indebtedness. In addition, we incurred issuance costs of approximately $10.7 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the Notes using the effective interest method. Interest is payable semi-annually, in arrears, on February 1 and August 1, commencing on August 1, 2010. The proceeds from this offering are available for general corporate purposes. As of December 3, 2010, the amount outstanding under the Notes was $1.5 billion, which is included in lo ng-term liabilities on our Consolidated Balance Sheets. See Note 17 of our Notes to Consolidated Financial Statements for more detailed information.
On February 1, 2010, we used $1.0 billion of the proceeds from the Notes offering to pay the outstanding balance on our credit facility, and as of December 3, 2010, this facility has no outstanding balance. We are in compliance with all of our covenants under our credit facility and the entire $1.0 billion credit line remains available for borrowing.
Net cash from financing activities changed from cash provided for in fiscal 2009 of $477.6 million to cash used in fiscal 2010 of $215.3 million, primarily due to payment of the outstanding balance on our credit facility and treasury stock repurchases offset in part by proceeds from our Notes and treasury stock issuances. See sections entitledthe section titled “Stock Repurchase Program I” and “Stock Repurchase Program II”Program” discussed below.
NetFor fiscal 2010, the primary cash flows from financing activities changedrepresented the issuance of $600.0 million of 3.25% senior notes due February 1, 2015 and $900.0 million of 4.75% senior notes due February 1, 2020. On February 1, 2010, we paid the outstanding balance on our then existing credit facility with a portion of the funds from our Notes. Other uses of cash used induring fiscal 2008 of $1.0 billion to cash provided2010 were for in fiscal 2009 of $477.6 million, primarily due to additional borrowing under our credit agreement of $650.0 million and lower purchases of treasury stock repurchases offset in part by proceeds related to the issuance offrom our treasury stock. See sections entitled “Stock Repurchase Program I” and “Stock Repurchase Program II” discussed below. issuances.
We expect to continue our investing activities, including short-term and long-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 acquire companies, products or technologies that are complementary to our business.
 
Acquisition of Day
On October 28, 2010, we completed our acquisition of Day, a provider of WCM solutions that leading global enterprises rely on for Web 2.0 content application and content infrastructure, based in Basel, Switzerland and Boston, Massachusetts. Under the terms of the agreement, we completed our public tender offer to acquire all of the publicly held registered shares of Day for 139 Swiss Francs per share in cash in a transaction valued at approximately $248.3 million on a fully diluted equity-value basis. In order to hedge the economic exposure related to this acquisition, we entered into a forward contract to purchase 254.7 million Swiss Francs for $242.5 million U.S. dollars that matured near the closing date of the acquisition. Upon maturity of the forward contract, we recorded a $20.8 million gain to interest and other incom e (expense), net. This forward contract is accounted for as a separate transaction apart from the acquisition. Following the closing, we integrated Day as a product line within our Enterprise segment for financial reporting purposes.

Restructuring
During the past several years, we have initiated various restructuring plans. Currently, we haveDuring fiscal 2012 the following four activefive restructuring plans, two of which were the result of large acquisitions:acquisitions, were still active:

Fiscal 2011 Restructuring Plan
·  
Fiscal 2009 Restructuring Plan
·  
Fiscal 2008 Restructuring Plan
·  
Omniture Restructuring Plan
·  
Macromedia Restructuring Plan

71
During fiscal 2010,
Table of Contents

As of November 30, 2012, we have accrued total restructuring charges of approximately $16.4$21.6 million of which approximately $2.6$2.3 million related relates to ongoing termination benefits and contract terminations whichthat are expected to be paid during the first quarter of fiscal 2011.2013. The remaining $13.8accrued restructuring charges of $19.3 million related relate to the cost of closing redundant facilities and are expected to be paid under contract through fiscal 2021, approximately 69%of which over 70% will be paid through 2013.2015. During fiscal 2010,2012, we made payments related to the above restructuring plans totaling approximately $49.9$63.1 million which consisted of approximately $42.3$50.5 million and $12.6 million in payments related to termination benefits and contract terminations and approximately $7.6 million related to the costclosing of closing redundant facilities.facilities, respectively.

During fiscal 2009,December 2, 2011, we accrued total restructuring charges of approximately $44.7$88.4 million of which approximately $31.0$74.4 million related to ongoing termination benefits and contract terminations which were substantially paid or adjusted during fiscal 2010. The2012 with the remaining $13.7$14.0 million related to the cost of closing redundant facilities that are expected to be paid through 2013.facilities. During fiscal 2009,2011, we made payments related to the above restructuring plans totaling approximately $49.7$13.1 million which consisted of approximately $37.6$6.8 million and $6.3 million in payments related to termination benefits and contract terminations and approximately $12.1 million relatedthe closing of redundant facilities, respectively.
We believe that our existing cash and cash equivalents, short-term investments and cash generated from operations will be sufficient to meet the costcash outlays for the restructuring actions described above.
See Note 10 of closing redundant facilities.
our Notes to Consolidated Financial 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 20112013 due to changes in our planned cash outlay, including changes in incremental costs such as direct and integration costs related to our business acquisitions. Our cash and investments totaled $3.5 billion as of November 30, 2012. Of this amount, approximately 83% was held by our foreign subsidiaries and subject to material repatriation tax effects. Our intent is to permanently reinvest a significant portion of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event funds from foreign operations are needed to fund operations in the United States and if U.S. tax has not already been previously provided, we would provide for and pay additional U.S. taxes in connection with repatriating these funds.
Cash from operations could also be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part I, Item 1A titled “Risk Factors.”Factors”. However, based on our current business plan and revenue prospects, we believe that our existing balances, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months.
As of December 3, 2010,November 30, 2012, the amount outstanding under the Notesour senior notes was $1.5 billion.$1.5 billion. On February 1, 2010,March 2, 2012, we usedentered into a five-year $1.0 billion senior unsecured revolving credit agreement (the “Credit Agreement”), providing for loans to us and certain of the proceeds from this offering to pay the outstanding balance on our credit facility. The remaindersubsidiaries. As of the proceeds from the Notes are available for general corporate purposes. There isNovember 30, 2012, there were no outstanding balanceborrowings under our credit facilitythis Credit Agreement and the entire $1.0 billion credit line remains available for borrowing. In connection with entering into the Credit Agreement, we terminated and paid off all obligations under our previous credit agreement dated as of February 16, 2007.
We use professional investment management firms to manage a large portion of our invested cash. External investment firms managed, on average, 79%74% of our consolidated invested balances during the fourth quarter of fiscal 2010.2012. The fixed income portfolio is primarily invested in U.S. Treasurycorporate bonds and commercial paper, foreign government securities, money market mutual funds and repurchase agreements, municipal securities, U.S. agency securities municipal securities, corporate bonds and foreign governmentU.S. Treasury securities.
Stock Repurchase Program I

To facilitate our stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we repurchase shares in the open market and also enter into structured repurchases with third-parties.
Authorization to repurchase shares to cover on-going dilution was not subject to expiration. However, this repurchase program was limited to covering net dilution from stock issuances and was subject to business conditions and cash flow requirements as determined by our Board of Directors from time to time.
During the third quarter of fiscal 2010, our Board of Directors approved an amendment to our stock repurchase program authorized in April 2007 from a non-expiring share-based authority to a time-constrained dollar-based authority. As part of this amendment, the Board of Directors granted authority to repurchase up to $1.6$1.6 billion in common stock through the end of fiscal 2012. This amended program did not affectDuring the $250.0 million structuredsecond quarter of fiscal 2012, we exhausted our $1.6 billion time-constrained dollar-based authority granted by our Board of Directors in fiscal 2010. In April 2012, the Board of Directors approved a new stock repurchase agreement entered into during March 2010. Asprogram granting authority to repurchase up to $2.0 billion in common stock through the end of December 3, 2010, no prepayments remain under that agreement.fiscal 2015. The new stock repurchase program approved by our Board of Directors is similar to our previous $1.6 billion stock repurchase program.
During fiscal 2010, 20092012, 2011 and 20082010, we entered into several structured stock repurchase agreements with large financial institutions, whereupon we provided the financial institutionsthem with prepayments of $850.0totaling $405.0 million $350.0, $695.0 million and $525.0$850.0 million, respectively. Of the $850.0$405.0 million of prepayments during fiscal 2012, $100.0 million was under the new $2.0 billion stock repurchase program and the remaining $305.0 million was under our previous $1.6 billion authority. Of the $850.0 million of

72
Table of Contents

prepayments during fiscal 2010 $250.0, $250.0 million was under the stock repurchase program prior to the program amendment and the remaining $600.0$600.0 million was under the amended $1.6our $1.6 billion time-constrained dollar-based authority. We enteredenter into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume Weighted Average Price (“VWAP”) of our common stock over a specified period of time. We only enter into such transactions when the discount that we receive is higher than the foregone return on our cas hcash prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.
The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount. During fiscal 2010,2012, we repurchased approximately 31.211.5 million shares at an average price of $29.19$32.29 through structured repurchase agreements entered into during fiscal 2012. During fiscal 2011, we repurchased approximately 21.8 million shares at an average price of $31.81 through structured repurchase agreements entered into during fiscal 2011. During fiscal 2010, we repurchased approximately 31.2 million shares at an average price per share of $29.19 through structured repurchase agreements entered into during fiscal 2009 and fiscal 2010. During fiscal 2009, we repurchased approximately 15.2 million shares at an average price per share of $27.89 through structured repurchase agreements entered into during fiscal 2008 and fiscal 2009. During fiscal 2008, we repurchased 22.4 million shares at an a verage price of $36.26 through structured repurchase agreements which included prepayments from fiscal 2007.

During fiscal 2008, we also repurchased 3.6 million shares at an average price of $36.41 in open market transactions.
For fiscal 2010, 20092012, 2011 and 2008,2010, 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 30, 2012, December 2, 2011 and December 3, 2010 November 27, 2009 and November 28, 2008 were excluded from the computation of earnings per share. As of November 30, 2012, $33.0 million of prepayments remained under the agreement. As of December 2, 2011 and December 3, 2010, no prepayments remained under the agreements. As of November 27, 2009, approximately $59.9 million of prepayments remained under the agreements.
Subsequent to December 3, 2010,November 30, 2012, as part of our $1.6$2.0 billion stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $125.0 million.$100.0 million. This amount will be classified as treasury stock on our Consolidated Balance Sheets. Upon completion of the $125.0$100.0 million stock repurchase agreement, $875.0 million$1.8 billion remains under our time-constrained dollar-basedcurrent authority. See Note 14Notes 13 and 2120 of our Notes to Consolidated Financial Statements for further discussion of our stock repurchase programs.
See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securitiesfor share repurchases during the quarter ended December 3, 2010.November 30, 2012.
Stock Repurchase Program II
Under this stock repurchase program, we had authorization to repurchase an aggregate of 50.0 million shares of our common stock. From the inception of the 50.0 million share authorization under this program, we provided prepayments of $1.9 billion under structured share repurchase agreements to large financial institutions. During the third quarter of fiscal 2008, the remaining authorized number of shares were repurchased.
During fiscal 2008, we provided prepayments of $1.0 billion and repurchased 31.9 million shares under these structured agreements at an average price of $37.15. During fiscal 2008, we also repurchased 0.5 million shares at an average price of $39.79 in open market transactions.

Summary of Stock Repurchases for fiscal 2010, 20092012, 2011 and 20082010
(in thousands, except average amounts)
Board Approval Repurchases   2010   2009    2008 
Date Under the Plan Shares  Average  Shares  Average  Shares  Average 
Board Approval
Date
 
Repurchases
Under the Plan
 2012 2011 2010
 Shares Average Shares Average Shares Average
December 1997 
From employees(1)
 1 $35.66  1 $24.00  5 $34.89  
From employees(1)
 

 

 1
 $33.57
 1
 $35.66
 Open market — $—  — $—  3,554 $36.41  
Structured repurchases(2)
 —
 $—
 —
 $—
 9,358
 $33.11
 
Structured repurchases(2)
 9,358 $33.11  15,231 $27.89  22,418 $36.26 
April 2007 
Structured repurchases(2)
 — $—  — $—  31,859 $37.15 
 Open market — $—  — $—  456 $39.79 
June 2010 
Structured repurchases(2)
 21,807 $27.51  — $—  — $—  
Structured repurchases(2)
 9,482
 $32.17
 21,849
 $31.81
 21,807
 $27.51
April 2012 
Structured repurchases(2)
 2,038
 $32.87
 —
 $—
 —
 $—
Total shares   31,166 $29.19  15,232 $27.89  58,292 $36.79    11,520
 $32.29
 21,850
 $31.81
 31,166
 $29.19
Total cost  $909,900    $424,851    $2,144,400       $371,995
  
 $695,015
  
 $909,900
  

_________________________________________
(1)
The repurchases from employees represent shares cancelledcanceled when surrendered in lieu of cash payments for the option exercise price or withholding taxes due.
(2)
(2)
Stock repurchase agreements executed with large financial institutions. See “StockStock Repurchase Program I” and “Stock Repurchase Program II” above.

73
Table of Contents

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Our principal commitments as of December 3, 2010November 30, 2012 consist of obligations under operating leases, capital leases, royalty agreements and various service agreements. See Note 1615 of our Notes to Consolidated Financial Statements for additional information regarding our contractual commitments.

Contractual Obligations
The following table summarizes our contractual obligations as of December 3, 2010November 30, 2012 (in millions):

    Payment Due by Period  
  Payment Due by Period
  Total   
Less than
1 year
   1-3 years   3-5 years   
More than
5 years
  Total 
Less than
1 year
 1-3 years 3-5 years 
More than
5 years
Notes $1,993.9  $62.3  $124.5  $714.8  $1,092.3  $1,869.5
 $62.3
 $714.8
 $85.5
 $1,006.9
Operating leases  273.8   61.7   85.6   45.5   81.0 
Operating lease obligations 246.1
 47.3
 73.0
 46.7
 79.1
Capital lease obligations   30.6   9.9   19.9   0.8   —  13.2
 11.4
 1.8
 —
 —
Purchase obligations   214.5   175.1   16.0   8.3   15.1  342.2
 256.4
 46.5
 27.3
 12.0
Total  $2,512.8  $309.0  $246.0  $769.4  $1,188.4  $2,471.0
 $377.4
 $836.1
 $159.5
 $1,098.0

Senior Notes
In February 2010, we issued $600.0$600.0 million of 3.25% senior notes due February 1, 2015 and $900.0$900.0 million of 4.75% senior notes due February 1, 2020. As of November 27, 2009, we had an outstanding credit facility of $1.0 billion which we repaid on February 1, 2010 using the proceeds from the Notes.2020. Interest on the Notes is payable semi-annually, in arrears on February 1 and August 1, commencing on August 1, 2010. In August 2010, we madeDuring fiscal 2012 interest payments totaled $62.3 million. At November 30, 2012, our first semi-annualmaximum commitment for interest of $31.1 million.payments under the Notes was $369.4 million.
Capital Lease Obligation
In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2$32.2 million and leaseback the same equipment over a period of 43 months. This transaction was classified as a capital lease obligation and was recorded at fair value.
Covenants
Our credit facility contains a financial covenant requiring us not to exceed a certain maximum leverage ratio. Our leases for the East and West Towers and the Almaden Tower are both subject to standard covenants includinglease includes certain financial ratios as defined in the lease agreements that are reported to the lessors quarterly. As of December 3, 2010,November 30, 2012, we were in compliance with all of our covenants. Our Notes do not contain any financial covenants. We believe these covenants will not impact our credit or cash in the 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 exists. We do not anticipate paying any cash dividends in the foreseeable future.
Accounting for Uncertainty in Income Taxes
The gross liability for unrecognized tax benefits at December 3, 2010November 30, 2012 was $156.9$160.5 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 classification of current and non-current assets and liabilities. We believe that beforewithin the end of fiscal 2011,next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the uncertainties described above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0$0 to approximately $5 million. 
$5 million. 
Royalties
We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue.

74
Table of Contents

Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees. The fair value of a residual value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our Consolidated Balance Sheets. As such, we recognized $5.2$5.2 million and $3.0$3.0 million in liabilities, related to the extended East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will bewas amortized to our Consolidated Statements of Income over the life of the original leases. As of December 3, 2010 and November 27, 2009,30, 2012 there was no remaining balance of the unamortized portion of the fair value of the residual value guarantees, for either lease, remaining in other long-term liabilities and prepaid rent was $0.7 milli on and $1.3 million, respectively.
our Consolidated Balance Sheets.
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.products and from time to time, we are subject to claims by our customers under these indemnification provisions. Historically, costs related to
77

these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for certain events or occurrences while the director or officer is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’sdirector's or officer’sofficer's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
During fiscal 2010, our limited partnership interest in Adobe Ventures was dissolved and all remaining assets were distributed to the partners. As part of this limited partnership interest, we provided a general indemnification to Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences while Granite Ventures was serving at our request in such capacity provided that Granite Ventures acted in good faith on behalf of the partnership.
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All market risk sensitive instruments were entered into for non-trading purposes.
Foreign Currency Risk
Foreign Currency Hedging Instruments
In countries outside the U.S., we transact business in U.S. dollars and various other currencies. Transactions denominated in Euro, Yen and British Poundscurrencies which subject us to exposure from movements in exchange rates. We hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates. WeAdditionally, we may use foreign exchange option or forward contracts forto hedge our Euro- , Yen-, or British Pound-denominated revenue.
In fiscal 2010, 2009 and 2008, ourOur revenue exposures were 542.9 million Euro, 504.3 million Euro and 628.2 million Euro, respectively. In fiscal 2010, 2009 and 2008, our revenue exposures were 35.6 billion Yen, 30.3 billion Yen and 36.8 billion Yen, respectively. We began hedging British Pound transactions in 2010. Revenue exposures were 123.9 million British Pounds for fiscal 2010.2012, 2011 and 2010 were as follows (in millions, except Yen):
 Fiscal
2012		 Fiscal
2011		 Fiscal
2010
Euro€530.7
 €557.6
 €542.9
Yen (in billions)¥34.8
 ¥34.7
 ¥35.6
British Pounds£145.1
 £144.8
 £123.9
Our European operating expenses are primarily in Euro and our Japanese operating expenses are primarily in Yen, which naturally mitigates a portion of the exposure related to Euroour Euro- and Yen denominatedYen-denominated product revenue. We hedge a percentage of forecasted international revenue with purchased option contracts and/or forward contracts. Our revenue hedging policy is intended to help mitigate the impact on our forecasted revenue due to foreign currency exchange rate movements. In addition, we hedge firmly committed transactionsour net monetary assets and liabilities using forward contracts. These contracts do subject us to risk of accounting gains and losses; however, the gains and losses on these contracts largely offset gains and losses on the assets, liabilities and transactions being hedged. We also hedge a percentage of forecasted international revenue with purchased option contracts and forward contracts. Our revenue hedging policy is intended to help mitigate the impact on our forecasted revenue due to foreign currency exchange rate movements. As of December 3, 2010,November 30, 2012, the total absolute value of outstanding contracts was $1,035.8$937.2 million which in cludedincluded the notional equivalent of $570.1$476.5 million in Euro, $222.6$220.7 million in Yen and $243.1$240.0 million in other foreign currencies. These hedges are foreign currency forward exchange contracts which hedged our balance sheet exposures and purchased put option contracts which hedged our forecasted revenue. As of December 3, 2010,November 30, 2012, all contracts were set to expire at various times through June 2011.2013. The bank counterparties in these contracts expose us to credit-related losses in the event of their nonperformance. However, to mitigate that risk, we only contract with counterparties who meet our minimum requirements under our counterparty risk assessment process. In addition, our hedging policy establishes maximum limits for each counterparty.
In addition, weWe also have long-term investment exposures consisting of the capitalization and retained earnings in our non-USD functional currency foreign subsidiaries. As of November 30, 2012 and December 3, 2010 and November 27, 2009,2, 2011, this long-term investment exposure

75
Table of Contents

totaled a notional equivalent of $387.6$419.6 million and $228.8$481.4 million, respectively. At this time, we do not hedge these long-term investment exposures.
Economic Hedging—Hedges of Forecasted Transactions
We may use foreign exchange option contracts or forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, may have maturities between one and twelve months. Such cash flow exposures result from portions of our forecasted
78

revenue denominated in currencies other than the U.S. dollar, primarily the Euro, Yen, and British Pound. We enter into these foreign exchange contracts to hedge forecasted product licensing revenue in the normal course of business and accordingly, they are not speculative in nature.
We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to revenue. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income to interest and other income, net on our Consolidated Statements of Income at that time. For the fiscal year ended December 3, 2010,November 30, 2012, there were no such net gains or losses recognized in other income relating to hedges of forecasted transactions that did not occur.
See Note 5 of our Notes to Consolidated Financial Statements for information regarding our hedging activities.
Balance Sheet Hedging—Hedging of Foreign Currency Assets and Liabilities
We hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative instruments hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes in the fair value recorded as interest and other income, net. These derivative instruments do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged. At December 3, 2010,November 30, 2012, the outstanding balance sheet hedging derivatives had maturities of 90180 days or less.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of December 3, 2010.November 30, 2012. This sensitivity analysis was based on a modeling 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 the spot rates of the currency. A 10% increase in the value of the U.S. dollar (and a corresponding decrease in the value of the hedged foreign currency asset) would lead to an increase in the fair value of our financial hedging instruments by $56.2 million.$64.0 million. Conversely, a 10% decrease in the value of the U.S. dollar would result in a decrease in the fair value of these financial instruments by $39.5 million.
$35.1 million.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates.
As a general rule, we do not use financial instruments to hedge local currency denominated operating expenses in countries where a natural hedge exists. For example, in many countries, revenue from the local currency product licenses substantially offsets the local currency denominated operating expenses. We assess the need to utilize financial instruments to hedge currency exposures, primarily related to operating expenses, on an ongoing basis.
We regularly review our hedging program and may as part of this review determine to change our hedging program.
See Note 5 of our Notes to Consolidated Financial Statements for information regarding our hedging activities.

76
Table of Contents

Interest Rate Risk
Short-Term Investments and Fixed Income Securities
At December 3, 2010,November 30, 2012, we had debt securities classified as short-term investments of $1,706.9 million.$2.1 billion. Changes in interest rates could adversely affect the market value of these investments. The following table separates these investments, based on stated maturities, to show the approximate exposure to interest rates (in millions):
Due within one year $625.4 $656.8
Due within two years  523.2 495.1
Due within three years  446.3 678.5
Due after three years  112.0 282.7
Total $1,706.9 $2,113.1

A sensitivity analysis was performed on our investment portfolio as of December 3, 2010.November 30, 2012. The analysis is based on an estimate of the hypothetical changes in market value of the portfolio that would result from an immediate parallel shift in the yield curve of various magnitudes.
79

The following tables present the hypothetical fair values of our debt securities classified as short-term investments assuming immediate parallel shifts in the yield curve of 50 basis points (“BPS”), 100 BPS and 150 BPS. The analysis is shown as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 (dollars in millions):

-150 BPS -100 BPS -50 BPSFair Value 12/3/2010 +50 BPS +100 BPS +150 BPS
1,730.21,726.41,718.91,706.91,694.71,682.61,670.6
      
-150 BPS -100 BPS -50 BPSFair Value 11/27/2009 +50 BPS +100 BPS +150 BPS-150 BPS -100 BPS -50 BPS Fair Value 11/30/12 +50 BPS +100 BPS +150 BPS
910.8909.2905.4900.0893.9888.0882.2
2,138.4
 2,136.6
 2,129.3
 2,113.1
 2,094.6
 2,076.5
 2,058.5
-150 BPS-150 BPS -100 BPS -50 BPS Fair Value 12/2/2011 +50 BPS +100 BPS +150 BPS
1,935.5
 1,930.6
 1,922.1
 1,909.9
 1,896.4
 1,883.0
 1,869.9
Other Market Risk
Privately Held Long-Term Investments
The privately held companies in which we invest can still be considered in the start-up or development stages which are inherently risky. The technologies or products these companies have under development are typically in the early stages and may never materialize, which could result in a loss of a substantial part of our initial investment in these companies. The evaluation of privately held companies is based on information that we request from these companies, which is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to the timing and accuracy of the data received from these companies.
See Note 4 and Note 8 of our Notes to Consolidated Financial Statements for information regarding our limited partnership interest in Adobe Ventures.
Short-Term Investments and Marketable Equity Securities
We are exposedhave immaterial exposure to equity price risk on our portfolio of marketable equity securities. As of December 3, 2010,November 30, 2012, our total equity holdings in publicly traded companies were valued at $11.2$0.2 million compared to $5.0$12.3 million at November 27, 2009.December 2, 2011. The increasedecrease was primarily due to the change in the fair valuedisposal of certain of our equity holdings during fiscal 2010.
The following table represents the potential decrease in fair values of our marketable equity securities as of December 3, 2010, that are sensitive to changes in the stock market. Fair value deteriorations of 50%, 35% and 15% were selected for illustrative purposes because none is more likely to occur than another.
(in millions)  50%   35%   15% 
Marketable equity securities
 $(5.6) $(3.9) $(1.7)
2012.

77
80

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page No.
Consolidated Balance Sheets
82
79
Consolidated Statements of Income
83
80
Consolidated Statements of Stockholders’Stockholders' Equity and Comprehensive Income
84
81
Consolidated Statements of Cash Flows
85
82
Notes to Consolidated Financial Statements
86
83
Report of KPMG LLP, Independent Registered Public Accounting Firm
127
122
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and Notes thereto.


78
81

ADOBE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

   December 3,   November 27, 
   2010   2009 
ASSETS 
Current assets:        
Cash and cash equivalents $749,891  $999,487 
Short-term investments  1,718,124   904,986 
Trade receivables, net of allowances for doubtful accounts of $15,233 and
$15,225, respectively                                                                                                    
  554,328   410,879 
Deferred income taxes  83,247   77,417 
Prepaid expenses and other current assets  110,460   80,855 
Total current assets  3,216,050   2,473,624 
Property and equipment, net  448,881   388,132 
Goodwill  3,641,844   3,494,589 
Purchased and other intangibles, net  457,263   527,388 
Investment in lease receivable  207,239   207,239 
Other assets  169,871   191,265 
Total assets                                                                                                      $8,141,148  $7,282,237 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities:        
Trade payables $52,432  $58,904 
Accrued expenses  564,275   419,646 
Capital lease obligations, current  8,799   — 
Accrued restructuring  8,119   37,793 
Income taxes payable  53,715   46,634 
Deferred revenue  380,748   281,576 
Total current liabilities  1,068,088   844,553 
Long-term liabilities:        
Debt and capital lease obligations, non-current  1,513,662   1,000,000 
Deferred revenue  48,929   36,717 
Accrued restructuring  8,254   6,921 
Income taxes payable  164,713   223,528 
Deferred income taxes  103,098   252,486 
Other liabilities  42,017   27,464 
Total liabilities  2,948,761   2,391,669 
Commitments and contingencies        
Stockholders’ equity:        
Preferred stock, $0.0001 par value; 2,000 shares authorized; none issued  —   — 
Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued;
501,897 and 522,657 shares outstanding, respectively
  61   61 
Additional paid-in-capital  2,458,278   2,390,061 
Retained earnings  5,980,914   5,299,914 
Accumulated other comprehensive income  17,428   24,446 
Treasury stock, at cost (98,937 and 78,177 shares, respectively), net of re-issuances  (3,264,294)  (2,823,914)
Total stockholders’ equity  5,192,387   4,890,568 
Total liabilities and stockholders’ equity $8,141,148  $7,282,237 

 November 30,
2012		 December 2,
2011
ASSETS   
Current assets:   
Cash and cash equivalents$1,425,052
 $989,500
Short-term investments2,113,301
 1,922,192
Trade receivables, net of allowances for doubtful accounts of $12,643 and  $15,080, respectively617,233
 634,373
Deferred income taxes59,537
 91,963
Prepaid expenses and other current assets116,237
 133,423
Total current assets4,331,360
 3,771,451
Property and equipment, net664,302
 527,828
Goodwill4,133,259
 3,849,217
Purchased and other intangibles, net545,036
 545,526
Investment in lease receivable207,239
 207,239
Other assets93,327
 89,922
Total assets$9,974,523
 $8,991,183
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities: 
  
Trade payables$49,759
 $86,660
Accrued expenses590,140
 554,941
Capital lease obligations11,217
 9,212
Accrued restructuring9,287
 80,930
Income taxes payable49,886
 42,634
Deferred revenue561,463
 476,402
Total current liabilities1,271,752
 1,250,779
Long-term liabilities: 
  
Debt and capital lease obligations1,496,938
 1,505,096
Deferred revenue58,102
 55,303
Accrued restructuring12,263
 7,449
Income taxes payable155,096
 156,958
Deferred income taxes265,106
 181,602
Other liabilities50,084
 50,883
Total liabilities3,309,341
 3,208,070
    
Commitments and contingencies

 

    
Stockholders’ equity: 
  
Preferred stock, $0.0001 par value; 2,000 shares authorized; none issued—
 —
Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued; 
     494,132 and 491,540 shares outstanding, respectively
61
 61
Additional paid-in-capital3,038,665
 2,753,896
Retained earnings7,003,003
 6,528,735
Accumulated other comprehensive income30,712
 29,950
Treasury stock, at cost (106,702 and 109,294 shares, respectively), net of reissuances(3,407,259) (3,529,529)
Total stockholders’ equity6,665,182
 5,783,113
Total liabilities and stockholders’ equity$9,974,523
 $8,991,183
See accompanying Notes to Consolidated Financial Statements.

79
82

ADOBE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

   Years Ended Years Ended
 
December 3,
2010
  
November 27,
2009
  
November 28,
2008
 November 30,
2012		 December 2,
2011		 December 3,
2010
Revenue:              
Products
 $3,159,161  $2,684,789  $3,354,554 $3,342,843
 $3,416,483
 $3,159,161
Subscription
  386,805   74,602   41,988 673,206
 458,634
 386,805
Services and support
  254,034   186,462   183,347 387,628
 341,141
 254,034
Total revenue
  3,800,000   2,945,853   3,579,889 4,403,677
 4,216,258
 3,800,000
            
Cost of revenue:             
    
Products
  127,453   180,611   243,180 121,663
 125,640
 127,453
Subscription
  195,595   48,286   23,209 219,102
 194,033
 195,595
Services and support
  80,454   67,835   96,241 143,017
 118,200
 80,454
Total cost of revenue
  403,502   296,732   362,630 483,782
 437,873
 403,502
            
Gross profit
  3,396,498   2,649,121   3,217,259 3,919,895
 3,778,385
 3,396,498
            
Operating expenses:             
    
Research and development
  680,332   565,141   662,057 742,823
 738,053
 680,332
Sales and marketing
  1,244,197   981,903   1,089,341 1,516,159
 1,385,822
 1,244,197
General and administrative
  383,499   298,749   337,291 434,982
 414,605
 383,499
Restructuring charges
  23,266   41,260   32,053 
Amortization of purchased intangibles and incomplete technology
  72,130   71,555   68,246 
Restructuring and other related charges (credits)(2,917) 97,773
 23,266
Amortization of purchased intangibles48,657
 42,833
 72,130
Total operating expenses
  2,403,424   1,958,608   2,188,988 2,739,704
 2,679,086
 2,403,424
            
Operating income
  993,074   690,513   1,028,271 1,180,191
 1,099,299
 993,074
            
Non-operating income (expense):             
    
Interest and other income (expense), net
  13,139   31,380   43,847 (3,414) (2,974) 13,139
Interest expense
  (56,952)  (3,407)  (10,019)(67,487) (66,952) (56,952)
Investment gains (losses), net
  (6,110)  (16,966)  16,409 9,504
 5,857
 (6,110)
Total non-operating income (expense), net
  (49,923)  11,007   50,237 (61,397) (64,069) (49,923)
Income before income taxes
  943,151   701,520   1,078,508 1,118,794
 1,035,230
 943,151
Provision for income taxes
  168,471   315,012   206,694 286,019
 202,383
 168,471
Net income
 $774,680  $386,508  $871,814 $832,775
 $832,847
 $774,680
Basic net income per share
 $1.49  $0.74  $1.62 $1.68
 $1.67
 $1.49
Shares used to compute basic income per share
  519,045   524,470   539,373 
Shares used to compute basic net income per share494,731
 497,469
 519,045
Diluted net income per share
 $1.47  $0.73  $1.59 $1.66
 $1.65
 $1.47
Shares used to compute diluted income per share
  525,824   530,610   548,553 
Shares used to compute diluted net income per share502,721
 503,921
 525,824
See accompanying Notes to Consolidated Financial Statements.


80
Table of Contents

ADOBE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands)

  
  Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
  Treasury Stock  
  Shares Amount    Shares Amount Total
Balances at November 27, 2009 600,834
 $61
 $2,390,061
 $5,299,914
 $24,446
 (78,177) $(2,823,914) $4,890,568
Comprehensive income:  
  
  
  
  
  
  
  
Net income —
 —
 —
 774,680
 —
 —
 —
 774,680
Other comprehensive income,
net of taxes (Note 13)
 —
 —
 —
 —
 (7,018) —
 —
 (7,018)
Total comprehensive income, net of
taxes
 —
 —
 —
 —
 —
 —
 —
 767,662
Re-issuance of treasury stock under
stock compensation plans
 —
 —
 (177,099) (93,680) —
 10,407
 410,049
 139,270
Tax benefit from employee stock plans —
 —
 11,107
 —
 —
 —
 —
 11,107
Purchase of treasury stock —
 —
 —
 —
 —
 (31,167) (850,020) (850,020)
Equity awards assumed for
    acquisition
 —
 —
 3,264
 —
 —
 —
 —
 3,264
Stock-based compensation —
 —
 230,945
 —
 —
 —
 —
 230,945
Value of shares in deferred compensation plan —
 —
 —
 —
 —
 —
 (409) (409)
Balances at December 3, 2010 600,834
 $61
 $2,458,278
 $5,980,914
 $17,428
 (98,937) $(3,264,294) $5,192,387
Comprehensive income:  
  
  
  
  
  
  
  
Net income —
 —
 —
 832,847
 —
 —
 —
 832,847
Other comprehensive income,
net of taxes (Note 13)
 —
 —
 —
 —
 12,522
 —
 —
 12,522
Total comprehensive income, net of
     taxes
 —
 —
 —
 —
 —
 —
 —
 845,369
Re-issuance of treasury stock under
stock compensation plans
 —
 —
 —
 (285,026) —
 11,492
 429,780
 144,754
Tax benefit from employee stock plans —
 —
 9,568
 —
 —
 —
 —
 9,568
Purchase of treasury stock —
 —
 —
 —
 —
 (21,849) (695,015) (695,015)
Stock-based compensation —
 —
 286,050
 —
 —
 —
 —
 286,050
Balances at December 2, 2011 600,834
 $61
 $2,753,896
 $6,528,735
 $29,950
 (109,294) $(3,529,529) $5,783,113
Comprehensive income:  
  
  
  
  
  
  
  
Net income —
 —
 —
 832,775
 —
 —
 —
 832,775
Other comprehensive income,
net of taxes (Note 13)
 —
 —
 —
 —
 762
 —
 —
 762
Total comprehensive income, net of
     taxes
 —
 —
 —
 —
 —
 —
 —
 833,537
Re-issuance of treasury stock under
stock compensation plans
 —
 —
 —
 (358,507) —
 14,111
 527,781
 169,274
Tax benefit (detriment) from employee stock plans —
 —
 (16,842) —
 —
 —
 —
 (16,842)
Purchase of treasury stock —
 —
 —
 —
 —
 (11,519) (405,000) (405,000)
Equity awards assumed for
    acquisition
 —
 —
 4,265
 —
 —
 —
 —
 4,265
Stock-based compensation —
 —
 297,346
 —
 —
 —
 —
 297,346
Value of shares in deferred compensation plan —
 —
 —
 —
 —
 —
 (511) (511)
Balances at November 30, 2012 600,834
 $61
 $3,038,665
 $7,003,003
 $30,712
 (106,702) $(3,407,259) $6,665,182
See accompanying Notes to Consolidated Financial Statements.

81
83

ADOBE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOMECASH FLOWS
 (In(In thousands)
   Common Stock 
Additional
Paid-In
  Retained  
Accumulated
Other
Comprehensive
  Treasury Stock    
 Shares Amount Capital  Earnings  Income Shares  Amount  Total 
Balances at November 30, 2007600,834$61$2,340,969 $4,041,592 $27,948 (29,425)$(1,760,588)$4,649,982 
Comprehensive income:                    
Net income
— — —  871,814  — —  —  871,814 
Other comprehensive income (loss),
net of taxes (Note 14)
— — —  —  29,274 —  —  29,274 
Total comprehensive income,
net of taxes
— — —  —  — —  —  901,088 
Re-issuance of treasury stock under
stock compensation plans
— — (206,984) —  — 12,994  526,149  319,165 
Tax benefit from employee stock option
plans
— — 90,360  —  — —  —  90,360 
Purchase of treasury stock— — —  —  — (58,292) (1,722,715) (1,722,715)
Stock-based compensation— — 172,474  —  — —  —  172,474 
Balances at November 28, 2008600,834$61$2,396,819 $4,913,406 $57,222 (74,723)$(2,957,154)$4,410,354 
Comprehensive income:                    
Net income
— — —  386,508  — —  —  386,508 
Other comprehensive income (loss),
net of taxes (Note 14)
— — —  —  (32,776)—  —  (32,776)
Total comprehensive income, net of
taxes
— — —  —  — —  —  353,732 
Re-issuance of treasury stock under
stock compensation plans
— — (303,688) —  — 11,777  483,254  179,566 
Tax benefit from employee stock option
plans
— — 44,381  —  — —  —  44,381 
Purchase of treasury stock— — —  —  — (15,231) (350,014) (350,014)
Equity awards assumed for acquisition— — 84,968  —  — —  —  84,968 
Stock-based compensation— — 167,581  —  — —  —  167,581 
Balances at November 27, 2009600,834$61$2,390,061 $5,299,914 $24,446 (78,177)$(2,823,914)$4,890,568 
Comprehensive income:                    
Net income
— — —  774,680  — —  —  774,680 
Other comprehensive income (loss),
net of taxes (Note 14)
— — —  —  (7,018)—  —  (7,018)
Total comprehensive income, net of taxes— — —  —  — —  —  767,662 
Re-issuance of treasury stock under
stock compensation plans
— — (177,099) (93,680) — 10,407  410,049  139,270 
Tax benefit from employee stock option
plans
— — 11,107  —  — —  —  11,107 
Purchase of treasury stock— — —  —  — (31,167) (850,020) (850,020)
Equity awards assumed for acquisition— — 3,264  —  — —  —  3,264 
Stock-based compensation— — 230,945  —  — —  —  230,945 
Value of shares in deferred
compensation plan
— — —  —  — —  (409) (409)
Balances at December 3, 2010600,834$61$2,458,278 $5,980,914 $17,428 (98,937)$(3,264,294)$5,192,387 




 Years Ended
 November 30,
2012		 December 2,
2011		 December 3,
2010
Cash flows from operating activities:     
Net income$832,775
 $832,847
 $774,680
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation, amortization and accretion299,766
 270,205
 292,738
Stock-based compensation298,502
 286,103
 231,086
Deferred income taxes89,212
 51,415
 (172,329)
Unrealized (gains) losses on investments(8,535) (4,349) 11,517
Retirements and disposals of property and equipment1,113
 14,772
 674
Other non-cash items(13,658) 24,560
 13,695
Excess tax benefits from stock-based compensation(10,003) (9,949) (16,430)
Changes in operating assets and liabilities, net of acquired assets and
        assumed liabilities:
     
Trade receivables, net45,166
 (81,065) (134,276)
Prepaid expenses and other current assets4,552
 (5,100) (39,963)
Trade payables(62,874) 32,203
 (10,092)
Accrued expenses(7,770) (24,708) 127,814
Accrued restructuring(66,047) 71,932
 (26,811)
Income taxes payable10,041
 (16,661) (48,656)
Deferred revenue87,340
 101,109
 109,348
Net cash provided by operating activities1,499,580
 1,543,314
 1,112,995
Cash flows from investing activities: 
  
  
Purchases of short-term investments(1,776,485) (1,861,075) (2,600,787)
Maturities of short-term investments439,878
 486,050
 643,614
Proceeds from sales of short-term investments1,126,886
 1,148,148
 1,134,365
Business acquisitions, net of cash acquired(353,195) (259,046) (193,281)
Purchases of property and equipment(271,076) (210,294) (169,642)
Proceeds from sale of property and equipment—
 —
 32,151
Purchases of long-term investments, intangibles and other assets(29,701) (65,600) (28,216)
Proceeds from sale of long-term investments29,031
 4,415
 22,502
Net cash used for investing activities(834,662) (757,402) (1,159,294)
Cash flows from financing activities: 
  
  
Purchases of treasury stock(405,000) (695,015) (850,020)
Net proceeds from issuance of treasury stock169,274
 144,754
 139,270
Excess tax benefits from stock-based compensation10,003
 9,949
 16,430
Proceeds from debt and capital lease obligations3,152
 —
 1,493,439
Repayment of debt and capital lease obligations(9,855) (10,046) (1,003,719)
Debt issuance costs(2,297) —
 (10,662)
Net cash used for financing activities(234,723) (550,358) (215,262)
Effect of foreign currency exchange rates on cash and cash equivalents5,357
 4,055
 11,965
Net increase (decrease) in cash and cash equivalents435,552
 239,609
 (249,596)
Cash and cash equivalents at beginning of year989,500
 749,891
 999,487
Cash and cash equivalents at end of year$1,425,052
 $989,500
 $749,891
Supplemental disclosures: 
    
Cash paid for income taxes, net of refunds$201,125
 $158,373
 $389,114
Cash paid for interest$66,265
 $63,967
 $34,632
Non-cash investing activities:     
Issuance of common stock and stock awards assumed in business acquisitions$4,265
 $—
 $3,264
Property and equipment acquired under capital leases$—
 $—
 $32,151
See accompanying Notes to Consolidated Financial Statements.

82
84Table of Contents


ADOBE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

     Years Ended 
   
December 3,
2010
   
November 27,
2009
   
November 28,
2008
 
Cash flows from operating activities:            
Net income
 $774,680  $386,508  $871,814 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation, amortization and accretion
  292,738   282,423   270,269 
Stock-based compensation
  231,086   167,581   172,474 
Deferred income taxes
  (172,329)  49,590   46,584 
Unrealized losses (gains) on investments
  11,517   11,623   (17,377)
Tax benefit from employee stock option plans
  11,107   44,381   90,360 
Other non-cash items
  3,262   3,315   4,784 
Excess tax benefits from stock-based compensation
  (16,430)  (11,980)  (31,983)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:            
Trade receivables, net
  (134,276)  172,287   (153,386)
Prepaid expenses and other current assets
  (39,963)  21,814   (5,584)
Trade payables
  (10,092)  (13,601)  14,078 
Accrued expenses
  127,814   (52,179)  (13,904)
Accrued restructuring
  (26,811)  (8,446)  24,330 
Income taxes payable
  (48,656)  109,620   (57,656)
Deferred revenue
  109,348   (45,142)  65,879 
Net cash provided by operating activities
  1,112,995   1,117,794   1,280,682 
Cash flows from investing activities:            
Purchases of short-term investments
  (2,600,787)  (1,307,366)  (2,381,533)
Maturities of short-term investments
  643,614   464,031   1,568,874 
Proceeds from sales of short-term investments
  1,134,365   1,057,176   717,076 
Purchases of property and equipment
  (169,642)  (119,592)  (111,792)
Proceeds from sale of property and equipment
  32,151   —   — 
Acquisitions, net of cash acquired
  (193,281)  (1,582,669)  (3,584)
Purchases of long-term investments and other assets
  (28,216)  (29,143)  (124,469)
Proceeds from sale of long-term investments
  20,351   17,696   30,747 
Other
  2,151   2,771   — 
Net cash used for investing activities
  (1,159,294)  (1,497,096)  (304,681)
Cash flows from financing activities:            
Purchases of treasury stock
  (850,020)  (350,013)  (1,722,715)
Proceeds from issuance of treasury stock
  139,270   179,566   319,165 
Excess tax benefits from stock-based compensation
  16,430   11,980   31,983 
Proceeds from debt
  1,493,439   650,000   800,000 
Repayment of debt and capital lease obligations
  (1,003,719)  —   (450,000)
Repayment of acquired debt
  —   (13,897)  — 
Debt issuance costs
  (10,662)  —   — 
Net cash (used for) provided by financing activities  (215,262)  477,636   (1,021,567)
Effect of foreign currency exchange rates on cash and cash equivalents  11,965   14,703   (14,406)
Net (decrease) increase in cash and cash equivalents
  (249,596)  113,037   (59,972)
Cash and cash equivalents at beginning of year
  999,487   886,450   946,422 
Cash and cash equivalents at end of year
 $749,891  $999,487  $886,450 
Supplemental disclosures:            
Cash paid for income taxes, net of refunds
 $389,114  $105,158  $126,299 
Cash paid for interest
 $34,632  $2,088  $9,604 
Non-cash investing activities:            
Issuance of common stock and stock awards assumed in business acquisitions $3,264  $84,968  $— 
Property and equipment acquired under capital leases
 $32,151  $—  $— 

See accompanying Notes to Consolidated Financial Statements.

85
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Operations
Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world. We offer a line of creative, business, Web and mobile software and services used by creative professionals, marketers, knowledge workers, application developers, marketers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling content and experiences across multiple 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”), systems integrators, independent software vendors (“ISVs”), retailers and original equipment manufacturers (“OEMs”). We also market and license our software directly to enterprise customers through our sales force and to end users and through our own Website at www.adobe.com. In addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and providesolutions. We offer some of our solutionsproducts via Softwarea Software-as-a-Service (“SaaS”) model (also known as a Service (“SaaS”), also known as hosted or “cloud-based” offerings.model) as well as through term subscription and pay-per-use models. Our software runs on personal computers (“PC”PCs”) and server-based computers, as well as various non-PCon smartphones, tablets and mobileother devices, depending on the product. We have operations in the Americas, Europe, Middle East and Africa (“EMEA”) and Asia.
Asia-Pacific (“APAC”).
Basis of Presentation
The accompanying Consolidated Financial Statements include those of Adobe and its subsidiaries, after elimination of all intercompany accounts and transactions. We have prepared the accompanying Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).
Use of Estimates
In preparation of consolidated financial statementspreparing Consolidated Financial Statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Estimates are used for, but not limited to sales allowances and programs, bad debts, stock-based compensation, determining the fair value of acquired assets and assumed liabilities, excess inventory and purchase commitments, restructuring costs,charges, facilities lease losses, impairment of goodwill and intangible assets, litigation, income taxes and investments. Actual results may differ materially from these estimates.
Fiscal Year
Our fiscal year is a 52- or 53-week year that ends on the Friday closest to November 30. Fiscal 2010 is a 53-week year2012 and 2011 were 52-week years compared with fiscal years 2009 and 20082010 which were 52-week years.
was a 53-week year.
Reclassification
Certain immaterial prior year amounts have been reclassified to conform to current year presentation in the Consolidated Statements of Cash Flows.
Flows and Consolidated Statements of Income.
Significant Accounting Policies
Revenue Recognition
Our revenue is derived from the licensing of perpetual and time-based software products, associated software maintenance and support plans, custom software development and consulting services and training. To a lesser extent our revenue includes non-software related hosting services, custom hosting development and consulting services, training and technical support and training for hosting services.
support.
We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report.

83
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 consulting.
86
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For our software and software relatedsoftware-related multiple element arrangements, we must: (1) determine whether and when each element has been delivered; (2) determine whether undelivered products or services are essential to the functionality of the delivered products and services; (3) determine the fair value of each undelivered element using vendor-specific objective evidence (“VSOE”), and (4) allocate the total price among the various elements. VSOE of fair value is used to allocate a portion of the price to the undelivered elements and the residual method is used to allocate the remaining portion to the delivered elements.
Absent VSOE, revenue is deferred until the earlier of the point at which VSOE of fair value exists for any undelivered element or until all elements of the arrangement have been delivered. However, if the only undelivered element is maintenance and support, the entire arrangement fee is recognized ratably over the performance period. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we report in a particular period.
We determine VSOE for each element based on historical stand-alone sales to third parties or from the stated renewal rate for the elements contained in the initial arrangement. In October 2009,determining VSOE, we require that a substantial majority of the Financial Accounting Standards Board (“FASB”) amended the accounting standardsselling prices for certain multiple deliverable revenue arrangements to:
·  provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

·  require an entity to allocate revenue in an arrangement using the best estimated selling price (“BESP”) of deliverables if a vendor does not have VSOE of selling price or third-party evidence (“TPE”) of selling price; and

·  eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.
a product or service fall within a reasonably narrow pricing range.
We elected to early adopt this accounting guidance athave established VSOE for our software maintenance and support services, custom software development services, consulting services and training.
At the beginning of our fiscalfirst quarter of fiscal 2010, on a prospective basiswe adopted the accounting standard for applicable transactions originating or materially modified after November 27,multiple element revenue arrangements which was amended by the FASB in October 2009. Our revenue from sales containing non-software related hosting services, custom hosting development and consulting services, and related technical support and training are those impacted.

For multiple element arrangements containing our non-software services, we must: (1) determine whether and when each element has been delivered; (2) determine fair value of each element using the selling price hierarchy of VSOE of fair value, third party evidence (“TPE”) or best estimated selling price (“BESP”), as applicable and (3) allocate the total price among the various elements based on the relative selling price method.
This guidance does not generally change the units of accounting for our revenue transactions. For multiple-elementmultiple element arrangements that contain software and non-software elements such as our hosted offerings, we allocate revenue to software or software relatedsoftware-related elements as a group and any non-software element separately based on the selling price hierarchy. We determine the selling price for each deliverable using VSOE of fair value of selling price, if it exists, or TPE of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use its BESP for that deliverable. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element. Once revenue is allocated to software or software relatedsoftware-related elements as a group, it follows historicrevenue is recognized under the guidance applicable to software accounting guidance.
Consistent with our methodology under previous accounting guidance, we determine VSOE for each element based on historical stand-alone sales to third-parties or from the stated renewal rate for the elements contained in the initial arrangement. In determining VSOE, we require that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range.
In certain instances, we are not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to infrequently selling each element separately, not pricing products or services within a narrow range, or only having a limited sales history. When VSOE cannot be established, we attempt to establish the selling price of each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our offerings contain significant differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, we typically are not able to obtain TPE of selling price.
transactions.
When we are unable to establish selling prices using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We are generally unable to establish VSOE or TPE for non-software elements and as such, we use BESP. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings.

87
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We determine BESP for a product or service by considering multiple factors including, but not limited to, major product groupings, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. Significant pricing practices taken into consideration include historic contractually stated prices, volume discounts where applicable and our price lists. The most common fact pattern that emerged through analyzing these factors supports a BESP closely tied to Adobe’s list prices. The determination of BESP is made through consultation with and formal approval by our management, taking into consideration our go-to-market strategy.
We regularly review VSOE and have established a review process for TPE and BESP and maintain internal controls over the establishment and updates of these estimates. There was no material impact to revenue during the year ended December 3, 2010 resulting from changes in VSOE, TPE or BESP, nor do we expect a material impact from such changes in the near term.
We have established VSOE for our software maintenance and support services, custom software development services, consulting services and training. We have established BESP for all other offerings, including software products, non-software related hosting services, custom hosting development and consulting services, and technical support and training for hosting services.
Given the nature of our transactions, which are primarily software and software-related, our go-to-market strategies and our pricing practices, total net revenue as reported during the year ended December 3, 2010 is materially consistent with total net revenue that would have been reported if the transactions entered into or materially modified after November 27, 2009 were subject to previous accounting guidance. Additionally, the new accounting standards for revenue recognition, if applied in the same manner to the year ended November 27, 2009, would not have had a material impact on total net revenues for that fiscal year.
Product Revenue
We recognize our product revenue upon shipment, provided all other revenue recognition criteria have been met. Our desktop application products’product revenue from distributors is subject to agreements allowing limited rights of return, rebates and price protection. Our direct sales and OEM sales are also subject to limited rights of return. Accordingly, we reduce revenue recognized

84
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

for estimated future returns, price protection and rebates at the time the related revenue is recorded. The estimates for returns are adjusted periodically based upon historical rates of returns, inventory levels in the distribution channel and other related factors.
We record the estimated costs of providing free technical phone support to customers for our software products.
We recognize OEM licensing revenue, primarily royalties, when OEMs ship products incorporating our software, provided collection of such revenue is deemed probable. For certain OEM customers, we must estimate royalty revenue due to the timing of securing customer information. This estimate is based on a combination of our generated forecasts and actual historical reporting by our OEM customers. To substantiate our ability to estimate revenue, we review license royalty revenue reports ultimately received from our significant OEM customers in comparison to the amounts estimated in the prior period.
Our product-related deferred revenue includes maintenance upgrade revenue and customer advances under OEM license agreements. Our maintenance upgrade revenue for our desktop application products is included in our product revenue line item as the maintenance primarily entitles customers to receive product upgrades. In cases where we provide a specified free upgrade to an existing product, we defer the fair value for the specified upgrade right until the future obligation is fulfilled or when the right to the specified free upgrade expires.
Subscription and Services and Support Revenue
Our services and support revenue is composed of consulting, training and maintenance and support, primarily related to the licensing of our Enterprise and Mobile and Device Solutions products. Our support revenue also includes technical support and developer support to partners and developer organizations related to our desktop products.
We recognize revenue for 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, are billed in accordance with contract terms as these fees are incurred. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue, depending on whether theall revenue recognition criteria have been met.
88
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our services and support revenue is composed of consulting, training and maintenance and support, primarily related to the licensing of our Enterprise and Mobile and Device Solutions products. Our support revenue also includes technical support and developer support to partners and developer organizations related to our desktop products.
Our consulting revenue is recognized 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 and enhancements on a when and if available basis or technical support, depending on the offering, are recognized ratably over the performance period of the arrangement.
Rights of Return, Rebates and Price Protection
As discussed above, we offer limited rights of return, rebates and price protection of our products under various policies and programs with our distributors, resellers and/or end-user customers. We estimate and record reserves for these programs as an offset to revenue.revenue and accounts receivable. Below is a summary of each of the general provisions in our contracts:
Distributors are allowed limited rights of return of products purchased during the previous quarter. In addition, distributors are allowed to return products that have reached the end of their lives and products that are being replaced by new versions.
·  Distributors are allowed limited rights of return of products purchased during the previous quarter. In addition, distributors are allowed to return products that have reached the end of their lives and products that are being replaced by new versions.
We offer rebates to our distributors, resellers and/or end user customers. The amount of revenue that is reduced for distributor and reseller rebates is based on actual performance against objectives set forth by us for a particular reporting period (volume, timely reporting, etc.). If mail-in or other promotional rebates are offered, the amount of revenue reduced is based on the dollar amount of the rebate, taking into consideration an estimated redemption rate calculated using historical trends.
From time to time, we may offer price protection to our distributors that allow for the right to a credit if we permanently reduce the price of a software product. The amount of revenue that is reduced for price protection is calculated as the 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.

85
Table of Contents
·  We offer rebates to our distributors, resellers and/or end user customers. The amount of revenue that is reduced for distributor and reseller rebates is based on actual performance against objectives set forth by us for a particular reporting period (volume, timely reporting, etc.). If mail-in or other promotional rebates are offered, the amount of revenue reduced is based on the dollar amount of the rebate, taking into consideration an estimated redemption rate calculated using historical trends.

ADOBE SYSTEMS INCORPORATED
·  From time to time, we may offer price protection to our distributors that allow for the right to a credit if we permanently reduce the price of a software product. The amount of revenue that is reduced for price protection is calculated as the 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Although our subscription contracts are generally non-cancelable, a limited number of customers have the right to cancel their contracts by providing prior written notice to us of their intent to cancel the remainder of the contract term. In the event a customer cancels its contract, they are not entitled to a refund for prior services we have provided to them.
On a quarterly basis, the amount of revenue that is reserved for future returns is calculated based on our historical trends and data specific to each reporting period. We review the actual returns evidenced in prior quarters as a percent of revenue to determine a historical returns rate. We then apply the historical rate to the current period revenue as a basis for estimating future returns. When necessary, we also provide a specific returns reserve for product in the distribution channel in excess of estimated requirements. This estimate can be affected by the amount of a particular product in the channel, the rate of sell-through, product plans and other factors.
Revenue Reserve
Revenue reserve rollforward (in thousands):
   2010   2009   2008 
Beginning balance
 $34,401  $50,943  $43,532 
Increase due to acquisition
  —   6,566   — 
Amount charged to revenue
  171,607   113,009   153,129 
Actual returns
  (156,582)  (136,117)  (145,718)
Ending balance
 $49,426  $34,401  $50,943 
  2012 2011 2010
Beginning balance $60,887
 $49,426
 $34,401
Amount charged to revenue 170,839
 162,491
 171,607
Actual returns (174,668) (151,030) (156,582)
Ending balance $57,058
 $60,887
 $49,426
Deferred Revenue
 
Deferred revenue consists substantially of payments received in advance of revenue recognition for our products and services described above. We recognize deferred revenue as revenue only when the revenue recognition criteria are met.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on both specific and general reserves. We regularly review our trade receivables allowances by considering such 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.

89
(in thousands) 2012 2011 2010
Beginning balance $15,080
 $15,233
 $15,225
Increase due to acquisition 325
 269
 662
Charged to operating expenses 3,356
 6,271
 3,673
Deductions(1)
 (6,118) (6,693) (4,327)
Ending balance $12,643
 $15,080
 $15,233
TABLE OF CONTENTS________________________________________
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1)
(in thousands)  2010   2009   2008 
Beginning balance $15,225  $4,128  $4,398 
Increase due to acquisition  —   9,421   — 
Charged to operating expenses  3,134   2,841   4,414 
Preference claim, charged (credited) to operating expense  1,000   (1,000)  (2,000)
Deductions(*)
  (4,126)  (165)  (2,684)
Ending balance $15,233  $15,225  $4,128 

(*)Deductions related to the allowance for doubtful accounts represent amounts written off against the allowance, less recoveries.
Property and Equipment
We record property and equipment at cost less accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over their estimated useful lives ranging from 1 to 5 years for computers and equipment as well as server hardware under capital leases, 1 to 6 years for furniture and fixtures and up to 35 years for buildings. Leasehold improvements are amortized using the straight-line method over the lesser of the remaining respective lease term or estimated useful lives.
lives ranging from 1 to 15 years.
Goodwill, Purchased Intangibles and Other Long-Lived Assets
We review our goodwill for impairment annually, or more frequently, if facts and circumstances warrant a review. We completed our annual impairment test in the second quarter of fiscal 20102012 and determined that there was no impairment.

86
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Goodwill is assigned to one or more reporting segments on the date of acquisition. We evaluate goodwill for impairment by comparing the fair value of each of our reporting segments to its carrying value, including the associated goodwill. To determine the fair values, we use the market approach based on comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors.
We amortize intangible assets with finite lives over their estimated useful lives and review them for impairment whenever an impairment indicator exists. We continually monitor events and changes in circumstances that could indicate carrying amounts of our long-lived assets, including our intangible assets may not be recoverable. When such events or changes in circumstances occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on theany excess of the carrying amount over the fair value of the assets. We did not recognize any intangible asset impairment charges in fiscal 2010, 20092012, 2011 or 2008.2010.
Our intangible assets are amortized over their estimated useful lives of 1 to 13 years as shown in the table below. years. Amortization is based on the pattern in which the economic benefits of the intangible asset will be consumed. The weighted average useful lives of our intangible assets was as follows:
 
Weighted Average
Useful Life (years)
Purchased technology6
Localization1
Trademarks85
Customer contracts and relationships10
Trademarks7
Acquired rights to use technology109
Localization1
Other intangibles23
 
Software Development Costs
Capitalization of software development costs for software to be sold, leased, or otherwise marketed begins upon the establishment of technological feasibility, which is generally the completion of a working prototype that has been certified as having no critical bugs and is a release candidate. Amortization begins once the software is ready for its intended use, generally 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
90
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, who are directly associated with the development of the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and is ready for its intended purpose.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We record a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

87
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Taxes Collected from Customers
We net taxes collected from customers against those remitted to government authorities in our financial statements. Accordingly, taxes collected from customers are not reported as revenue.
Treasury Stock
We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the difference is recorded as a component of additional paid-in-capital in our Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the difference is recorded as a component of additional paid-in-capital to the extent that there are previously recorded gains to offset the losses. If there are no treasury stock gains 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 2010, 20092012, 2011 and 20082010 were $65.9$99.4 million $67.0, $75.1 million and $67.1$65.9 million, respectively.
Foreign Currency Translation
We translate assets and liabilities of foreign subsidiaries, whose functional currency is their local currency, at exchange rates in effect at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates. We include accumulated net translation adjustments in stockholders’ equity as a component of accumulated other comprehensive income.
Foreign Currency and Other Hedging Instruments
In countries outside the United States (“U.S.”), we transact business in U.S. dollars and in various other currencies. In Europe and Japan, transactions that are denominated in Euro, Yen and British Pounds are subject to exposure from movements in exchange rates. We hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates. We use foreign exchange option and forward contracts for Euro,-Yen-Euro-,Yen- and British Pound-denominated revenue.
We account for our derivative instruments as either assets or liabilities on the balance sheet and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. Derivatives that do not qualify for hedge accounting are adjusted to fair value through earnings. See Note 5 for information regarding our hedging activities.
Gains and losses from foreign exchange forward contracts which hedge certain balance sheet positions, primarily non-functional currency denominated assets and liabilities (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 cash flow hedges under accounting for derivative instruments and hedging activities, with gains and losses recorded net of tax, as a component of other comprehensive income (“OCI”) in stockholders’ equity and reclassified into revenue at the time the forecasted transactions occur.
Concentration of Risk
Financial instruments that potentially subject us to concentrations of credit risk are short-term fixed-income investments, structured repurchase transactions, derivatives hedging foreign currency risk, and trade receivables.
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 that follow our investment policy. Our policy limits the amount of credit exposure to any one security issue or issuer and we believe no significant concentration of credit risk exists with respect to these investments.
91
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We mitigate concentration of risk related to foreign currency hedges through a policy that establishes counterparty limits. The bank counterparties in these contracts expose us to credit-related losses in the event of their nonperformance. However, to mitigate that risk, we only contract with counterparties who meet our minimum requirements under our counterparty risk assessment

88
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

process. In addition, our hedging policy establishes maximum limits for each counterparty. We monitor ratings, credit spreads and potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, we will adjust our exposure to various counterparties.
The aggregate fair value of derivative instruments in net asset positions as of November 30, 2012 and December 3, 20102, 2011 was $13.5 million and November 27, 2009 was $18.8$25.4 million and $4.3 million,, respectively. These amounts represent the maximum exposure to loss at the reporting date as a result of all of the counterparties failing to perform as contracted. These exposures could be reduced by up to $1.9$1.0 million and $1.6$3.9 million, respectively offrom liabilities included in master netting arrangements with those same counterparties.
Credit risk in receivables is limited to OEMs, dealers and distributors of hardware and software products to the retail market, and to customers to whom we license software directly.directly and our SaaS offerings. We are also experiencing elevated delinquency and bad debt write-offs related to our pre-acquisition receivables.receivables assumed in business combinations. 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 of credit or other guarantees, whenever deemed necessary. The credit limit given to the customer is based on our risk assessment of their ability to pay, country risk and other factors and is not contingent on the resale of the product or on the collection of payments from their customers. We also purchase credit insurance to mitigate credit risk in some foreign mark etsmarkets where we believe it is warranted. If we license our software or provide SaaS services to a customer where we have a reason to believe the customer’s ability to pay is not probable, due to country risk or credit risk, we will not recognize the revenue. We will revert to recognizing the revenue on a cash basis, assuming all other criteria for revenue recognition has been met.
See Note 1918 for information regarding our significant customers.
We derive a significant portion of our OEM PostScript and Other licensing revenue from a small number of OEMs. Our OEMs on occasion seek to renegotiate their royalty arrangements. We evaluate these requests on a case-by-case basis. If an agreement is not reached, a customer may decide to pursue other options, which could result in lower licensing revenue for us.
Recent Accounting Pronouncements
Fair Value Measurements
In January 2010, the FASB issuedThere have been no new accounting guidance expanding disclosures about fair value measurements by adding disclosures aboutpronouncements made effective during the different classesyear ended November 30, 2012, that are of assetssignificance, or potential significance, to us.
NOTE 2.  ACQUISITIONS
Fiscal 2012 Acquisition
Efficient Frontier
On January 13, 2012, we completed our acquisition of privately held Efficient Frontier, a multi-channel digital ad buying and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements and the transfers between Levels 1, 2 and 3. The new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to the activity in Level 3 fair value measurements. Those disclosure requirements are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. We adopted the new disclosures in the second quarter of fiscal 2010, which included changing the description of certain asset classes in the tables in Notes 3 and 4 to conform with the requirements of the new guidance. We will adopt the Level 3 requirements inoptimization company. During the first quarter of fiscal 2012. Since2012, we began integrating Efficient Frontier into our Digital Marketing segment. The Efficient Frontier business adds cross-channel digital ad campaign forecasting, execution and optimization capabilities to our Adobe Marketing Cloud, along with a social marketing engagement platform and social ad buying capabilities. We have included the adoptionfinancial results of the new standards only required additional disclosure, the adoption did not have an impact onEfficient Frontier in our consolidated financial position,statements beginning on the acquisition date.
Under the acquisition method of accounting, the total purchase price was allocated to Efficient Frontier’s net tangible and intangible assets based upon their estimated fair values as of January 13, 2012. During fiscal 2012, we made adjustments to the preliminary purchase price allocation. The total adjusted and final purchase price for Efficient Frontier was approximately $374.7 million of which approximately $291.4 million was allocated to goodwill, $122.7 million to identifiable intangible assets and $39.4 million to net liabilities assumed. The impact of this acquisition was not material to our consolidated financial statements.
Fiscal 2011 Acquisitions
During fiscal 2011, we completed six business combinations with aggregate purchase prices totaling approximately $281.0 million of which approximately $213.3 million was allocated to goodwill, $87.5 million to identifiable intangible assets and $19.8 million to net liabilities assumed. We also completed two asset acquisitions with aggregate purchase prices totaling $47.3 million. We have included the financial results of the business combinations in our consolidated results of operations or cash flows.beginning on the

89
Table of Contents

Variable Interest EntitiesADOBE SYSTEMS INCORPORATED

In June 2009,NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

respective acquisition dates however the FASB issued amended standards for determining whetherimpact of these acquisitions was not material to consolidate a variable interest entity. These new standards amend the evaluation criteria to identify the primary beneficiary of a variable interest entity and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the variable interest entity. The provisions of the new standards were effective for annual reporting periods beginning after November 15, 2009 and interim periods within those fiscal years. These standards were effective for us beginning in the first quarter of fiscal 2010. The adoption of the new standards did not have an impact on our consolidated financial position,balance sheets and results of operations or cash flows.
Intangible Assets Useful Lives
In April 2008, the FASB issued new standards which provided guidance on how to determine the useful life of intangible assets by amending the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets. This new guidance applies prospectively to intangible assets that
92
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are acquired individually or with a group of other assets in business combinations and asset acquisitions. These standards were effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and was effective for us beginning in the first quarter of fiscal 2010. The adoption of the new standards did not have a material impact on our consolidated financial position, results of operations or cash flows.
Business Combinations and Non-Controlling Interests
In December 2007, the FASB revised their guidance for business combinations and non-controlling interests. The new standards change how business acquisitions are accounted for and impact financial statements both on the acquisition date and in subsequent periods. The changes also impact the accounting and reporting for minority interests, which are recharacterized as non-controlling interests and classified as a component of equity. The new standards were effective for us beginning in the first quarter of fiscal 2010 and we applied the revised guidance to any business combination completed in or after the first quarter of fiscal 2010. The adoption of the new standards did not have a material impact on our consolidated financial position, results of operations or cash flows.
NOTE 2.  ACQUISITIONS
operations.
Fiscal 2010 AcquisitionsAcquisition
Day Software Holding AG
On October 28, 2010, we completed our acquisition of Day Software Holding AG(“Day”). Under the terms of the agreement, we completed our public tender offer to acquire all of the publicly held registered shares of Day for 139 Swiss Francs per share in cash in a transaction valued at approximately $248.3 million on a fully diluted equity-value basis. In order to hedge the economic exposure related to this acquisition, we entered into a forward contract to purchase 254.7 million Swiss Francs for $242.5 million U.S. dollars maturing near the expected closing date of the acquisition. Upon maturity of the forward contract, we recorded a $20.8 million gain to interest and other income (expense), net. This forward contract is accounted for as a separate trans action apart from the acquisition.
Day is a provider of Webweb content management solutions that many leading global enterprises rely on for Web 2.0 content application and content infrastructure,infrastructure. Day was based in Basel, Switzerland and Boston, Massachusetts. We believe that our acquisition of Day will provide comprehensive solutions to create, manage, deliver and optimize content. Following the closing, we integrated Day as a product line within our EnterpriseDigital Marketing segment for financial reporting purposes. We have included the financial results of Day in our Consolidated Financial Statements beginning on the acquisition date.
Under the acquisition method of accounting,the total preliminary purchase price was allocated to Day’s net tangible and intangible assets based upon their estimated fair values as of October 28, 2010. The excess2010. During the first half of fiscal 2011, we finalized our purchase accounting after adjustments were made to the preliminary purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies to increase revenue and profits and are not otherwise available to a marketplace participant in addition to acquiring a talented workforce.
allocation. The total preliminaryfinal purchase price for Day was approximately $248.3$248.3 million of which approximately $159.9$157.0 million was allocated to goodwill, $79.2$79.2 million for to substantially all of the identifiable intangible assets and $6.1$9.0 million to net tangible assets. The impact of this acquisition was not material to our consolidated balance sheets andor results of operations.
Subsequent to December 3, 2010, we acquired privately held Demdex, a leading data management platform company. This acquisition will not have a material impact to our consolidated balance sheets and results of operations.
Fiscal 2009 Acquisitions
On October 23, 2009, we completed the acquisition of Omniture, Inc. (“Omniture”), an industry leader in Web analytics and online business optimization based in Orem, Utah, for approximately $1.8 billion. Under the terms of the agreement, we completed our tender offer to acquire all of the outstanding shares of Omniture common stock at a price of $21.50 per share, net to the seller in cash, without interest. Acquiring Omniture accelerates our strategy of delivering more effective solutions for creating, delivering, measuring and optimizing Web content and applications. The transaction was accounted for using the purchase method of accounting. We have included the financial results of Omniture in our Consolidated Financial Statements beginning on the acquisition date. Following the closing, we disclosed Omniture as a new seg ment for financial reporting purposes.
93
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets acquired and liabilities assumed were recorded at their fair values as of October 23, 2009. The total $1.8 billion purchase price was comprised of the following (in thousands):
Acquisition of approximately 79 million shares of outstanding common stock of Omniture at $21.50 
per share in cash
 $1,698,926 
Estimated fair value of earned stock options and restricted stock units assumed and converted  84,968 
Estimated direct transaction costs
  14,365 
Total purchase price
 $1,798,259 
Purchase Price Allocation
Under the purchase accounting method, the total purchase price was allocated to Omniture’s net tangible and intangible assets based upon their estimated fair values as of October 23, 2009. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill.
The table below summarizes the allocation of the purchase price to the acquired net assets of Omniture based on their estimated fair values as of October 23, 2009 and the associated estimated useful lives at that date. During the first half of fiscal 2010, we finalized our purchase accounting after adjustments were made to the preliminary purchase price allocation to reflect the finalization of the valuation of intangible assets and deferred revenue. Additional adjustments were also made to restructuring liabilities, taxes and residual goodwill.
(in thousands)  Amount   
Weighted Average
Useful Life
(years)
 
Net tangible assets $33,397     
Identifiable intangible assets:        
Existing technology  176,200   6 
Customer contracts and relationships  168,600   11 
Contract backlog  44,800   2 
Non-competition agreements  900   2 
Trademarks  41,000   8 
In-process research and development  4,600   N/A 
Goodwill  1,340,021     
Restructuring liability  (11,259)    
Total purchase price allocation $1,798,259     
Net tangible assets—Omniture’s tangible assets and liabilities as of October 23, 2009 were reviewed and adjusted to their fair value as necessary. Among the net tangible assets assumed were $137.4 million in cash and cash equivalents, $119.2 million in trade receivables, $40.9 million in property, plant and equipment, $44.8 million in accrued expenses and $109.6 million in net deferred tax liabilities.
Deferred revenue—Included in net tangible assets is Omniture’s deferred revenue which represents advance payments from customers related to subscription contracts and professional services. We recorded an adjustment to reduce Omniture’s carrying value of deferred revenue by $40.8 million to $86.3 million, which represents the fair value of the contractual obligations assumed.
Identifiable intangible assets—Existing technology acquired primarily consists of Omniture’s SiteCatalyst Web analytics, Omniture Test & Target, and HBX subscription service offerings and also consists of Omniture SiteSearch, Omniture Merchandising and Omniture Insight products and subscription services. The estimated fair value of the existing technology was determined based on the present value of the expected cash flows to be generated by each existing technology. Customer relationships consist of Omniture’s contractual relationships and customer loyalty related to their enterprise and mid-market customers as well as partner customers that resell Omniture’s services to end users. Contract bac klog relates to subscription contracts and professional services. We amortize the fair value of the contract backlog based on the pattern in which the economic benefits will be consumed. Trademarks include the Omniture trade name as well as SiteCatalyst, Omniture SearchCenter, Omniture Discover, Omniture Genesis, and HBX product names. Non-compete agreements include agreements with key Omniture employees that preclude them from competing against Omniture for a period of two years. With the exception of contract backlog, we amortize the fair value of these intangible assets on a straight-line basis over their respective estimated useful lives.
94
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In-process research and development—In-process research and development (“IPR&D”) was expensed to amortization of purchased intangibles and incomplete technology in our Consolidated Statements of Income upon acquisition as it represents incomplete Omniture research and development projects that had not reached technological feasibility and had no alternative future use as of the date of the acquisition. Technological feasibility is established when an enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that a product can be produced to meet its design specifications including functions, features, and technical performance requirements. The e stimated fair value of $4.6 million was determined by estimating the net cash flows expected to be generated from the project and discounting the net cash flows to their present value.
Goodwill—Approximately $1.3 billion has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant, acquiring a talented workforce, and cost savings opportunities. The goodwill recorded in connection with Omniture has been allocated to the Omniture and Creative Solutions reportable segments of $1.1 billion and $0.2 billion, respectively, based on expected revenue and cost synergies to be gained as a result of the a cquisition.
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 redundant facilities. See Note 11 for further details of the amounts accrued during fiscal 2010 and 2009.
Taxes—As part of our accounting for the Omniture acquisition, a portion of the overall purchase price was allocated to goodwill and acquired intangible assets. Amortization expense associated with acquired intangible assets is not deductible for tax purposes. Thus, approximately $172.6 million, included in the net tangible assets, was established as a deferred tax liability for the future amortization of the intangible assets.
Any impairment charges made in the future associated with goodwill will not be tax deductible and will result in an increased effective income tax rate in the quarter the impairment is recorded.
Pro Forma Results
The financial information in the table below summarizes the combined results of operations of Adobe and Omniture, on a pro forma basis, as though the companies had been combined as of the beginning of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on November 29, 2008 or of results that may occur in the future.
The following pro forma financial information for fiscal 2009 and 2008 combines the historical results for Adobe for the years ended November 27, 2009 and November 28, 2008 and the historical results of Omniture for the period January 1, 2009 through October 23, 2009  and the year ended December 31, 2008 (in thousands):

   2009   2008 
Net revenues
 $3,168,731  $3,835,799 
Net income
 $308,904  $742,749 
Basic net income per share
 $0.59  $1.38 
Shares used in computing basic net income per share  524,470   539,373 
Diluted net income per share $0.58  $1.35 
Shares used in computing diluted net income per share  531,293   549,883 

In addition to the acquisition of Omniture, we acquired one other company during fiscal 2009 for cash consideration of approximately $35.3 million. The impact of this acquisition was not material to our consolidated balance sheets and results of operations.
NOTE 3.  CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. We classify all of our cash equivalents and short-term investments as “available-for-sale.” In general, these investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information. Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in our Consolidated Balance Sheets. Gains and losses are

95
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
recognized when realized in our Consolidated Statements of Income. When we have determined that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is recognized in earnings.income. Gains and losses are determined using the specific identification method.

90
Cash, cash equivalents and short-term investments consisted
Table of the following as of December 3, 2010 (in thousands):Contents

   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Estimated
Fair Value
 
Current assets:                
Cash $98,691  $—  $—  $98,691 
Cash equivalents:                
Money market mutual funds  477,259   —   —   477,259 
Time deposits  64,006   —   —   64,006 
U.S. Treasury securities  68,195   1   —   68,196 
Municipal securities  350   —   —   350 
Corporate bonds  41,389   —   —   41,389 
Total cash equivalents  651,199   1   —   651,200 
Total cash and cash equivalents  749,890   1   —   749,891 
Short-term fixed income securities:                
U.S. Treasury securities  336,441   2,828   (209)  339,060 
U.S. agency securities  229,772   778   (179)  230,371 
Municipal securities  119,608   29   (32)  119,605 
Corporate bonds  977,889   8,079   (1,450)  984,518 
Foreign government securities  33,079   309   (2)  33,386 
Subtotal  1,696,789   12,023   (1,872)  1,706,940 
Marketable equity securities  11,196   —   (12)  11,184 
Total short-term investments  1,707,985   12,023   (1,884)  1,718,124 
Total cash, cash equivalents and short-term investments $2,457,875  $12,024  $(1,884) $2,468,015 
ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash, cash equivalents and short-term investments consisted of the following as of November 27, 200930, 2012 (in thousands):
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Current assets:       
Cash$200,771
 $—
 $—
 $200,771
Cash equivalents:       
Corporate bonds and commercial paper3,998
 —
 —
 3,998
Money market mutual funds and repurchase agreements1,171,270
 —
 —
 1,171,270
Municipal securities3,895
 —
 —
 3,895
Time deposits45,118
 —
 —
 45,118
Total cash equivalents1,224,281
 —
 —
 1,224,281
Total cash and cash equivalents1,425,052
 —
 —
 1,425,052
Short-term fixed income securities:       
Corporate bonds and commercial paper1,059,158
 11,415
 (133) 1,070,440
Foreign government securities6,919
 45
 (12) 6,952
Municipal securities180,488
 97
 (60) 180,525
Time deposits20,113
 —
 —
 20,113
U.S. agency securities501,863
 2,346
 (18) 504,191
U.S. Treasury securities330,072
 801
 (37) 330,836
Subtotal2,098,613
 14,704
 (260) 2,113,057
Marketable equity securities237
 7
 —
 244
Total short-term investments2,098,850
 14,711
 (260) 2,113,301
Total cash, cash equivalents and short-term investments$3,523,902
 $14,711
 $(260) $3,538,353


91
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
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Current assets:                   
Cash $75,110  $—  $—  $75,110 $261,206
 $—
 $—
 $261,206
Cash equivalents:                 
      
Money market mutual funds  884,240   —   —   884,240 
Commercial paper15,948
 —
 —
 15,948
Money market mutual funds and repurchase agreements687,152
 —
 —
 687,152
Time deposits  40,137   —   —   40,137 15,694
 —
 —
 15,694
U.S. agency securities2,500
 —
 —
 2,500
U.S. Treasury securities7,000
 —
 —
 7,000
Total cash equivalents  924,377   —   —   924,377 728,294
 —
 —
 728,294
Total cash and cash equivalents  999,487   —   —   999,487 989,500
 —
 —
 989,500
Short-term fixed income securities:                       
Corporate bonds and commercial paper1,109,674
 6,533
 (4,670) 1,111,537
Foreign government securities7,280
 43
 —
 7,323
Municipal securities106,255
 104
 (4) 106,355
U.S. agency securities374,514
 1,496
 (117) 375,893
U.S. Treasury securities  373,180   3,199   (1)  376,378 307,181
 1,640
 (4) 308,817
U.S. agency securities  59,447   273   —   59,720 
Corporate bonds  407,465   8,111   (1)  415,575 
Foreign government securities  47,620   666   —   48,286 
Subtotal  887,712   12,249   (2)  899,959 1,904,904
 9,816
 (4,795) 1,909,925
Marketable equity securities  2,527   2,500   —   5,027 10,581
 1,686
 —
 12,267
Total short-term investments  890,239   14,749   (2)  904,986 1,915,485
 11,502
 (4,795) 1,922,192
Total cash, cash equivalents and short-term investments $1,889,726  $14,749  $(2) $1,904,473 $2,904,985
 $11,502
 $(4,795) $2,911,692
See Note 4 for further information regarding the fair value of our financial instruments.
96
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category, that have been in a continuous unrealized loss position for less than twelve months, as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 (in thousands):
 2012 2011
 
Fair 
Value
 
Gross
Unrealized
Losses
 
Fair 
Value
 
Gross
Unrealized
Losses
Corporate bonds and commercial paper$95,489
 $(132) $408,178
 $(4,438)
Foreign government securities2,105
 (12) —
 —
Municipal securities40,524
 (60) 17,125
 (3)
U.S. Treasury and agency securities48,203
 (55) 133,857
 (121)
Total$186,321
 $(259) $559,160
 $(4,562)
 
     2010    2009 
   
Fair 
Value
   
Gross
Unrealized
Losses
   
Fair 
Value
   
Gross
Unrealized
Losses
 
U.S. Treasury and agency securities
 $192,702  $(388) $11,179  $(1)
Corporate bonds
  257,615   (1,450)  5,041   (1)
Foreign government securities
  4,531   (2)  —   — 
Municipal securities
  43,028   (32)  —   — 
Total
 $497,876  $(1,872) $16,220  $(2)
There were 65 securities and 213 securities in an unrealized loss position for less than twelve months at November 30, 2012 and at December 2, 2011, respectively.

92
Table of Contents

As of December 3, 2010ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the fair value and November 27, 2009, there were nogross unrealized losses related to available-for-sale securities, aggregated by investment category, that have been in a continuous unrealized loss position for more than twelve months. months, as of November 30, 2012 and December 2, 2011 (in thousands):
 2012 2011
 
Fair 
Value
 
Gross
Unrealized
Losses
 
Fair 
Value
 
Gross
Unrealized
Losses
Corporate bonds and commercial paper$2,999
 $(1) $22,918
 $(232)
Municipal securities—
 —
 2,668
 (1)
Total$2,999
 $(1) $25,586
 $(233)
There were 168was 1 security and 13 securities and 4 securities that were in an unrealized loss position for more than twelve months at December 3, 2010November 30, 2012 and at November 27, 2009,December 2, 2011, respectively.
The following table summarizes the cost and estimated fair value of short-term fixed income securities classified as short-term investments based on stated effective maturities as of December 3, 2010November 30, 2012 (in thousands):

  
Amortized
Cost
   
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year
 $624,260  $625,423 $655,597
 $656,818
Due within two years
  518,262   523,168 
Due within three years
  443,965   446,342 
Due between one and two years490,297
 495,066
Due between two and three years673,418
 678,481
Due after three years
  110,302   112,007 279,301
 282,692
Total
 $1,696,789  $1,706,940 $2,098,613
 $2,113,057

We review our debt and marketable equity securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. We consider factors such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer and our intent to sell, or whether it is more likely than not we will be required to sell the investment before recovery of the investment’sinvestment's amortized cost basis. If we believe that an other-than-temporary decline exists in one of these securities, we write down these investments to fair value. For debt securities, the portion of the write-down related to credit loss would be recorded to interest and other income, net in our Consolidated Statements of Income. Any portion not related to credit loss would be recorded to accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in our Consolidated Balance Sheets. For equity securities, the write-down would be recorded to investment gains (losses), net in our Consolidated Statements of Income. AsDuring both fiscal 2012 and fiscal 2011, we recorded immaterial other-than-temporary impairment losses associated with our marketable equity securities and did not consider any of December 3, our debt securities to be other-than-temporarily impaired. During fiscal 2010, we dodid not consider any of our investments to be other-than-temporarily impaired.

97
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4.  FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis 
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 year ended November 30, 2012.

93
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of our financial assets and liabilities at December 3, 2010November 30, 2012 was determined using the following inputs (in thousands):
     Fair Value Measurements at Reporting Date Using 
       
Quoted Prices
in Active
Markets for
Identical Assets
   
Significant
Other
Observable
Inputs
   
Significant
Unobservable
Inputs
 
   Total   (Level 1)   (Level 2)   (Level 3) 
Assets:                
Cash equivalents:                
Money market mutual funds
 $477,259  $477,259  $—  $— 
Time deposits
  64,006   64,006   —   — 
U.S. Treasury securities
  68,196   —   68,196   — 
Municipal securities
  350   —   350   — 
Corporate bonds
  41,389   —   41,389   — 
Short-term investments:                
U.S. Treasury securities
  339,060   —   339,060   — 
U. S. agency securities
  230,371   —   230,371   — 
Municipal securities
  119,605   —   119,605   — 
Corporate bonds
  984,518   —   984,518   — 
Foreign government securities
  33,386   —   33,386   — 
Marketable equity securities
  11,184   11,184   —   — 
Prepaid expenses and other current assets:                
Foreign currency derivatives
  18,821   —   18,821   — 
Other assets:                
Deferred compensation plan assets
  11,071   617   10,454   — 
Total assets
 $2,399,216  $553,066  $1,846,150  $— 
Liabilities:                
Accrued expenses:                
Foreign currency derivatives
 $1,945  $—  $1,945  $— 
Total liabilities
 $1,945  $—  $1,945  $— 
98
   Fair Value Measurements at Reporting Date Using
   
Quoted Prices
in Active
Markets for
Identical Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 Total (Level 1) (Level 2) (Level 3)
Assets:       
Cash equivalents:       
Corporate bonds and commercial paper$3,998
 $—
 $3,998
 $—
Money market mutual funds and repurchase
    agreements
1,171,270
 1,171,270
 —
 —
Municipal securities3,895
 —
 3,895
 —
Time deposits45,118
 45,118
 —
 —
Short-term investments:       
Corporate bonds and commercial paper1,070,440
 —
 1,070,440
 —
Foreign government securities6,952
 —
 6,952
 —
Marketable equity securities244
 244
 —
 —
Municipal securities180,525
 —
 180,525
 —
Time deposits20,113
 —
 20,113
 —
U.S. agency securities504,191
 —
 504,191
 —
U.S. Treasury securities330,836
 —
 330,836
 —
Prepaid expenses and other current assets:   
  
  
Foreign currency derivatives13,513
 —
 13,513
 —
Other assets:   
  
  
Deferred compensation plan assets15,094
 436
 14,658
 —
Total assets$3,366,189
 $1,217,068
 $2,149,121
 $—
Liabilities: 
  
  
  
Accrued expenses: 
  
  
  
Foreign currency derivatives$998
 $—
 $998
 $—
Total liabilities$998
 $—
 $998
 $—


94
Table of Contents

ADOBE SYSTEMS INCORPORATED

TABLE OF CONTENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of our financial assets and liabilities at November 27, 2009December 2, 2011 was determined using the following inputs (in thousands):
   Fair Value Measurements at Reporting Date Using
   
Quoted Prices
in Active
Markets for
Identical Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 Total (Level 1) (Level 2) (Level 3)
Assets:       
Cash equivalents:       
Commercial paper$15,948
 $—
 $15,948
 $—
Money market mutual funds and repurchase
    agreements
687,152
 687,152
 —
 —
Time deposits15,694
 15,694
 —
 —
U.S. agency securities2,500
 —
 2,500
 —
U.S. Treasury securities7,000
 —
 7,000
 —
Short-term investments: 
      
Corporate bonds and commercial paper1,111,537
 —
 1,111,537
 —
Foreign government securities7,323
 —
 7,323
 —
Marketable equity securities12,267
 12,267
 —
 —
Municipal securities106,355
 —
 106,355
 —
U.S. agency securities375,893
 —
 375,893
 —
U.S. Treasury securities 308,817
 —
 308,817
 —
Prepaid expenses and other current assets: 
  
  
  
Foreign currency derivatives25,362
 —
 25,362
 —
Other assets: 
  
  
  
Deferred compensation plan assets12,803
 523
 12,280
 —
Total assets$2,688,651
 $715,636
 $1,973,015
 $—
     Fair Value Measurements at Reporting Date Using 
       
Quoted Prices
in Active
Markets for
Identical Assets
   
Significant
Other
Observable
Inputs
   
Significant
Unobservable
Inputs
 
   Total   (Level 1)   (Level 2)   (Level 3) 
Assets:                
Cash equivalents:                
Money market mutual funds
 $884,240  $884,240  $—  $— 
Time deposits
  40,137   40,137   —   — 
Short-term investments:                
U.S. Treasury securities   376,378   —   376,378   — 
U.S. agency securities
  59,720   —   59,720   — 
Municipal securities
  —   —   —   — 
Corporate bonds   415,575   —   415,575   — 
Foreign government securities
  48,286   —   48,286   — 
Marketable equity securities
  5,027   5,027   —   — 
Prepaid expenses and other current assets:                
Foreign currency derivatives
  4,307   —   4,307   — 
Other assets:                
Investments of limited partnership
  37,121   —   —   37,121 
Deferred compensation plan assets
  9,045   717   8,328   — 
Total assets
 $1,879,836  $930,121  $912,594  $37,121 
Liabilities:                
Accrued expenses:                
Foreign currency derivatives
 $1,589  $—  $1,589  $— 
Total liabilities
 $1,589  $—  $1,589  $— 
Liabilities: 
  
  
  
Accrued expenses: 
  
  
  
Foreign currency derivatives$3,881
 $—
 $3,881
 $—
Total liabilities$3,881
 $—
 $3,881
 $—

See Note 3 for further information regarding the fair value of our financial instruments.
 
Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers with a minimum credit rating of A-BBB and a weighted average credit rating of AA+.AA-. We value these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, we classify all of our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, o ror pricing models, such as discounted cash flow techniques. Our procedures include controls to ensure that appropriate fair values are recorded such as comparing prices obtained from multiple independent sources.
Our deferred compensation plan assets consist of prime money market funds and mutual funds.

95
Table of Contents
The investments of limited partnership relate to our interest in Adobe Ventures IV L.P. (“Adobe Ventures”), which were consolidated in our Consolidated Financial Statements. Our limited partnership interest in Adobe Ventures terminated
ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Assets and Liabilities Measured at Fair Value on September 30, 2010. The Level 3 investments consisted of investments in privately-held companies. These investments were remeasured at fair value each period with any gains or losses recognized in investment gains (losses), net in our Consolidated Statements of Income. There was no impact to OCI related to our Level 3 investments. We estimated fair value of the Level 3 investments by considering available information 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. Subsequent to the termination of our limited partnership interest in Adobe Ventures, a portion of our investments were sold and the remaining amount was transferred to our cost method investments and marketable equity securities.Nonrecurring Basis
99
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the beginning and ending balances for investments of limited partnership using significant unobservable inputs (Level 3) as of December 3, 2010 and November 27, 2009 was as follows (in thousands):
Balance as of November 28, 2008
 $38,753 
Purchases and sales of investments, net
  1,921 
Unrealized net investment losses included in earnings
  (3,553)
Balance as of November 27, 2009
 $37,121 
Purchases and sales of investments, net
  (18,788)
Unrealized net investment losses included in earnings
  (7,919)
Transfer to cost method investments
  (8,480)
Transfer to marketable equity securities (Level 1)
  (1,934)
Balance as of December 3, 2010
 $— 
We also have direct investments in privately-heldprivately held companies accounted for under the cost method, which are periodically assessed for other-than-temporary impairment. If we determine that an other-than-temporary impairment has occurred, we write-downwrite down the investment to its fair value. We estimate fair value of our cost method investments considering available information 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 20102012 and 2009,2011, we determined that certain of our direct cost method investmentsthere were other-than-temporarily impaired which resulted in charges of $2.3 million and $13.9 million, respectively, which were included in investment gains (losses), net in our Consolidated Statements of Income.
See Note 8 for further information regarding our limited partnership interest in Adobe Ventures andno material other-than-temporary impairments on our cost method investments.
As of November 30, 2012, the carrying value of our lease receivables approximated fair value, based on Level 2 valuation inputs which include Treasury rates, LIBOR rates and applicable credit spreads. See Note 15 for further details regarding our investment in lease receivables. The fair value of our long-term debt was approximately $1.6 billion as of November 30, 2012, based on Level 2 quoted prices in inactive markets. See Note 16 for further details regarding our debt.
NOTE 5.  DERIVATIVEDERIVATIVES AND HEDGING ACTIVITIES
Hedge Accounting
We recognize derivative instruments and hedging activities as either assets or liabilities in our Consolidated Balance Sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.
Economic Hedging—Hedges of Forecasted Transactions
In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. Therefore, we are subject to exposure from movements in foreign currency rates. We may use foreign exchange option contracts or forward contracts to hedge certain operational (“cash flow”)flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, may have maturities between one and twelve months. The maximum original duration of any contract is twelve months. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course of business and accordingly, they are not speculative in nature.
We recognize derivative instruments from hedging activities as either assets or liabilities on the balance sheet and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income in our Consolidated Balance Sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to revenue .revenue. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income to interest and other income, net in our Consolidated Statements of Income at that time. For fiscal 2010, 20092012, 2011 and 20082010 there were no such gains or losses recognized in interest and other income, net relating to hedges of forecasted transactions that did not occur.
We evaluate hedge effectiveness at the inception of the hedge prospectively as well as retrospectively and record any ineffective portion of the hedging instruments in interest and other income, net on our Consolidated Statements of Income. The net gain (loss) recognized in interest and other income, net for cash flow hedges due to hedge ineffectiveness was

100
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
insignificant for fiscal 2010, 20092012, 2011 and 2008.2010. The time value of purchased derivative instruments is recorded in interest and other income, net in our Consolidated Statements of Income.
Balance Sheet Hedging—Hedging of Foreign Currency Assets and Liabilities
We also hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates. These derivative instruments hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes in the fair value recorded to interest and other income (expense), net in our Consolidated Statements of Income. These derivative instruments do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are

96
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

intended to offset gains and losses on the assets and liabilities being hedged. As of December 3, 2010,November 30, 2012, total notional amounts of outstanding contracts were $536.5$422.9 million which included the notional equivale ntequivalent of $305.1$209.8 million in Euro, $52.0$44.2 million in Yen and $179.4$168.9 million in other foreign currencies. As of November 27, 2009,December 2, 2011, total notional amounts of outstanding contracts were $154.9$560.1 million which included the notional equivalent of $87.6$307.8 million in Euro, $22.9$49.3 million in Yen and $44.4$203.0 million in other foreign currencies. At November 30, 2012 and December 3, 2010 and November 27, 2009,2, 2011, the outstanding balance sheet hedging derivatives had maturities of 90180 days or less.
The fair value of derivative instruments on our Consolidated Balance Sheets as of November 30, 2012 and December 3, 2010 and November 27, 2009 were2, 2011 was as follows (in thousands):
    2010    2009 2012 2011
  
Fair Value Asset Derivatives(1)
   
Fair Value Liability Derivatives(2)
   
Fair Value Asset Derivatives(1)
   
Fair Value Liability Derivatives(2)
 
Fair Value
Asset
Derivatives(1)
 
Fair Value
Liability
Derivatives(2)
 
Fair Value
Asset
Derivatives(1)
 
Fair Value
Liability
Derivatives(2)
Derivatives designated as hedging instruments:                   
Foreign exchange option contracts(3)
 $6,092  $—  $4,175  $— $10,897
 $—
 $19,296
 $—
Derivatives not designated as hedging instruments:                       
Foreign exchange forward contracts
  12,729   1,945   132   1,589 2,616
 998
 6,066
 3,881
Total derivatives
 $18,821  $1,945  $4,307  $1,589 $13,513
 $998
 $25,362
 $3,881

_________________________________________
(1)
Included in prepaid expenses and other current assets on our Consolidated Balance Sheets.
(2)
Included in accrued expenses on our Consolidated Balance Sheets.
(3)
Hedging effectiveness expected to be recognized to income within the next twelve months.
The effect of derivative instruments designated as cash flow hedges and of derivative instruments not designated as hedges in our Consolidated Statements of Income for fiscal 20102012, 2011 and 2009 was2010 were as follows (in thousands):

   2010    2009 2012 2011 2010
 
Foreign Exchange
 Option Contracts
  Foreign Exchange Forward Contracts  
Foreign Exchange
 Option Contracts
  Foreign Exchange Forward Contracts 
Foreign
Exchange
Option
Contracts
 
Foreign
Exchange
Forward
Contracts
 
Foreign
Exchange
Option
Contracts
 
Foreign
Exchange
Forward
Contracts
 
Foreign
Exchange
Option
Contracts
 
Foreign
Exchange
Forward
Contracts
Derivatives in cash flow hedging relationships:                       
Net gain (loss) recognized in OCI, net of tax(1)
 $20,325  $—  $(14,618) $— $23,922
 $—
 $16,952
 $—
 $20,325
 $—
Net gain (loss) reclassified from accumulated
OCI into income, net of tax(2)
 $20,169  $—  $27,138  $— $30,672
 $—
 $3,749
 $—
 $20,169
 $—
Net gain (loss) recognized in income(3)
 $(23,285) $—  $(18,027) $— $(29,554) $—
 $(28,796) $—
 $(23,285) $—
Derivatives not designated as hedging
relationships:
                           
Net gain (loss) recognized in income(4)
 $—  $(34,168) $—  $(14,407)$—
 $8,742
 $—
 $(3,973) $—
 $34,168

_________________________________________
(1)
Net change in the fair value of the effective portion classified in OCI.other comprehensive income (“OCI”).
(2)
Effective portion classified as revenue.
(3)
Ineffective portion and amount excluded from effectiveness testing classified in interest and other income (expense), net.
(4)
Classified in interest and other income (expense), net.


97
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
101
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net gains (losses) recognized in interest and other income (expense), net relating to balance sheet hedging for fiscal 2010, 20092012, 2011 and 20082010 were as follows (in thousands):
  2010   2009   2008  2012 2011 2010
Gain (loss) on foreign currency assets and liabilities:               
Net realized gain (loss) recognized in other income $(11,470) $25,384  $(7,738) $(5,899) $6,604
 $(11,470)
Net unrealized (loss) gain recognized in other income related to
instruments outstanding
  (12,345)  (6,390)  5,223 
Net unrealized loss recognized in other income (4,720) (4,062) (12,345)
  (23,815)  18,994   (2,515) (10,619) 2,542
 (23,815)
(Loss) gain on hedges of foreign currency assets and liabilities:            
Net realized gain (loss) recognized in other income  21,921   (11,872)  (3,255)
Gain (loss) on hedges of foreign currency assets and liabilities:      
Net realized gain recognized in other income 9,312
 4,633
 21,921
Net unrealized gain (loss) recognized in other income
  12,247   (2,535)  3,920  (570) (8,606) 12,247
  34,168   (14,407)  665  8,742
 (3,973) 34,168
Net gain (loss) recognized in interest and other income (expense), net $10,353  $4,587  $(1,850) $(1,877) $(1,431) $10,353
NOTE 6.  PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 (in thousands):
  2010   2009  2012 2011
Computers and equipment
 $454,351  $409,595  $702,270
 $581,670
Furniture and fixtures
  68,322   62,786  84,697
 75,384
Server hardware under capital lease
  32,151   —  35,303
 32,151
Capital projects in-progress
  20,805   19,931  63,980
 44,219
Leasehold improvements
  188,334   152,200  222,262
 206,529
Land
  110,160   86,493  114,941
 113,960
Buildings
  99,845   99,845  175,222
 99,845
Total
  973,968   830,850  1,398,675
 1,153,758
Less accumulated depreciation and amortization
  (525,087)  (442,718) (734,373) (625,930)
Property and equipment, net
 $448,881  $388,132  $664,302
 $527,828
Depreciation and amortization expense of property and equipment for fiscal 2010, 20092012, 2011 and 20082010 was $107.5$134.4 million $95.9, $117.5 million and $83.3$107.5 million, respectively.
NOTE 7.  GOODWILL AND PURCHASED AND OTHER INTANGIBLES
During fiscal years 2012, 2011 and 2010, we modified our segments due to changes in how we operate our business. See Note 18 for further information regarding our segment changes. Prior year information in the tables below has been reclassified to reflect these changes.
Goodwill by reportable segment and activity for the years ended November 27, 200930, 2012 and December 3, 20102, 2011 was as follows (in thousands):
   2008   Acquisitions   
Other(1)
   2009   Acquisitions   
Other(2)
   2010 
Creative Solutions
 $956,011  $253,463  $1,126  $1,210,600  $—  $(3,500) $1,207,100 
Knowledge Worker
  408,318   —   2,255   410,573   —   (1,969)  408,604 
Enterprise
  298,039   —   (4,310)  293,729   159,924   (5,981)  447,672 
Omniture
  —   1,108,034   —   1,108,034   —   (1,130)  1,106,904 
Platform
  265,518   —   (398)  265,120   —   (50)  265,070 
Print and Publishing
  206,844   —   (311)  206,533   —   (39)  206,494 
Goodwill
 $2,134,730  $1,361,497  $(1,638) $3,494,589  $159,924  $(12,669) $3,641,844 
  2010 Acquisitions 
Other(1)
 2011 Acquisitions 
Other(2)
 2012
Digital Media $1,799,514
 $173,811
 $(833) $1,972,492
 $—
 $(616) $1,971,876
Digital Marketing 1,583,738
 38,728
 (4,292) 1,618,174
 291,422
 (6,675) 1,902,921
Print and Publishing 258,592
 —
 (41) 258,551
 —
 (89) 258,462
Goodwill $3,641,844
 $212,539
 $(5,166) $3,849,217
 $291,422
 $(7,380) $4,133,259


98
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

_________________________________________
(1)Includes net reductions in goodwill of $5.2 million for tax related obligations associated with our acquisitions of Macromedia and Accelio in addition to a facility lease obligation adjustment of $1.7 million related to Macromedia, offset in part by foreign currency translation adjustments and other individually insignificant tax items.
(2)
(1)
The change includes adjustments to our OmnitureDay purchase price allocation through the second quarter of fiscal 20102011 and foreign currency translation adjustments. We also recorded adjustments for restructuring and tax deductions from acquired stock options associated with our Omniture and Macromedia acquisitions.
See Note 2(2)
Amounts primarily consist of foreign currency translation adjustments and adjustments for further information regardingtax deductions from acquired stock options associated with our Omniture and Macromedia acquisitions.
102
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchased and other intangible assets, net by reportable segment as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 were as follows (in thousands):
   2010   2009 
Creative Solutions $20,617  $124,178 
Knowledge Worker  9,455   23,041 
Enterprise  80,092   6,588 
Omniture  344,059   358,204 
Platform  1,208   9,159 
Print and Publishing  1,832   6,218 
Purchased and other intangible assets, net $457,263  $527,388 
  2012 2011
Digital Media $148,215
 $181,888
Digital Marketing 396,786
 363,560
Print and Publishing 35
 78
Purchased and other intangible assets, net $545,036
 $545,526
Purchased and other intangible assets subject to amortization as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 were as follows (in thousands):
 2012 2011
 Cost Accumulated Amortization Net Cost Accumulated Amortization Net
Purchased technology$366,574
 $(161,538) $205,036
 $314,057
 $(91,363) $222,694
Customer contracts and relationships$318,027
 $(74,214) $243,813
 $433,534
 $(229,364) $204,170
Trademarks53,293
 (19,171) 34,122
 52,734
 (11,217) 41,517
Acquired rights to use technology104,402
 (56,782) 47,620
 106,865
 (48,137) 58,728
Localization8,586
 (4,654) 3,932
 9,762
 (6,591) 3,171
Other intangibles18,742
 (8,229) 10,513
 63,906
 (48,660) 15,246
Total other intangible assets$503,050
 $(163,050) $340,000
 $666,801
 $(343,969) $322,832
Purchased and other intangible
    assets, net
$869,624
 $(324,588) $545,036
 $980,858
 $(435,332) $545,526
 
    2010    2009 
  Cost   Accumulated Amortization   Net   Cost   Accumulated Amortization   Net 
Purchased technology
$260,198  $(61,987) $198,211  $586,952  $(387,731) $199,221 
Localization
$14,768  $(9,355) $5,413  $20,284  $(15,222) $5,062 
Trademarks
 172,019   (136,480)  35,539   172,030   (104,953)  67,077 
Customer contracts and relationships 398,421   (197,459)  200,962   363,922   (159,450)  204,472 
Other intangibles
 51,265   (34,127)  17,138   54,535   (2,979)  51,556 
Total other intangible assets
$636,473  $(377,421) $259,052  $610,771  $(282,604) $328,167 
Purchased and other intangible assets$896,671  $(439,408) $457,263  $1,197,723  $(670,335) $527,388 
During the first half of fiscal 2010,Certain purchased and other intangible assets from prior acquisitions, primarily Macromedia became fully amortized and Omniture, were removed from the balance sheet.sheet as they were fully amortized at the end of fiscal 2012. Amortization expense related to purchased and other intangible assets was $156.7$146.2 million $151.3, $131.5 million and $184.4$169.7 million for fiscal 2010, 20092012, 2011 and 2008,2010, respectively. Of these amounts, for fiscal 2010, 20092012, 2011 and 2008, $84.52010, $98.3 million $88.3, $88.3 million and $116.1$97.3 million, respectively, waswere included in cost of sales.
Purchased and other intangible assets are amortized over their estimated useful lives of 1 to 13 years. As of December 3, 2010,November 30, 2012, we expect amortization expense in future periods to be as follows (in thousands):
Fiscal Year
   
Purchased
Technology
   
Other Intangible
Assets
 
2011
 $44,306  $57,980 
2012
  42,699   29,374 
2013
  38,691   27,029 
2014
  35,801   26,191 
2015
  30,938   25,777 
Thereafter
  5,776   92,701 
Total expected amortization expense
 $198,211  $259,052 
103
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8.  OTHER ASSETS
Other assets as of December 3, 2010 and November 27, 2009 consisted of the following (in thousands):
   2010   2009 
Acquired rights to use technology $71,521  $84,313 
Investments  25,018   63,526 
Security and other deposits  11,266   11,692 
Prepaid royalties  7,726   12,059 
Debt issuance costs  9,574   — 
Deferred compensation plan assets  11,071   9,045 
Restricted cash  2,499   4,650 
Prepaid land lease  13,215   3,209 
Prepaid rent  787   1,377 
Other(*)
  17,194   1,394 
Other assets $169,871  $191,265 

(*)Fiscal 2010 includes a tax asset of approximately $11 million related to an acquired entity.
In general, acquired rights to use technology are amortized over their estimated useful lives of 3 to 13 years.
Included in investments are our indirect investments through our limited partnership interest in Adobe Ventures of approximately $37.1 million as of November 27, 2009. Our limited partnership interest in Adobe Ventures terminated on September 30, 2010 and no additional investments were made. As of December 3, 2010, our investment balance was zero. Adobe Ventures was consolidated in accordance with the provisions for consolidating variable interest entities as we determined we had the power to direct the activities that most significantly impacted the entity’s economic performance and we had the obligation to absorb losses or the right to receive benefits through our limited partnership interest in Adobe Ventures. The partnership was controlled by Granite Ventures, an independent venture capital firm and sole general partner of A dobe Ventures. We were the primary beneficiary of Adobe Ventures and bore virtually all of the risks and rewards related to our ownership. Our investment in Adobe Ventures did not have a significant impact on our consolidated financial position, results of operations or cash flows.
The primary purpose of our limited partnership interest in Adobe Ventures was to invest in securities of private companies which either operated in, or were expected to operate in, industries where technology and business model trends were expected to have an impact on our core business. Our maximum capital commitment to Adobe Ventures was $104.6 million, of which approximately $96.3 million was invested.
Adobe Ventures carried its investments in equity securities at estimated fair value and investment gains and losses were included in our Consolidated Statements of Income. Substantially all of the investments held by Adobe Ventures at November 27, 2009 were not publicly traded and, therefore, there was no established market for these securities. In order to determine the fair value of these investments, we used the most recent round of financing involving new non-strategic investors or estimates of fair value made by Granite Ventures. We evaluated the fair value of these investments held by Adobe Ventures on a regular basis. This evaluation included, but was not limited to, reviewing each company’s cash position, financing needs, earnings and revenue outlook, operational performanc e, management and ownership changes and competition. In the case of privately-held companies, this evaluation was based on information that we requested from these companies. This information was not subject to the same disclosure regulations as U.S. publicly traded companies and as such, the basis for these evaluations were subject to the timing and the accuracy of the data received from these companies.
Also included in investments are our direct investments in privately-held companies of approximately $25.0 million and $26.4 million as of December 3, 2010 and November 27, 2009, respectively, which are accounted for based on the cost method. We assess these investments for impairment in value as circumstances dictate.
Other assets include the fair value, at inception, of the residual value guarantee associated with our leases on the buildings we occupy as part of our corporate headquarters. The lease agreements for our corporate headquarters provide for residual value guarantees. The fair value of a residual value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our Consolidated Balance Sheets. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers and Almaden Tower leases, respectively. These liabilities
Fiscal Year 
Purchased
Technology
 
Other Intangible
Assets
2013$70,613
 $64,429
201464,451
 56,995
201549,779
 50,977
201611,505
 45,359
20175,372
 40,026
Thereafter3,316
 82,214
Total expected amortization expense$205,036
 $340,000

99
104Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance is being amortized to the Consolidated Statements of Income over the life of the leases. As of December 3, 2010 and November 27, 2009, the unamortized portion of the fair value of the residual value guarantees remaining in other long-term liabilities and prepaid rent was $0.7 million and $1.3 million, respectively.

NOTE 9.8.  ACCRUED EXPENSES
Accrued expenses as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 consisted of the following (in thousands):
  2010   2009 2012 2011
Accrued compensation and benefits $290,366  $164,352 $242,887
 $235,500
Sales and marketing allowances  38,706   32,774 87,916
 58,156
Accrued marketing  26,404   28,233 
Accrued corporate marketing39,503
 37,757
Taxes payable  21,800   11,879 26,164
 26,732
Royalties payable10,040
 18,778
Accrued interest expense  21,203   1,355 20,796
 21,010
Other  165,796   181,053 162,834
 157,008
Accrued expenses  $564,275  $419,646 $590,140
 $554,941
Other primarily includes general corporate accruals for local and regional expenses and technical support. Other is also comprised of deferred rent related to office locations with rent escalations accrued royalties and foreign currency liability derivatives.
NOTE 10.9.  INCOME TAXES
Income before income taxes includes income from foreign operations of $659.3 million, $422.4 million and $740.3 million for fiscal 2010, 20092012, 2011 and 2008, respectively.2010 consisted of the following (in thousands):
  2012 2011 2010
Domestic $402,723
 $319,500
 $283,819
Foreign 716,071
 715,730
 659,332
Income before income taxes $1,118,794
 $1,035,230
 $943,151
Domestic income before taxes is significantly lower than foreign income before taxes due to certain accounting charges that our foreign subsidiaries are not required to bear under foreign accounting standards. These charges do not lower our domestic income subject to U.S. tax.
The provision for income taxes for fiscal 2010, 20092012, 2011 and 20082010 consisted of the following (in thousands):
  2010   2009   2008  2012 2011 2010
Current:               
United States federal
 $260,118  $152,840  $24,179  $162,574
 $104,587
 $260,118
Foreign
  44,869   36,794   27,680  59,255
 41,724
 44,869
State and local
  31,866   25,427   6,972  (2,244) (8,769) 31,866
Total current
  336,853   215,061   58,831  219,585
 137,542
 336,853
Deferred:              
  
  
United States federal
  (158,350)  50,376   41,678  69,374
 60,617
 (158,350)
Foreign
  (6,475)  559   (9,693) (6,082) 8,262
 (6,475)
State and local
  (14,665)  4,635   25,518  3,142
 (13,606) (14,665)
Total deferred
  (179,490)  55,570   57,503  66,434
 55,273
 (179,490)
Tax expense attributable to employee stock plans
  11,108   44,381   90,360  —
 9,568
 11,108
Provision for income taxes
 $168,471  $315,012  $206,694  $286,019
 $202,383
 $168,471

100
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total income tax expense differs from the expected tax expense (computed by multiplying the U.S. federal statutory rate of 35% by income before income taxes) as a result of the following (in thousands):
   2010    2009    2008 
Computed “expected” tax expense
 $330,103  $245,532  $377,478 
State tax expense, net of federal benefit
  13,444   7,799   12,700 
Tax credits
  (1,317)  (14,127)  (12,873)
Differences between statutory rate and foreign effective tax rate  (129,063)  (91,262)  (132,470)
Change in deferred tax asset valuation allowance
  1,408   2,759   (1,105)
Stock-based compensation (net of tax deduction)
  4,181   6,085   5,457 
Resolution of U.S. income tax exams
  (39,753)  —   (20,712)
Foreign tax refund for fiscal 2000 - 2002
  —   —   (16,351)
Domestic manufacturing deduction benefit
  (14,630)  (7,525)  (6,300)
Tax charge for licensing Omniture’s technology to foreign subsidiaries  —   161,701   — 
Other, net
  4,098   4,050   870 
Provision for income taxes
 $168,471  $315,012  $206,694 
105
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  2012 2011 2010
Computed “expected” tax expense $391,578
 $362,331
 $330,103
State tax expense, net of federal benefit 11,320
 8,436
 13,444
Tax credits (1,226) (30,283) (1,317)
Differences between statutory rate and foreign effective tax rate (122,999) (135,178) (129,063)
Change in deferred tax asset valuation allowance (2,144) (493) 1,408
Stock-based compensation (net of tax deduction) 10,976
 3,983
 4,181
Resolution of income tax examinations (26,687) —
 (39,753)
Domestic manufacturing deduction benefit (17,010) (14,350) (14,630)
U.S. tax benefits related to state income tax ruling —
 (22,320) —
Tax charge for licensing acquired company technology to foreign subsidiaries 38,849
 31,298
 —
Other, net 3,362
 (1,041) 4,098
Provision for income taxes $286,019
 $202,383
 $168,471
Deferred Tax Assets and Liabilities
The tax effects of the temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 are presented below (in thousands):
  2010   2009  2012 2011
Deferred tax assets:          
Acquired technology
 $3,774  $937  $3,890
 $794
Reserves and accruals
  72,395   68,472  71,888
 95,077
Deferred revenue
  17,114   17,441  9,941
 11,999
Unrealized losses on investments
  6,263   15,263  17,482
 16,483
Stock-based compensation
  73,985   56,541  85,179
 92,817
Net operating loss of acquired companies
  24,284   56,138  16,257
 13,481
Credits
  8,629   12,205 
Credit carryforwards 31,172
 24,771
Capitalized expenses
  9,188   5,701  4,023
 —
Other
  12,889   11,603  5,165
 6,298
Total gross deferred tax assets
  228,521   244,301  244,997
 261,720
Deferred tax asset valuation allowance
  (5,691)  (4,283) (28,247) (5,198)
Total deferred tax assets
  222,830   240,018  216,750
 256,522
Deferred tax liabilities:            
Depreciation and amortization
  (38,524)  (11,975) (81,034) (74,048)
Undistributed earnings of foreign subsidiaries
  (55,841)  (210,619) (187,528) (125,173)
Acquired intangible assets
  (148,316)  (192,493) (153,757) (146,940)
Total deferred tax liabilities
  (242,681)  (415,087) (422,319) (346,161)
Net deferred tax (liabilities) assets
 $(19,851) $(175,069)
Net deferred tax liabilities $(205,569) $(89,639)
The deferred tax assets and liabilities for fiscal 20102012 and fiscal 20092011 include amounts related to various acquisitions. The total change in deferred tax assets and liabilities in fiscal 20102012 includes changes that are recorded to OCI, additional paid-in capital, goodwill and retained earnings.
We repatriated $700 million of undistributed foreign earnings for which a deferred tax liability had been previously recognized. As such, a long-term deferred tax liability of approximately $200 million was reclassified from deferred income taxes to income taxes payable in the first quarter of fiscal 2010 and was paid during fiscal 2010.
We provide U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested outside the U.S. To the extent that the foreign earnings previously treated as permanently reinvested are

101
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. As of December 3, 2010,November 30, 2012, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $1.9 billion.$2.9 billion. The unrecognized deferred tax liability for these earnings is approximately $545.4 million.$0.8 billion.
As of December 3, 2010,November 30, 2012, we have U.S. net operating loss carryforward assetscarryforwards of approximately $68.3$33.7 million for federal and $7.7$77.7 million for state. We also have federal, state and stateforeign tax credit carryforwards of approximately $3.7$1.9 million, $18.0 million and $7.6$17.6 million, respectively. The net operating loss carryforward assets, federal tax credits and foreign tax credits will expire in various years from fiscal 20112017 through 2029.2032. The state tax credit carryforwards can be carried forward indefinitely. The net operating loss carryforward assets and certain credits are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized.
In addition, we have been tracking certain deferred tax attributes of $50.2$45.0 million which have not been recorded in the 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 of these deferred tax assets will be recorded to equity if and when they reduce taxes payable.
AAs of November 30, 2012, a valuation allowance of $28.2 million has been established for certain deferred tax assets related to the impairment of investments. Atinvestments and certain foreign assets. For fiscal 2012, the end of fiscal 2010, ourtotal change in the valuation allowance was $5.7 million.
106
TABLE OF CONTENTS$23.0 million
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
, of which $2.1 million was recorded as a tax benefit through the income statement.
Accounting for Uncertainty in Income Taxes
During fiscal 20102012 and 2009,2011, our aggregate changes in our total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
  2010   2009  2012 2011
Beginning balance
 $218,040  $139,549  $163,607
 $156,925
Gross increases in unrecognized tax benefits – prior year tax positions
  9,580   44,696  1,038
 11,901
Gross decreases in unrecognized tax benefits – prior year tax positions
  (7,104)  (1,523) —
 (4,154)
Gross increases in unrecognized tax benefits – current year tax positions
  15,108   42,422  23,771
 32,420
Settlements with taxing authorities
  (70,484)  (429) (1,754) (29,101)
Lapse of statute of limitations
  (7,896)  (12,585) (25,387) (3,825)
Foreign exchange gains and losses
  (319)  5,910  (807) (559)
Ending balance
 $156,925  $218,040  $160,468
 $163,607
As of December 3, 2010,November 30, 2012, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current income taxes payable was approximately $15.4 million.$12.5 million.
We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. We are subject to the continual examination of our income tax returns by the IRS and other domestic and foreign tax authorities. Our major tax jurisdictions are the U.S., Ireland and California. For California, Ireland and the U.S., the earliest fiscal years open for examination are 2005 2004, 2006 and 2008, respectively. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examination.examinations. We believe such estimates to be reasonable; however, there can be no assurance that the final determination of any of these examinations will not have an adverse effect on our operating re sultsresults and financial position.
In October 2010,August 2011, a U.S.Canadian income tax examination covering our fiscal years 2005 through 20072008 was completed. Our accrued tax and interest related to these years was $59approximately $35 million and was previously reported in long-term income taxes payable. We paid $20reclassified approximately $17 million to short-term income taxes payable and decreased deferred tax assets by approximately $18 million in conjunction with the aforementioned resolution. A net income statement tax benefit in the fourth quarter of fiscal 2010 of $39 million resulted.
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 classification of current and non-current assets and liabilities. The Company believes that before the end of fiscal 2011,2013, it is reasonably possible

102
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the uncertainties described above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0$0 to approximately $5 million.$5 million. These amounts wouldcould decrease income tax expense under current GAAP related to income taxestaxes.
NOTE 10.  RESTRUCTURING
Fiscal 2011 Restructuring Plan
In the fourth quarter of fiscal 2011, we initiated a restructuring plan consisting of reductions in workforce and as a resultthe consolidation of facilities in order to better align our resources around our Digital Media and Digital Marketing strategies.
During fiscal 2012, we continued to implement restructuring activities under this plan. We vacated approximately 64,000 square feet of sales and/or research and development facilities in Canada, the Czech Republic, Germany, Ireland, Israel and the United Kingdom. We accrued $11.3 million for the fair value of our adoptionfuture contractual obligations under those operating leases as of new account ing standards relatedthe dates we ceased to business combinationsuse the leased properties using our estimated credit-adjusted risk-free interest rates ranging from approximately 1% to 4%. This amount is net of the fair value of future estimated sublease income of approximately $3.3 million. Total costs incurred for termination benefits through fiscal 2012 were $56.8 million which included favorable adjustments of $21.8 million arising from revisions to severance cost estimates that were made in connection with the fourth quarter fiscal 2010 (see Note 1). Adjustments2011 restructuring plan. Total costs incurred to acquired income tax liabilities (including adjustmentsdate and expected to be incurred for closing redundant facilities are $14.6 million as all facilities under this plan have been exited as of November 30, 2012.
Other Restructuring Plans
Other restructuring plans include other Adobe plans and other plans associated with certain of our acquisitions completed prior to the effective date) that are recorded subsequentsubstantially complete. We continue to make cash outlays to settle obligations under these plans, however the acquisition date will be recognized in income from continuing operations, with certain exceptions, if such changes occur aftercurrent impact to our consolidated financial statements is not significant. As of November 30, 2012, the measurement period.total remaining balance under our other restructuring plans was
NOTE 11.  RESTRUCTURING
$1.0 million for termination benefits and $9.7 million for closing redundant facilities, of which approximately $8.0 million relates to our Fiscal 2009 Restructuring PlanPlan. Our other restructuring plans consist of the following:
On November 10,Fiscal 2009 Restructuring Plan—In the fourth quarter of fiscal 2009, in order to appropriately align our costs in connection with our fiscal 2010 operating plan, we initiated a restructuring plan consisting of reductions in workforce and the consolidation of up to approximately 630 full-time positions worldwide. In connection with this restructuring plan, in the fourth quarter of fiscal 2009, we recorded restructuring charges of approximately $25.5 million related to ongoing termination benefits for the elimination of approximately 340 of these full-time positions worldwide.facilities. The restructuring activities related to this program affectaffected only those employees and facilities that were associated with Adobe prior to the acquisition of Omniture on October 23, 2009.
During fiscal 2010, we continued to implement restructuring activities under this plan. We vacated approximately 50,000 square feet of sales and or research and development facilities in Australia, Canada, Denmark and the U.S. We accrued $7.0 million for the fair value of our future contractual obligations under these operating leases using our credit-
2009.
107
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adjusted risk-free interest rate, estimated at approximately 7% as of the date we ceased to use the leased properties. This amount is net of the fair value of future estimated sublease income of approximately $7.1 million. We also recorded charges of $18.4 million in termination benefits for the elimination of substantially all of the remaining full-time positions expected to be terminated worldwide. We also recorded net adjustments of approximately $1.7 million to reflect net decreases in previously recorded estimates for termination benefits and facilities-related liabilities. Total costs incurred to date and expected to be incurred for closing redundant facilities are $6.7 million and $13.7 million, respectively.
Omniture Restructuring Plan
Plan—We completed our acquisition of Omniture on October 23, 2009.2009. In the fourth quarter of fiscal 2009, we initiated a plan to restructure the pre-merger operations of Omniture to eliminate certain duplicative activities, focus our resources on future growth opportunities and reduce our cost structure. In connection with this restructuring plan, we accrued a total of approximately $10.6 million in costs related to termination benefits for the elimination of approximately 100 regular positions and for the closure of duplicative facilities. We also accrued approximately $0.2 million in costs related to the cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by Omniture. These costs were recorded as a part of the purchase price allocation, as discussed in Note 2.
Additionally, approximately $1.5 million of restructuring costs related to facilities were included in the liabilities assumed by us upon acquisition of Omniture on October 23, 2009. Restructuring costs related to these facilities were approximately $1.4 million at November 27, 2009.
Fiscal 2008 Restructuring Plan
Plan—In the fourth quarter of fiscal 2008, we initiated a restructuring program consisting of reductions in workforce of approximately 560 full-time positions globally and the consolidation of facilities, in order to reduce our operating costs and focus our resources on key strategic priorities. In connection with this restructuring program, we recorded restructuring charges totaling $29.2 million related to ongoing termination benefits for the elimination of approximately 460 of the 560 full-time positions globally.
During fiscal 2009, we continued to implement restructuring activities under this program. We vacated approximately 89,000 square feet of research and development and sales facilities in the U.S., the United Kingdom and Canada. We accrued $8.5 million for the fair value of our future contractual obligations under these operating leases using our credit-adjusted risk-free interest rate, estimated at approximately 6% as of the date we ceased to use the leased properties. This amount is net of the fair value of future estimated sublease income of approximately $4.4 million. We also recorded additional charges of $6.7 million in termination benefits for the elimination of substantially all of the remaining 100 full-time positions expected to be terminated. Total costs incurred to date and expected to be incurred for closing redundant faci lities are $8.5 million and $8.6 million, respectively.
Macromedia Restructuring Plan
We completed our acquisition of Macromedia on December 3, 2005. In connection with this acquisition, we initiated plans to restructure both the pre-merger operations of Adobe and Macromedia to eliminate certain duplicative activities, focus our resources on future growth opportunities and reduce our cost structure. In connection with the worldwide restructuring plan, we recognized costs related to termination benefits for employee positions that were eliminated and for the closure of duplicative 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 for termination benefits and contract terminations were $27.0 million and $3.2 million, respectively, and those actions were completed during fi scal 2007.
108
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary of Restructuring Plans
The following table sets forth a summary of restructuring activities related to all of our restructuring plans described above during fiscal 20102012 (in thousands):
  
November 27,
2009
   
Costs
Incurred
   
Cash
Payments
   
Other
Adjustments
   
December 3,
2010
 
Fiscal 2009 Plan:               
December 2,
2011		 
Costs
Incurred
 
Cash
Payments
 
Other
Adjustments*
 November 30,
2012
Fiscal 2011 Plan:         
Termination benefits
 $22,984  $18,413  $(35,980) $(3,844) $1,573 $72,817
 $—
 $(49,551) $(22,018) $1,248
Cost of closing redundant facilities  —   7,047   (1,398)  1,653   7,302 2,995
 11,097
 (4,662) 193
 9,623
Omniture Plan:                    
Other Restructuring Plans:         
Termination benefits
  6,712   —   (5,674)  (552)  486 1,548
 810
 (977) (390) 991
Cost of closing redundant facilities  5,323   —   (2,481)  (122)  2,720 11,019
 5,536
 (7,940) 1,073
 9,688
Contract termination
  242   —   (165)  102   179 
Fiscal 2008 Plan:                    
Termination benefits
  1,057   —   (435)  (322)  300 
Cost of closing redundant facilities  3,382   —   (924)  (309)  2,149 
Macromedia Plan:                    
Cost of closing redundant facilities  5,006   —   (2,834)  (514)  1,658 
Other  8   —   (2)  —   6 
Total restructuring plans
 $44,714  $25,460  $(49,893) $(3,908) $16,373 $88,379
 $17,443
 $(63,130) $(21,142) $21,550

103
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

_________________________________________
(*)
Included in Other Adjustments are foreign currency translation adjustments and Goodwill adjustments of $0.4 million each. 
Accrued restructuring charges of approximately $16.4$21.6 million as of December 3, 2010 at November 30, 2012 includes $8.1$9.3 million recorded in accrued restructuring, current and $8.3$12.3 million related to long-term facilities obligations recorded in accrued restructuring, non-current on our Consolidated Balance Sheets. We expect to pay accrued termination benefits through the first quartersecond half of fiscal 20112013 and facilities-related liabilities under contract through fiscal 2021 of which over 70% will be paid through 2013.2021.
Included in the other adjustments column are $(2.2) million related to changes in previous estimates, $(0.9) million related to foreign currency translation adjustments and $(0.8) million in adjustments to goodwill associated with our acquisitions in prior years.
NOTE 12.11.  BENEFIT PLANS
Retirement Savings Plan
In 1987, we adopted an Employee Investment Plan, qualified under Section 401(k) of the Internal Revenue Code, which is a retirement savings plan covering substantially all of our U.S. employees, now referred to as the Adobe 401(k) Retirement Savings Plan. Under the plan, eligible employees may contribute up to 65% of their pretax or after-tax salary, subject to the Internal Revenue Service annual contribution limits. In fiscal 2010,2012, we matched 50% of the first 6% of the employee’s eligible compensation. We contributed $17.9$19.4 million $15.1, $19.6 million and $16.6$17.9 million in fiscal 2010, 20092012, 2011 and 2008,2010, respectively. We can terminate matching contributions at our discretion.
Profit Sharing Plan
Our profit sharing plan was discontinued effective fiscal 2010. The profit sharing plan provided for profit sharing payments to all eligible employees following each quarter in which we achieve at least 75% of our budgeted earnings for the quarter for fiscal 2009 and 80% of our budgeted earnings for the quarter for fiscal year 2008. The plan, as well as the annual operating budget on which the plan was based, was approved by our Board of Directors. We contributed $13.3 million and $73.8 million to the plan in fiscal 2009 and 2008, respectively.
Deferred Compensation Plan
On September 21, 2006, the Board of Directors approved the Adobe Systems Incorporated Deferred Compensation Plan, effective December 2, 2006 (the “Deferred Compensation Plan”). The Deferred Compensation Plan is an unfunded, non-qualified, deferred compensation arrangement under which certain executives and members of the Board of Directors are able to defer a portion of their annual compensation. Participants may elect to contribute up to 75% of their base salary and 100% of other specified compensation, including commissions, bonuses, performance-based and time-based restricted stock units, and directors’ fees. Participants are able to elect the payment of benefits to begin on a specified date at least three years after the end of the plan year in which the election is made in the form of a lump sum o ror annual installments over five, ten or

109
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
fifteen years. Upon termination of a participant’s employment with Adobe, such participant will receive a distribution in the form of a lump sum payment. All distributions will be made in cash, except for deferred performance-based and time-based restricted stock units which will be settled in stock. As of November 30, 2012 and December 3, 2010 and November 27, 2009,2, 2011, the invested amounts under the Deferred Compensation Plan total $11.1$15.1 million and $9.0$12.8 million, respectively and were recorded as other assets on our Consolidated Balance Sheets. As of November 30, 2012 and December 3, 20102, 2011, $16.4 million and November 27, 2009, $11.5$13.2 million and $9.0 million,, respectively, was recorded as long-term liabilities to recognize undistributed deferred compensation due to employees.
NOTE 13.12.  STOCK-BASED COMPENSATION
We have the following stock-based compensation plans and programs:
Restricted Stock Option Plans
OurWe grant restricted stock option program is a long-term retention program that is intendedunits to attract, retain and provide incentives for talentedall eligible employees officers and directors, and to align stockholder and employee interests. Currently, we grant options from theunder our 2003 Equity Incentive Plan, as amended (“(“2003 Plan”Plan”), and theour 2005 Equity Incentive Assumption Plan (“2005 Assumption Plan”) and our Amended 1994 Performance and Restricted Stock Plan (“Restricted Stock Plan”). TheseRestricted stock units granted under these plans are collectively referred to ingenerally vest over four years, the following discussion as “the Plans.” Under the Plans, options can be granted to all employees, including executive officers, outside consultantsmajority of which vest 25% annually, and non-employee directors. The Plans will continue until the earliercertain grants have other vesting periods approved by our Board of (i) termination byDirectors or an authorized committee of the Board or (ii) the date on which all of the shares available for issuanceDirectors.
We grant performance awards to officers and key employees under the plan have been issued and restrictions on issued sh ares have lapsed. Option vesting periods are generally four years for all of the Plans. Optionsour Restricted Stock Plan as well as our 2003 Plan. Performance awards granted under the Plans generally expire seven years from the effective date of grant.these plans after fiscal year 2009 vest annually over three years. Performance awards granted prior to fiscal year 2009 vest annually over four years.
As of December 3, 2010,November 30, 2012, we had reserved 124.5136.9 million and 4.45.5 million shares of common stock for issuance under our 2003 Plan and 2005 Assumption Plan, respectively. As of December 3, 2010, werespectively and had 46.436.6 million and 3.91.4 million shares available for grant under our 2003 Plan and 2005 Assumption Plan, respectively. As of November 30, 2012, we had reserved 16.0 million shares of our common stock for issuance under the Restricted Stock Plan and approximately 12 thousand shares were available for grant.

104
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of our common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower. The ESPP will continue until the earlier of (i) termination by the Board or (ii) the date on which all of the shares available for issuance under the plan have been issued.
As of December 3, 2010,November 30, 2012, we had reserved 76.093.0 million shares of our common stock for issuance under the ESPP and approximately 9.019.2 million shares remain available for future issuance.
Stock Option Plans
Restricted Stock Plan
Our stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests. We grant restricted stock awards and performance awards to officers and key employees under our Amended 1994 Performance and Restricted Stock Plan (“Restricted Stock Plan”). We can also grant restricted stock units to all eligible employees underoptions from the Restricted Stock2003 Plan and the 20032005 Assumption Plan. Restricted stock awards issued underUnder these plans, vest annually over three years. Performance awardsoptions can be granted to all employees, including executive officers, outside consultants and restricted stock unitsnon-employee directors. These plans will continue until the earlier of (i) termination by the Board or (ii) the date on which all of the shares available for issuance under the plan have been issued and restrictions on issued shares have lapsed. Option vesting periods are generally four years for all of these plans. Options granted under these plans generally vest over fourexpire seven years from the majorityeffective date of which vest 25% annually; certain restricted stock units vest 50% on the second anniversary and 25% on each of the third and fourth anniversaries.
As of December 3, 2010, we had reserved 16.0 million shares of our common stock for issuance under the Restricted Stock Plan and approximately 14.7 thousand shares were available for grant.
In fiscal 2012, the Executive Compensation Committee of Adobe's Board of Directors eliminated the use of stock option grants for all employees and stock option grants to non-employee directors were minimal.
Performance Share Programs
Effective January 25, 2010,24, 2012, the Executive Compensation Committee adopted the 20102012 Performance Share Program (the “2010“2012 Program”). The purpose of the 20102012 Program is to align key management and senior leadership with stockholders’ interests and to retain key employees. The measurement period for the 20102012 Program is our fiscal 20102012 year. All membersMembers of our executive management and other key senior leadersmanagement are participating in the 20102012 Program. Awards granted under the 20102012 Program wereare granted in the form of performance shares pursuant to the terms of our 2003 Equity Incentive Plan. If pre-determined Adobe specific and/or market-based performance goals are met, shares of stock will be granted to the recipient, with one third vesting on the later of the date of certification of achievement or the first anniversary date of the grant, and the rem ainingremaining two thirds vesting evenly on the following two annual anniversary dates of the grant, contingent upon the recipient’s continued service to
110
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adobe. Participants in the 20102012 Program generally have the ability to receive up to 150% of the target number of shares originally granted.
Issuance of Shares
Upon exercise of stock options, vesting of restricted stock and performance shares, and purchases of shares under the ESPP, we will issue treasury stock. If treasury stock is not available, common stock will be issued. In order to minimize the impact of on-going dilution from exercises of stock options and vesting of restricted stock and performance shares, we instituted a stock repurchase program. See Note 1413 for information regarding our stock repurchase programs.
Valuation of Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award. We currently use the Black-Scholes option pricing model to determine the fair value of stock options and ESPP shares. The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, a risk-free interest rate and any expected dividends.
We estimate the expected term of options granted by calculating the average term from our historical stock option exercise experience. We estimate the volatility of our common stock by using implied volatility in market traded options. Our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. We base the risk-free interest rate

105
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

that we use in the option valuation model on zero-coupon yields implied by U.S. Treasury issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. We are require drequired to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
The assumptions used to value our option grants were as follows:
     Fiscal Years 
   2010   2009   2008 
Expected term (in years)
  3.8 – 5.1   3.0 – 4.1   2.3 – 4.7 
Volatility
  29 – 36%  34 – 57%  32 – 60%
Risk-free interest rate
  1.04 – 2.66%  1.16 – 2.24%  1.70 – 3.50%
 Fiscal Years
 2012 2011 2010
Expected life (in years)3.9 - 4.2 3.8 - 4.2 3.8 - 5.1
Volatility31 - 34% 30 - 41% 29 - 36%
Risk free interest rate0.54 - .71% 0.64 - 1.92% 1.04 - 2.66%
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
 2012 2011 2010
Expected life (in years)0.5 - 2.0 0.5 - 2.0 0.5 - 2.0
Volatility30 - 36% 30 - 34% 32 - 40%
Risk free interest rate0.06 - 0.30% 0.10 - 0.61% 0.18 - 1.09%
     Fiscal Years 
   2010   2009   2008 
Expected term (in years)  0.5 – 2.0   0.5 – 2.0   0.5 – 2.0 
Volatility  32 – 40%  40 – 57%  30 – 36%
Risk-free interest rate  0.18 – 1.09%  0.27 – 1.05%  2.12 – 3.29%
 
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 the fair value of our common stock on the date of grant.
We recognize the estimated compensation cost of performance shares, net of estimated forfeitures. The awards are earned upon attainment of identified performance goals, some of which contain discretionary metrics. As such, these awards are re-valuedre-measured based on our traded stock price at the end of each reporting period. If the discretion is removed, the award will be classified as a fixed equity award. The fair value of the awards will be based on the measurement date, which is the date the award becomes fixed. The awards will be subsequently amortized over the longer of the remaining performance or service period.

106
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
111
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary of Stock Options
Option activity under our stock option program for fiscal years 2010, 2009ended 2012, 2011 and 20082010 was as follows (shares in thousands):
 Outstanding Options
 
Number of
Shares
 
Weighted
Average
Exercise
Price
November 27, 200941,251
 $29.45
Granted3,198
 $34.03
Exercised(5,196) $20.48
Cancelled(2,908) $33.94
Increase due to acquisition730
 $8.24
December 3, 201037,075
 $30.33
Granted4,507
 $33.60
Exercised(4,987) $21.02
Cancelled(2,268) $33.85
Increase due to acquisition475
 $2.25
December 2, 201134,802
 $31.47
Granted57
 $32.19
Exercised(6,754) $23.61
Cancelled(4,692) $33.07
Increase due to acquisition1,104
 $3.23
November 30, 201224,517
 $32.09
 
     Outstanding Options 
   
Number of
Shares
   
Weighted
Average
Exercise
Price
 
November 30, 2007  47,742  $28.47 
Granted  5,462  $35.08 
Exercised  (9,983) $25.45 
Cancelled  (2,517) $35.34 
November 28, 2008  40,704  $29.67 
Granted  5,758  $22.90 
Exercised  (7,560) $17.15 
Cancelled  (3,160) $33.57 
Increase due to acquisition  5,509  $20.15 
November 27, 2009  41,251  $29.45 
Granted  3,198  $34.03 
Exercised  (5,196) $20.48 
Cancelled  (2,908) $33.94 
Increase due to acquisition  730  $8.24 
December 3, 2010  37,075  $30.33 
The weighted average fair values of options granted during fiscal 2010, 20092012, 2011 and 20082010 were $9.17, $8.39$8.50, $8.82 and $10.32,$9.17, respectively.
The total intrinsic value of options exercised during fiscal 2010, 20092012, 2011 and 20082010 was $72.7$62.6 million $91.8, $59.4 million and $142.4$72.7 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

107
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Information regarding the stock options outstanding at November 30, 2012, December 2, 2011 and December 3, 2010 November 27, 2009 and November 28, 2008 is summarized below:

   
 
 
 
Number of
Shares
(thousands)
   
 
 
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life
(years)
   
Aggregate
Intrinsic
 Value(*)
(millions)
 
As of December 3, 2010               
Options outstanding                                                     37,075  $30.33   3.62  $116.3 
Options vested and expected to vest  35,961  $30.42   3.56  $111.0 
Options exercisable                                                     27,763  $31.17   3.06  $72.7 
                 
As of November 27, 2009                
Options outstanding                                                     41,251  $29.45   4.33  $295.8 
Options vested and expected to vest  39,322  $29.54   4.24  $279.1 
Options exercisable                                                     26,677  $29.85   3.54  $181.7 
                 
As of November 28, 2008                
Options outstanding  40,704  $29.67   4.00  $76.1 
Options vested and expected to vest  38,975  $29.36   3.87  $76.1 
Options exercisable  28,034  $26.61   3.28  $76.1 

 
Number of
Shares
(thousands)
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(years)
 
Aggregate
Intrinsic
Value(*)
(millions)
2012       
Options outstanding24,517
 $32.09
 2.74 $103.3
Options vested and expected to vest24,158
 $32.15
 2.70 $100.9
Options exercisable20,668
 $33.06
 2.27 $73.6
2011 
  
    
Options outstanding34,802
 $31.47
 3.24 $68.0
Options vested and expected to vest33,856
 $31.52
 3.17 $65.6
Options exercisable26,622
 $32.31
 2.56 $42.1
2010       
Options outstanding37,075
 $30.33
 3.62 $116.3
Options vested and expected to vest35,961
 $30.42
 3.56 $111.0
Options exercisable27,763
 $31.17
 3.06 $72.7
_________________________________________
(*)
The intrinsic value is calculated as the difference between the market value as of the end of the fiscal yearperiod and the exercise price of the shares. As reported by the NASDAQ Global Select Market, the market values as of November 30, 2012, December 2, 2011 and December 3, 2010 November 27, 2009 were $34.61, $27.11 and November 28, 2008 were $29.14, $35.38 and $23.16,$29.14, respectively.
112
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
All stock options granted to current executive officers are made after a review by and with the approval of the Executive Compensation Committee of the Board of Directors.
Summary of Employee Stock Purchase Plan Shares
The weighted average subscription date fair value of shares under the ESPP during fiscal 2010, 20092012, 2011 and 20082010 were $7.43, $5.43$9.09, $9.01 and $9.56,$7.43, respectively. Employees purchased 3.33.2 million shares at an average price of $20.19, 3.2$23.81, 3.7 million shares at an average price of $19.04,$23.48, and 2.43.3 million shares at an average price of $30.40,$20.19, respectively, for fiscal 2010, 20092012, 2011 and 2008.2010. The intrinsic value of shares purchased during fiscal 2010, 20092012, 2011 and 20082010 was $33.9$22.8 million $21.7, $28.9 million and $25.0$33.9 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.
Summary of Restricted Stock Awards
Restricted stock award activity for fiscal 2010, 2009 and 2008 was as follows (shares in thousands):
   
Non-vested
Shares
   
Weighted
Average
Grant Date
Fair Value
 
November 30, 2007  21  $36.41 
Awarded  —  $— 
Released  (15) $34.94 
Forfeited  (2) $39.95 
November 28, 2008  4  $39.31 
Awarded  —  $— 
Released  (1) $38.22 
Forfeited  —  $— 
November 27, 2009  3  $40.01 
Awarded  —  $— 
Released  (2) $40.06 
Forfeited  —  $— 
December 3, 2010  1  $39.96 
The total fair value of restricted stock awards vested during fiscal 2010, 2009 and 2008 was $46.3 thousand, $39.4 thousand and $0.5 million, respectively.
Restricted stock awards are considered outstanding at the time of grant, as the stock award holders are entitled to dividends and voting rights. Unvested restricted stock awards are not considered outstanding in the computation of basic earnings per share.
Summary of Restricted Stock Units
Restricted stock unit activity for fiscal years 2010, 20092012, 2011 and 20082010 was as follows (in thousands):
 2012 2011 2010
Beginning outstanding balance16,871
 13,890
 10,433
Awarded9,431
 8,180
 7,340
Released(5,854) (3,819) (2,589)
Forfeited(2,147) (1,587) (1,294)
Increase due to acquisition114
 207
 —
Ending outstanding balance18,415
 16,871
 13,890
 
   2010   2009   2008 
Beginning outstanding balance
  10,433   4,261   1,701 
Awarded
  7,340   6,176   3,177 
Released
  (2,589)  (1,162)  (422)
Forfeited
  (1,294)  (401)  (195)
Increase due to acquisition
  —   1,559   — 
Ending outstanding  balance
  13,890   10,433   4,261 
The weighted average grant date fair values of restricted stock units granted during fiscal 2010, 20092012, 2011 and 20082010 were $33.47, $27.74$31.36, $33.10 and $33.55,$33.47, respectively. The total fair value of restricted stock units vested during fiscal 2010, 20092012, 2011 and 20082010 was $84.1$180.1 million $27.1, $123.3 million and $14.4$84.1 million, respectively.

108
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

113
TABLE OF CONTENTS
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information regarding restricted stock units outstanding at the end of fiscalNovember 30, 2012, December 2, 2011 and December 3, 2010 2009 and 2008 is summarized below:
  
Number of
Shares
(thousands)
   
Weighted
Average
Remaining Contractual
Life
(years)
   
Aggregate
Intrinsic
Value(*)
(millions)
 
Number of
Shares
(thousands)
 
Weighted
Average
Remaining
Contractual
Life
(years)
 
Aggregate
Intrinsic
Value(*)
(millions)
2012     
Restricted stock units outstanding18,415
 1.37 $637.3
Restricted stock units vested and expected to vest16,289
 1.26 $562.8
2011 
    
Restricted stock units outstanding16,871
 1.35 $457.4
Restricted stock units vested and expected to vest14,931
 1.25 $404.3
2010            
Restricted stock units outstanding   13,890   1.54  $404.8 13,890
 1.54 $404.8
Restricted stock units vested and expected to vest  11,185   1.38  $325.7 11,185
 1.38 $325.7
2009            
Restricted stock units outstanding   10,433   1.82  $369.1 
Restricted stock units vested and expected to vest  8,078   1.63  $285.7 
2008            
Restricted stock units outstanding  4,261   1.73  $98.7 
Restricted stock units vested and expected to vest  3,351   1.52  $77.6 

_________________________________________
(*)
The intrinsic value is calculated as the market value as of the end of the fiscal year.period. As reported by the NASDAQ Global Select Market, the market values as of November 30, 2012, December 2, 2011 and December 3, 2010 November 27, 2009 were $34.61, $27.11 and November 28, 2008 were $29.14, $35.38 and $23.16,$29.14, respectively.
Summary of Performance Shares
The following table sets forth the summary of performance share activity under our 20102012 Program for the fiscal 2010year ended November 30, 2012 (in thousands):
  
Shares
Granted
   
Maximum
Shares
Eligible
to Receive
 
Shares
Granted
 
Maximum
Shares Eligible
to Receive
Beginning outstanding balance
  —   — —
 —
Awarded
  263   394 1,125
 1,652
Forfeited
  (13)  (19)(23) (34)
Ending outstanding balance
  250   375 1,102
 1,618

TheIn the first quarter of fiscal 2012, the Executive Compensation Committee certified the actual performance metrics underachievement of participants in the 20092011 Performance Share Program were not achieved(the “2011 Program”). Based upon the achievement of goals outlined in the 2011 Program, participants had the ability to receive up to 150% of the target number of shares originally granted. Actual performance resulted in participants achieving 130% of target or approximately 0.5 million shares for the 2011 Program. One third of the shares under the 2011 Program vested in the first quarter of fiscal 2012 and therefore no shares were awarded.
the remaining two thirds vest evenly on the following two annual anniversary dates of the grant, contingent upon the recipient's continued service to Adobe.
In the first quarter of fiscal 2011, the Executive Compensation Committee certified the actual performance achievement of participants in the 2010 Performance Share Program (the “2010 Program”). Based upon the achievement of goals outlined in the 2010 Program, participants had the ability to receive up to 150% of the target number of shares originally granted. Actual performance resulted in participants achieving 135% of target or approximately 0.3 million million shares for the 2010 Program. One third of the shares under the 20102011 Program vested in the first quarter of fiscal 20112012 and the remaining two thirds vest evenly on the following two annual anniversary dates of the grant, contingent upon the recipient’srecipient's continued service to Adobe .Adobe.

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, 2010 and 20082011 programs, based upon share awards actually achieved, for the fiscal 2010years ended November 30, 2012, December 2, 2011 and 2009December 3, 2010 (in thousands):
 2012 2011 2010
Beginning outstanding balance405
 557
 950
Achieved492
 337
 —
Released(464) (436) (350)
Forfeited(45) (53) (43)
Ending outstanding balance388
 405
 557
 
   2010   2009 
Beginning outstanding balance
  950   383 
Achieved
  —   1,022 
Released
  (350)  (382)
Forfeited
  (43)  (73)
Ending outstanding balance
  557   950 
The performance metrics under the 2009 Performance Share program were not achieved and therefore no shares were awarded.

The total fair value of performance awards vested during fiscal 2010, 20092012, 2011 and 20082010 was $12.0$14.4 million $7.7, $14.8 million and $16.7$12.0 million, respectively.

114
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information regarding performance shares outstanding at November 30, 2012, December 2, 2011 and December 3, 2010 and November 27, 2009 is summarized below:
 
Number of
Shares
(thousands)
  
Weighted
Average
Remaining
Contractual
Life
(years)
  
Aggregate
Intrinsic
Value(*)
(millions)
 
2010         
Number of
Shares
(thousands)
 
Weighted
Average
Remaining
Contractual
Life
(years)
 
Aggregate
Intrinsic
Value(*)
(millions)
2012     
Performance shares outstanding   557   0.58  $16.2 388
 0.54 $13.4
Performance shares vested and expected to vest  514   0.53  $14.8 369
 0.51 $12.7
            
2009            
Performance shares outstanding
  950   1.05  $33.6 
2011 
    
Performance shares units outstanding405
 0.41 $11.0
Performance shares vested and expected to vest  818   0.97  $28.8 390
 0.39 $10.4
            
2008            
Performance shares outstanding
  383   1.20  $8.9 
2010   
Performance shares units outstanding557
 0.58 $16.2
Performance shares vested and expected to vest  323   1.10  $7.4 514
 0.53 $14.8

_________________________________________
(*)
The intrinsic value is calculated as the market value as of the end of the fiscal year.period. As reported by the NASDAQ Global Select Market, the market values as of November 30, 2012, December 2, 2011 and December 3, 2010 November 27, 2009 were $34.61, $27.11 and November 28, 2008 were $29.14, $35.38 and $23.16,$29.14, respectively.
Grants to Non-Employee Directors
The Directors Plan (and starting in fiscal 2008, the 2003 Plan) provides for the granting of nonqualified stock options to non-employee directors. Options granted before November 29, 2008 vest over four years: 25% on the day preceding each of our next four annual meetings and have a ten-yearten-year term. Starting in fiscal 2009, the initial equity grant to a new non-employee director is a restricted stock unit award having an aggregate value of $0.5$0.5 million based on the average stock price over the 30 calendar days ending on the day before the date of grant. The initial equity award vests over 2 years, 50% on the day preceding each of our next 2 annual meetings. For the annual equity grant, a non-employee director can elect to receive 100% options, 100% restricted stock units or 50% of each and shall have an aggregate value of $0.2$0.2 million a s as based on the average stock price over the 30 calendar days ending on the day before the date of grant. The target grant value converted to stock options is based on a 1:3 conversion of restricted stock units to stock options will be based on a 3:1 conversion ratio.options. Annual equity awards granted on or after November 29, 2008 vest 100% on

110
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the day preceding the next annual meeting. Options granted on or after November 29, 2008 have a seven-yearseven-year term. The exercise price of the options that are issued is equal to the fair market value of our common stock on the date of grant.
Options granted to directors for fiscal 2010, 20092012, 2011 and 20082010 were as follows (shares in thousands):
 2012 2011 2010
Options granted to existing directors43
 85
 18
Exercise price$33.18
 $33.23
 $33.82
 
   2010   2009   2008 
Options granted to existing directors  18   175   250 
Exercise price $33.82  $23.28  $37.09 
Restricted stock units granted to directors for fiscal 20102012, 2011 and 20092010 were as follows (in thousands):
  2010   2009 2012 2011 2010
Restricted stock units granted to existing directors  48   27 42
 28
 48
Restricted stock units granted to new directors  —   20 41
 —
 —
 
Compensation Costs
With the exception of performance shares, stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the entire award, which is generally the vesting period. For performance shares, expense is recognized on a straight-line basis over the requisite service period for each vesting tranche of the award.
115
TABLE OF CONTENTS
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 3, 2010,November 30, 2012, there was $257.9$456.3 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards which will be recognized over a weighted average period of 2.52.2 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
Total stock-based compensation costs that have been included in our Consolidated Statements of Income for the fiscal 2010, 2009years ended November 30, 2012, December 2, 2011 and 2008December 3, 2010 were as follows (in thousands):
     Income Statement Classifications 
  
 
 
Cost of
Revenue–
Subscription
   
Cost of
Revenue–
Services and Support
   Research and Development   
Sales and
Marketing
   General and Administrative   
 
Total(1)
 
                         
Option Grants and Stock
Purchase Rights(2)
                        
Fiscal 2010
 $1,265  $1,251  $37,221  $40,983  $21,111  $101,831 
Fiscal 2009
 $—  $1,906  $45,535  $38,790  $24,595  $110,826 
Fiscal 2008
 $—  $3,728  $55,653  $41,326  $24,521  $125,228 
                         
Restricted Stock and Performance
Share Awards(2)
                        
Fiscal 2010
 $1,422  $1,065  $51,387  $52,253  $23,128  $129,255 
Fiscal 2009
 $—  $639  $27,931  $19,818  $9,274  $57,662 
Fiscal 2008
 $—  $570  $20,835  $17,928  $10,810  $50,143 
 
  Income Statement Classifications
 
Cost of
Revenue–
Subscription
 
Cost of
Revenue–
Services and Support
 Research and Development 
Sales and
Marketing
 General and Administrative 
 
Total(1)
Option Grants and Stock
Purchase Rights
           
2012$2,840
 $4,130
 $24,823
 $31,379
 $15,455
 $78,627
2011$936
 $4,716
 $28,132
 $31,754
 $20,605
 $86,143
2010$1,265
 $1,251
 $37,221
 $40,983
 $21,111
 $101,831
Restricted Stock and Performance
Share Awards
 
  
  
  
  
  
2012$3,100
 $9,461
 $83,349
 $76,359
 $47,606
 $219,875
2011$1,521
 $8,607
 $79,427
 $68,485
 $41,920
 $199,960
2010$1,422
 $1,065
 $51,387
 $52,253
 $23,128
 $129,255

_________________________________________
(1)
(1)
During fiscal 2010, 20092012, 2011 and 2008,2010, we recorded deferred tax benefits of $44.8$47.1 million $25.4, $58.3 million and $30.0$61.5 million, respectively.


111
Table of Contents

(2)During fiscal 2009 and 2008, we recorded $0.9 million and $2.9 million, respectively, associated with cash recoveries of fringe benefit tax from employees in India.
ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14.13.  STOCKHOLDERS’ EQUITY
Comprehensive Income (Loss)
The following table sets forth the activity for each component of comprehensive income, net of related taxes, for fiscal 2010, 20092012, 2011 and 20082010 (in thousands):
   2010   2009   2008 
Net income
 $774,680  $386,508  $871,814 
Other comprehensive income (loss):            
Available-for-sale securities:            
Unrealized gains (losses) on available-for-sale securities  (1,211)  6,661   (3,102)
Reclassification adjustment for (gains) losses on available-
for-sale securities recognized during the period
  (2,959)  (8,752)  1,559 
Subtotal available-for-sale securities
  (4,170)  (2,091)  (1,543)
Derivatives designated as hedging instruments:            
Unrealized (losses) gains on derivative instruments  20,325  ��(14,618)  54,967 
Reclassification adjustment for gains on derivative
instruments recognized during the period
  (20,169)  (27,138)  (13,248)
Subtotal derivative instruments                                                                     156   (41,756)  41,719 
Foreign currency translation adjustments
  (3,004)  11,071   (10,902)
Other comprehensive income (loss)
  (7,018)  (32,776)  29,274 
Total comprehensive income, net of taxes
 $767,662  $353,732  $901,088 
116
  2012 2011 2010
  Increase/(Decrease)
Net income $832,775
 $832,847
 $774,680
Other comprehensive income:      
Available-for-sale securities:      
Unrealized gains / losses on available-for-sale securities 11,297
 (1,795) (1,211)
Reclassification adjustment for gains on available-for-sale
    securities recognized during the period
 (2,874) (1,834) (2,959)
Subtotal available-for-sale securities 8,423
 (3,629) (4,170)
Derivatives designated as hedging instruments:      
Unrealized gains / losses on derivative instruments 23,922
 16,952
 20,325
Reclassification adjustment for gains on derivative
    instruments recognized during the period
 (30,672) (3,749) (20,169)
Subtotal derivatives designated as hedging
     instruments
 (6,750) 13,203
 156
Foreign currency translation adjustments (911) 2,948
 (3,004)
Other comprehensive income 762
 12,522
 (7,018)
Total comprehensive income, net of taxes $833,537
 $845,369
 $767,662
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the taxes related to each component of OCI for fiscal 2010, 20092012, 2011 and 20082010 (in thousands):
  2010   2009   2008  2012 2011 2010
Available-for-sale securities
 $495  $931  $(988) $13
 $700
 $495
Foreign currency translation adjustments
 $275  $1,411  $(4,860) $1,169
 $2,483
 $275
Taxes related to derivative instruments were zero for all fiscal years.years based on the tax jurisdiction where the derivative instruments were executed.
The following table sets forth the components of accumulated other comprehensive income, net of related taxes, for fiscal 20102012 and 20092011 (in thousands):
  2010   2009 2012 2011
Net unrealized gains on available-for-sale securities:         
Unrealized gains on available-for-sale securities
 $12,138  $13,818 $14,698
 $10,810
Unrealized losses on available-for-sale securities
  (2,493)  (2)(259) (4,794)
Total net unrealized gains on available-for-sale securities
  9,645   13,816 14,439
 6,016
Net unrealized (losses) gains on derivative instruments
  151   (5)
Net unrealized gains on derivative instruments designated as hedging instruments6,604
 13,354
Cumulative foreign currency translation adjustments
  7,632   10,635 9,669
 10,580
Total accumulated other comprehensive income, net of taxes
 $17,428  $24,446 $30,712
 29,950

112
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth the components of foreign currency translation adjustments for fiscal 2010, 20092012, 2011 and 20082010 (in thousands):
  2010   2009   2008  2012 2011 2010
Beginning balance $10,640  $(431) $10,471  $10,580
 $7,632
 $10,640
Foreign currency translation adjustments  (4,144)  17,343   (19,461) (2,225) 5,156
 (4,144)
Income tax effect relating to translation adjustments for
undistributed foreign earnings
  1,136   (6,272)  8,559  1,314
 (2,208) 1,136
Ending balance $7,632  $10,640  $(431) $9,669
 $10,580
 $7,632
Stock Repurchase Program I
 
To facilitate our stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we repurchase shares in the open market and also enter into structured repurchasesrepurchase agreements with third-parties.
Authorization to repurchase shares to cover on-going dilution was not subject to expiration. However, this repurchase program was limited to covering net dilution from stock issuances and was subject to business conditions and cash flow requirements as determined by our Board of Directors from time to time.
During the third quarter of fiscal 2010, our Board of Directors approved an amendment to our stock repurchase program authorized in April 2007 from a non-expiring share-based authority to a time-constrained dollar-based authority. As part of this amendment, the Board of Directors granted authority to repurchase up to $1.6$1.6 billion in common stock through the end of fiscal 2012. This amended program did not affectDuring the $250.0 million structuredsecond quarter of fiscal 2012, we exhausted our $1.6 billion authority granted by our Board of Directors in fiscal 2010.
In April 2012, the Board of Directors approved a new stock repurchase agreement entered into during March 2010. Asprogram granting authority to repurchase up to $2.0 billion in common stock through the end of December 3, 2010, no prepayments remain under that agreement.fiscal 2015. The new stock repurchase program approved by our Board of Directors is similar to our previous $1.6 billion stock repurchase program.
During fiscal 2010, 20092012, 2011 and 20082010, we entered into several structured repurchase agreements with large financial institutions, whereupon we provided the financial institutions with prepayments of $850.0totaling $405.0 million $350.0, $695.0 million and $525.0$850 million, respectively. Of the $850.0$405.0 million of prepayments during fiscal 2012, $100.0 million was under the new $2.0 billion stock repurchase program and the remaining $305.0 million was under our previous $1.6 billion authority. Of the $850.0 million of prepayments during fiscal 2010, $250.0$250.0 million was under the stock repurchase program prior to the program amendment in the third quarter of fiscal 2010 and the remaining $600.0$600.0 million was under the amended $1.6$1.6 billion time-constrained dollar-based authority. We enteredenter into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume Weighted Average Price (“VWAP”) of our common stock over a specified period of time. We only enter into such transactions when the discount that we receive is higher than the foregone return on our cas hcash prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.
117
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount. During fiscal 2010,2012, we repurchased approximately 31.211.5 million shares at an average price of $29.19$32.29 through structured repurchase agreements entered into during fiscal 2012. During fiscal 2011, we repurchased approximately 21.8 million shares at an average price of $31.81 through structured repurchase agreements entered into during fiscal 2011. During fiscal 2010, we repurchased approximately 31.2 million shares at an average price per share of $29.19 through structured repurchase agreements entered into during fiscal 2009 and fiscal 2010. During fiscal 2009, we repurchased approximately 15.2 million shares at an average price per share of $27.89 through structured repurchase agreements entered into during fiscal 2008 and fiscal 2009. During fiscal 2008, we repurchased 22.4 million shares at an a verage price of $36.26 through structured repurchase agreements which included prepayments from fiscal 2007.
During fiscal 2008, we also repurchased 3.6 million shares at an average price of $36.41 in open market transactions.
For fiscal 2010, 20092012, 2011 and 2008,2010, 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 30, 2012, December 2, 2011 and December 3, 2010 November 27, 2009 and November 28, 2008 were excluded from the computation of earnings per share. As of November 30, 2012, $33.0 million of prepayments remained under these agreements. As of December 2, 2011 and December 3, 2010, no prepayments remained under thethese agreements. As

113
Table of November 27, 2009, approximately $59.9 million of up-front payments remained under the agreements.Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Subsequent to December 3, 2010,November 30, 2012, as part of our $1.6$2.0 billion stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $125.0 million.$100.0 million. This amount will be classified as treasury stock on our Consolidated Balance Sheets. Upon completion of the $125.0$100.0 million stock repurchase agreement, $875.0 million$1.8 billion remains under our time-constrained dollar-basedcurrent authority.See Note 21 for further discussion of our stock repurchase program.
Stock Repurchase Program II
Under this stock repurchase program, we had authorization to repurchase an aggregate of 50.0 million shares of our common stock. From the inception of the 50.0 million share authorization under this program, we provided prepayments of $1.9 billion under structured share repurchase agreements to large financial institutions. During the third quarter of fiscal 2008, the remaining authorized number of shares were repurchased.
During fiscal 2008, we provided prepayments of $1.0 billion and repurchased 31.9 million shares under these structured agreements at an average price of $37.15. During fiscal 2008, we also repurchased 0.5 million shares at an average price of $39.79 in open market transactions.
NOTE 15.14.  NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of common shares outstanding for the period, excluding unvested restricted stock. Diluted net income per share is based upon the weighted average common shares outstanding for the period plus dilutive potential common shares, including unvested restricted stock and stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted net income per share for fiscal 2010, 20092012, 2011 and 20082010 (in thousands, except per share data):
  2010   2009   2008  2012 2011 2010
Net income
 $774,680  $386,508  $871,814  $832,775
 $832,847
 $774,680
Shares used to compute basic net income per share
  519,045   524,470   539,373  494,731
 497,469
 519,045
Dilutive potential common shares:                  
Unvested restricted stock and performance share awards  3,170   2,130   1,107  7,624
 4,214
 3,170
Stock options
  3,609   4,010   8,073  366
 2,238
 3,609
Shares used to compute diluted net income per share
  525,824   530,610   548,553  502,721
 503,921
 525,824
Basic net income per share
 $1.49  $0.74  $1.62  $1.68
 $1.67
 $1.49
Diluted net income per share
 $1.47  $0.73  $1.59  $1.66
 $1.65
 $1.47
For fiscal 2010, 20092012, 2011 and 2008,2010 options to purchase approximately 19.4 million, 27.1 million and 22.4 million 27.0 million and 16.5 million shares, respectively, of common stock with exercise prices greater than the annual average fair market value of our stock of $31.82, $27.30$31.98, $30.27 and $37.07,$31.82, respectively, were not included in the calculation because the effect would have been anti-dilutive.
118
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16.15.  COMMITMENTS AND CONTINGENCIES
 
Lease Commitments
We lease certain of our facilities and some of our equipment under non-cancellable operating lease arrangements that expire at various dates through 2028.2028. We also have one land lease that expires in 2091.2091. Rent expense includes base contractual rent and variable costs such as building expenses, utilities, taxes, insurance and equipment rental. Rent expense and sublease income for these leases for fiscal 20082010 through fiscal 20102012 were as follows (in thousands):
  2010   2009   2008  2012 2011 2010
Rent expense $109,114  $93,921  $101,202  $105,809
 $111,574
 $109,114
Less: sublease income  3,929   5,563   11,421  2,330
 3,211
 3,929
Net rent expense  $105,185  $88,358  $89,781  $103,479
 $108,363
 $105,185
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 and West Towers.
In August 2004, we extendedThe lease agreements for the lease agreement for our East and West Towers and the Almaden Tower are effective through August 2014 and March 2017, respectively. We are the investors in the lease receivables related to these leases for an additional five years with anthe East and West Towers and the Almaden Tower in the amount of $126.8 million and $80.4 million, respectively, which is recorded as investment in lease receivables on our Consolidated Balance Sheets. As of November 30, 2012, the carrying value of the lease receivables related to the towers approximated fair value. Under the agreement for the East and West Towers and the agreement for the Almaden Tower, we have the option to extendpurchase the buildings at any time during the lease term for an additional five years solely at our election. In June 2009,approximately $143.2 million and $103.6 million, respectively. The residual value guarantees under the East and West Towers and the Almaden Tower obligations are

114
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$126.8 million and $89.4 million, respectively. If we submitted noticepurchase the properties, the investments in the lease receivables may be credited against the purchase price.

These two leases are both subject to standard covenants including certain financial ratios that are reported to the lessor that we intended to exercise our option to renew this agreement for an additional five years effectivelessors quarterly. In August 2009. As stated in the original lease agreement, in conjunction with the lease renewal,2009, we were required to obtain a standby letter of credit for approximately $16.5$16.6 million which enabled us to secure a lower interest rate and reduce the number of covenants. As defined in the lease agreement, the standby letter of credit primarily represents the lease investment equity balance which is callable in the event of default. In March 2007, the Almaden Tower lease was extended for five years, wit h a renewal option for an additional five years solely at our election. As part of the lease extensions, we purchased the lease receivable from the lessor of the East and West Towers for $126.8 million and a portion of the lease receivable from the lessor of the Almaden Tower for $80.4 million, and are recorded as investments in lease receivables on our Consolidated Balance Sheets. As of December 3, 2010, the fair value of the lease receivables related to all three towers approximated carrying value. This purchase may be credited against the residual value guarantee if we purchase the properties or will be repaid from the sale proceeds if the properties are sold to third-parties. Under the agreement for the East and West Towers and the agreement for the Almaden Tower, we have the option to purchase the buildings at anytime during the lease term for approximately $143.2 million and $103.6 million, respectively. The residual value guarantees under the East and West Towers and the Almaden Tower obligations are $126.8 million and $89.4 million, respectively.
These two leases are both subject to standard covenants including certain financial ratios that are reported to the lessors quarterly. As of December 3, 2010,November 30, 2012, we were in compliance with all of the covenants. In the case of a default, the lessor may demand we purchase the buildings for an amount equal to the lease balance, or require that we remarket or relinquish the buildings. Both leases qualify for operating lease accounting treatment and, as such, the buildings and the related obligations are not included on our Consolidated Balance Sheets. We utilized this type of financing in order to access bank-provided funding at the most favorable rates and to provide the lowest total cost of occupancy for the headquarter buildings. At the end of the lease term, we can extend the lease for an additional five year term, purchase the buildings for the lease balance, remarket or relinquish the buildings. If we choose to remarket or are required to do so upon relinquishing the buildings, we are bound to arrange the sale of the buildings to an unrelated party and will be required to pay the lessor any shortfall between the net remarketing proceeds and the lease balance, up to the residual value guarantee amount.amount less our investment in the lease receivables. Both leases qualify for operating lease accounting treatment and, as such, the buildings and the related obligations are not included in our Consolidated Balance Sheets.

In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2 million and leaseback the same equipment over a period of 43 months. This transaction was classified as a capital lease obligation and recorded at fair value. See Note 1716 for further discussion of our capital lease obligation.
Unconditional Purchase Obligations
Our purchase obligations consist of agreements to purchase goods and services entered in the ordinary course of business.
119
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes our non-cancellable unconditional purchase obligations,operating leases and capital leases for each of the next five years and thereafter as of December 3, 2010November 30, 2012 (in thousands):
     Operating Leases  Capital Leases    
 Operating Leases
 Capital Leases
Fiscal Year
  Purchase Obligations  
Future
Minimum
Lease
Payments
  
Future
Minimum
Sublease
Income
  
Future
Minimum
Lease
Payments
  
Purchase
Obligations
 
Future
Minimum
Lease
Payments
 
Future
Minimum
Sublease
Income
 
Future
Minimum
Lease
Payments
2011
 $175,131  $65,786  $4,040  $9,937 
2012
  10,241   50,146   2,870   9,925 
2013
2013
  5,717   39,560   1,209   9,925 2013 $256,353
 $48,562
 $1,236
 $11,411
2014
2014
  2,234   26,322   307   827 2014 22,334
 42,843
 511
 1,773
2015
2015
  6,045   19,776   321   — 2015 24,190
 31,156
 505
 —
20162016 23,925
 25,833
 430
 —
20172017 3,361
 21,726
 396
 —
Thereafter
Thereafter
  15,146   82,614   1,682   — Thereafter 12,004
 80,235
 1,184
 —
Total
Total
 $214,514  $284,204  $10,429  $30,614 Total $342,167
 $250,355
 $4,262
 $13,184
Less: interest
Less: interest
              (2,122)Less: interest  
  
  
 (341)
Total
Total
             $28,492 Total  
  
  
 $12,843
 
The table above includes operating lease commitments related to our restructured facilities. See Note 1110 for information regarding our restructuring charges.
Guarantees
The lease agreements for our corporate headquarters provide for residual value guarantees as noted above. The fair value of a residual value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our Consolidated Balance Sheets. As such, we recognized $5.2$5.2 million and $3.0$3.0 million in liabilities, related to the extended Eastand West Towers and Almaden Tower leases, respectively. These liabilities arewere recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will bewas amortized to the income statementour Consolidated Statements of Income over the life of the original leases. As of December 3, 2010 and November 27, 2009,30, 2012 there was no remaining balance of the unamortized portion of the fair value of the residual value guarantees, for both leases,either lease, remaining in other long-term liabilities and prepaid ren t was $0.7 million and $1.3 million, respectively.on our Consolidated Balance Sheets.

115
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Royalties
We have royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue. Royalty expense, which was recorded under our cost of products revenue on our Consolidated Statements of Income, was approximately $34.1$29.6 million $43.0, $29.8 million and $47.8$34.1 million in fiscal 2010, 20092012, 2011 and 2008,2010, respectively.
Indemnifications
In the ordinary course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third-partiesthird parties arising from the use of our products.products and from time to time, we are subject to claims by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’sofficer's or director’sdirector's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
During fiscal 2010, our limited partnership interest in Adobe Ventures was dissolved and all remaining assets were distributed to the partners. As part of this limited partnership interest, we provided a general indemnification to Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences while Granite Ventures was serving at our request in such capacity provided that Granite Ventures acted in good faith on behalf of the partnership.
120
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Legal Proceedings
Between September 23, 2009 and September 25, 2009, three putative class action lawsuits were filed in the Fourth Judicial District Court for Utah County, Provo Department, State of Utah, seeking to enjoin Adobe’s acquisition of Omniture, Inc. and to recover damages in the event the transaction were to close. The cases were captioned Miner v. Omniture, Inc., et. al. (“Miner”), Barrell v. Omniture, Inc. et. al., (“Barrell”), and Lodhia v. Omniture, Inc. et al., (“Lodhia”). At a hearing on October 20, 2009, the court consolidated the Miner, Barrell, and Lodhia cases into a single case under the Lodhia caption and denied the plaintiffs’ motion to preliminarily enjoin the closing of the transaction. On December 30, 2009, the plaintiffs served the defendants with a consolidated amended complai nt for damages arising out of the closing of the transaction. In the consolidated amended complaint, plaintiffs alleged that the members of Omniture’s board of directors breached their fiduciary duties to Omniture’s stockholders by failing to seek the highest possible price for Omniture and that both Adobe and Omniture induced or aided and abetted in the alleged breach. The plaintiffs also alleged that the Schedule 14D-9 Solicitation/Recommendation Statement filed by Omniture on September 24, 2009 in connection with the transaction contained inadequate disclosures and was materially misleading. Plaintiffs sought unspecified damages on behalf of the former public stockholders of Omniture. On March 8, 2010, Adobe and the other defendants moved to dismiss the complaint for failure to state a claim. The court heard oral argument on the motion in November 2010 and the court granted the defendants’ motion to dismiss the complaint with prejudice.
In October 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 by plaintiff purporting to cover “Distributed Hypermedia Method for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 5,838,906) and “Distributed Hypermedia Method and System for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 7,599,985) and seeks injunctive relief, monetary damages, costs and attorneys fees. We disput e these claims and intend to vigorously defend ourselves in this matter. As of December 3, 2010, no amounts have been accrued as a loss is not probable or estimable.
In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation may be very costly and can be disruptive to our anti-piracy efforts, conducted both internallybusiness operations by diverting the attention and through organizationsenergies of management and key technical personnel. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions 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.
In addition to intellectual property disputes, such as the Business Software Alliance, from time to timethose discussed above and others, we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other local laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any particular period by the resolution of one or more of these counter-claims.
Adobe isare subject to legal proceedings, claims and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, indemnification claims,relating to commercial, employment and other matters. Adobe makesSome of these disputes and legal proceedings may include speculative claims for substantial or indeterminate amounts of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed and discussed with our Audit Committee and our independent registered public accounting firm.
We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed in this note, we have determined that no provision for liability nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.
All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending agains t Adobe.against us. It is possible, nevertheless, that our consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

116
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software Alliance, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any particular period by the resolution of one or more of these counter-claims.
NOTE 17.16.  DEBT
Our debt as of November 30, 2012 and December 3, 2010 and November 27, 20092, 2011 consisted of the following (in thousands):
 2012 2011
Notes$1,495,312
 $1,494,627
Capital lease obligations12,843
 19,681
Total debt and capital lease obligations1,508,155
 1,514,308
Less: current portion11,217
 9,212
Debt and capital lease obligations$1,496,938
 $1,505,096
 
   2010   2009 
Notes
 $1,493,969  $— 
Credit facility
  —   1,000,000 
Capital lease obligations
  28,492   — 
Total debt and capital lease obligations
  1,522,461   1,000,000 
Less: current portion
  8,799   — 
Total debt and capital lease obligations, non-current
 $1,513,662  $1,000,000 
121
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Notes
In February 2010, we issued $600.0$600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900.0$900.0 million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). Our proceeds were approximately $1.5$1.5 billion and were net of an issuance discount of $6.6 million.$6.6 million. The Notes rank equally with our other unsecured and unsubordinated indebtedness. In addition, we incurred issuance costs of approximately $10.7 million.$10.7 million. Both the discount and issuance costs are being amortized 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 arrea rs,arrears, on February 1 and August 1, commencing on August 1, 2010. In August 2010 we made our first semi-annual payment of $31.1 million.. During fiscal 2012 interest payments totaled $62.3 million. The proceeds from the Notes are available 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 3, 2010.
We may redeem the Notes at any time, subject to a make whole premium. In addition, upon the occurrence of certain change of control triggering events, we may be required to repurchase the Notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The Notes also include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances. As of December 3, 2010,November 30, 2012, we were in compliance with all of the covenants.
Credit Agreement
In August 2007, we entered into an Amendment to our Credit Agreement dated February 2007 (the “Amendment”), which increased the total senior unsecured revolving facility from $500.0 million to $1.0 billion. The Amendment also permits us to request one-year extensions effective on each anniversary of the closing date of the original agreement, subject to the majority consent of the lenders. We also retain an option to request an additional $500.0 million in commitments, for a maximum aggregate facility of $1.5 billion.
In February 2008,On March 2, 2012, we entered into a Second Amendment to the Credit Agreement dated February 26, 2008, which extended the maturity date of the facility by one year to February 16, 2013. The facility would terminate at this date if no additional extensions have been requested and granted. All other terms and conditions remain the same.
The facility contains a financial covenant requiring us not to exceed a certain maximum leverage ratio. At our option, borrowings under the facility accrue interest based on either the London interbank offered rate (“LIBOR”five-year $1.0 billion senior unsecured revolving credit agreement (the “Credit Agreement”), providing for one, two, three or six months, or longer periods with bank consent, plus a margin according to a pricing grid tied to this financial covenant, or a base rate. The margin is set at rates between 0.20% and 0.475%. Commitment fees are payable on the facility at rates between 0.05% and 0.15% per year based on the same pricing grid. The facility is available to provide loans to us and certain of our subsidiariessubsidiaries. Pursuant to the terms of the Credit Agreement, we may, subject to the agreement of the applicable lenders, request up to an additional $500.0 million in commitments, for general corporate purposes. At November 27, 2009, the amount outstandinga maximum aggregate commitment of $1.5 billion. Loans under the Credit Agreement will bear interest at either (i) the London Interbank Offered Rate (“LIBOR”) plus a margin, based on our debt ratings, ranging from 0.795% and 1.30% or (ii) the base rate, which is defined as the highest of (a) the agent’s prime rate, (b) the federal funds effective rate plus 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 subsidiaries designated as additional borrowers may borrow, prepay and re-borrow amounts under the revolving credit facility was $1.0 billion, which approximated fair value. On February 1, 2010, we paidat any time during the outs tanding balanceterm of the Credit Agreement.
The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, events of default and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, certain merger and acquisition transactions, dispositions and other matters, all subject to certain exceptions. The financial covenant, based on a quarterly financial test, requires us not to exceed a maximum leverage ratio.

117
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Credit Agreement will terminate and all amounts owing thereunder will be due and payable on March 2, 2017 unless (a) the commitments are terminated earlier upon the occurrence of certain events, including events of default, or (b) the maturity date is extended upon our credit facility andrequest, subject to the entire $1.0 billion credit lineagreement of the lenders.
As of November 30, 2012, there were no outstanding borrowings under this facility remains available for borrowing.
Credit Agreement and we were in compliance with all covenants. In connection with entering into the Credit Agreement as described above, we terminated and paid off all obligations under our previous credit agreement, dated as of February 16, 2007.
Capital Lease Obligation
In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2$32.2 million and leaseback the same equipment over a period of 43 months. This transaction was classified as a capital lease obligation and was recorded at fair value. As of December 3, 2010,November 30, 2012, our capital lease obligations of $28.5$12.8 million includes $8.8$11.2 million of current debt.
122
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18.17.  NON-OPERATING INCOME (EXPENSE)
Non-operating income (expense) for fiscal 2010, 20092012, 2011 and 20082010 included the following (in thousands):
   2010   2009   2008 
Interest and other income (expense), net:            
Interest income
 $21,923  $34,978  $57,588 
Foreign exchange losses
  (12,948)  (13,420)  (17,494)
Realized gains on fixed income investment
  2,953   8,753   3,161 
Realized losses on fixed income investment
  —   (1)  (1,501)
Other
  1,211   1,070   2,093 
Interest and other income (expense), net
 $13,139  $31,380  $43,847 
Interest expense
 $(56,952) $(3,407) $(10,019)
Investment gains (losses), net:            
Realized investment gains
 $9,819  $52  $18,398 
Unrealized investment gains(*) 
  1,008   10,826   7,803 
Realized investment losses
  (9,619)  (9,019)  (1,417)
Unrealized investment losses
  (7,318)  (18,825)  (8,375)
Investment gains (losses), net
 $(6,110) $(16,966) $16,409 
Non-operating income (expense), net
 $(49,923) $11,007  $50,237 

(*)During fiscal 2010 and 2009, we recorded $1.2 million and $2.0 million, respectively, in net unrealized holding gains associated with our deferred compensation plan assets (classified as trading securities beginning in fiscal 2009).
  2012 2011 2010
Interest and other income (expense), net:      
Interest income $24,549
 $24,506
 $21,923
Foreign exchange gains (losses) (31,431) (30,226) (12,948)
Realized gains on fixed income investment 3,152
 2,012
 2,953
Realized losses on fixed income investment (278) (178) —
Other 594
 912
 1,211
Interest and other income (expense), net $(3,414) $(2,974) $13,139
Interest expense $(67,487) $(66,952) $(56,952)
Investment gains (losses), net:  
    
Realized investment gains $8,918
 $7,159
 $9,819
Unrealized investment gains 940
 —
 1,008
Realized investment losses (104) (850) (9,619)
Unrealized investment losses (250) (452) (7,318)
Investment gains (losses), net $9,504
 $5,857
 $(6,110)
Non-operating income (expense), net $(61,397) $(64,069) $(49,923)

NOTE 19.18.  INDUSTRY SEGMENT, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
We have the following reportable segments:
·  
Creative Solutions—Our Creative Solutions segment focuses on delivering a complete professional line of integrated tools for a full range of creative and developer tasks to an extended set of customers.

·  
Knowledge Worker—Our Knowledge Worker segment focuses on the needs of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains our Acrobat family of products.
·  
Enterprise—Our Enterprise segment provides server-based Customer Experience Management Solutions to enterprise and government customers to optimize their information intensive customer-facing processes and improve the overall customer experience of their constituents. This segment contains our LiveCycle and Adobe Connect lines of products.
·   
Omniture—Our Omniture segment provides Web analytics and online business optimization products and services to manage and enhance online, offline and multi-channel business initiatives.
·  
Platform—Our Platform segment includes client and developer technologies, such as Adobe Flash Player, Adobe Flash Lite, Adobe AIR, Adobe Flex, Adobe Flash Builder, ColdFusion, and also encompasses products and technologies created and managed in other Adobe segments.
·  
Print and Publishing—Our Print and Publishing segment addresses market opportunities ranging from the diverse publishing needs of technical and business publishing to our legacy type and OEM printing businesses.
Effective in the first quarter of fiscal 2011, we plan to modify our segments due to changes in how we operate our business. We intend to split our prior Creative Solutions segment into two new segments: Digital Media Solutions and Creative and Interactive Solutions. Digital Media Solutions will contain our imaging and video products for professionals and hobbyists, whereas Creative and Interactive Solutions will contain our Creative Suite family of products including our professional page layout and Web layout products. We also plan to merge our former Platform segment into the new Creative and Interactive Solutions segment to better align our focus with market trends and our opportunities. In addition to our business unit reorganization, we plan to move several products to different businesses. Our Scene7 products will be moved
123
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
from our Creative Solutions business to our Omniture business; our ColdFusion products will be been moved from our Platform business to our Print and Publishing business; and our Presenter product that is part of our Adobe Connect offering will be moved from our Knowledge Worker business to our Print and Publishing business. We will adjust our reportable segments at the beginning of fiscal 2011 to reflect these changes as we enter into the new fiscal year.
Effective in the first quarter of fiscal 2010, to better align our marketing efforts and go-to-market strategies, we moved management responsibility for the Connect Solutions product line from our Knowledge Worker segment to our Enterprise segment. Prior year information in the table below has been reclassified to reflect this change.
Effective in the first quarter of fiscal 2009, our former Mobile and Devices Solutions segment, was integrated into our Platform business unit to better align our engineering and marketing efforts and is now reported as part of the Platform segment. Prior year information in the table below has been reclassified to reflect the integration of these business units.
We report segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments.
Our chief operating decision maker reviews revenue and gross margin information for each of our reportable segments. Operatingsegments, but does not review operating expenses are not reviewed on a segment by segment basis. In addition, with the exception of goodwill and intangible assets, we do not identify or allocate our assets by the reportable segments.
Effective in the first quarter of fiscal 2012, we modified our segments due to changes in how we operate our business. We combined our Creative and Interactive Solutions segment with our Digital Media Solutions segment and our Knowledge Worker segment, and named it Digital Media. We also renamed our Omniture segment to Digital Marketing and combined it with our Enterprise segment. These changes reflect our focus on our two strategic growth opportunities. Our Print and Publishing segment, which contains many of our mature products and solutions continues to be reported as it was in fiscal 2011. Prior year information in the table below has been reclassified to reflect these changes.

118
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We have the following reportable segments:
Digital Media—Our Digital Media segment provides tools and solutions that enable individuals, small 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 marketing departments and agencies, companies and publishers.
Digital Marketing—Our Digital Marketing segment provides solutions and services for how digital advertising and marketing are created, managed, executed, measured and optimized. Our customers include digital marketers, advertisers, publishers, merchandisers, web analysts, chief marketing officers and chief revenue officers.
Print and Publishing—Our Print and Publishing segment addresses market opportunities ranging from the diverse publishing needs of technical and business publishing to our legacy type and OEM printing businesses.
Our segment results for fiscal 2010, 20092012, 2011 and 20082010 were as follows (dollars in thousands):
   
Creative
Solutions
   
Knowledge
Worker
   Enterprise   
Omniture(1)
   
Platform(2)
   
Print and
Publishing
   Total 
Fiscal 2010                            
Revenue
 $2,056,546  $654,327  $355,046  $360,564  $178,906 ��$194,611  $3,800,000 
Cost of revenue
  120,744   20,266   61,726   179,461   9,991   11,314   403,502 
Gross profit
 $1,935,802  $634,061  $293,320  $181,103  $168,915  $183,297  $3,396,498 
Gross profit as a percentage of revenue  94%  97%  83%  50%  94%  94%  89%
                             
Fiscal 2009                            
Revenue
 $1,702,110  $557,598  $300,870  $26,272  $181,033  $177,970  $2,945,853 
Cost of revenue
  152,909   29,221   58,925   15,829   21,174   18,674   296,732 
Gross profit
 $1,549,201  $528,377  $241,945  $10,443  $159,859  $159,296  $2,649,121 
Gross profit as a percentage of revenue  91%  95%  80%  40%  88%  90%  90%
                             
Fiscal 2008                            
Revenue
 $2,072,835  $757,728  $306,131  $—  $231,558  $211,637  $3,579,889 
Cost of revenue
  160,560   43,777   85,044   —   44,344   28,905   362,630 
Gross profit
 $1,912,275  $713,951  $221,087  $—  $187,214  $182,732  $3,217,259 
Gross profit as a percentage of revenue  92%  94%  72%  —   81%  86%  90%

(1)Fiscal 2010 and 2009 includes the integration of Omniture as a new reportable segment beginning in the fourth quarter of fiscal 2009. Fiscal 2008 does not include the impact of our acquisition of Omniture. Of the $360.6 million and $26.3 million in revenue from our Omniture segment for fiscal 2010 and 2009, respectively, approximately $309.1 million and $22.2 million, respectively, represents subscription revenue and the remaining amounts represent professional services and support.
(2)Platform revenue includes revenue related to our Mobile client products of $25.7 million, $51.3 million and $113.1 million for fiscal 2010, 2009 and 2008, respectively, or 14%, 28% and 49% of Platform revenues, respectively.
 Digital Media 
Digital
Marketing
 Print and Publishing Total
Fiscal 2012 
    
  
Revenue$3,128,548
 $1,058,357
 $216,772
 $4,403,677
Cost of revenue134,574
 338,600
 10,608
 483,782
Gross profit$2,993,974
 $719,757
 $206,164
 $3,919,895
Gross profit as a percentage of revenue96% 68% 95% 89%
Fiscal 2011 
    
  
Revenue$3,088,527
 $909,406
 $218,325
 $4,216,258
Cost of revenue128,951
 301,600
 7,322
 437,873
Gross profit$2,959,576
 $607,806
 $211,003
 $3,778,385
Gross profit as a percentage of revenue96% 67% 97% 90%
Fiscal 2010 
    
  
Revenue$2,834,417
 $739,356
 $226,227
 $3,800,000
Cost of revenue135,476
 254,727
 13,299
 403,502
Gross profit$2,698,941
 $484,629
 $212,928
 $3,396,498
Gross profit as a percentage of revenue95% 66% 94% 89%

124
119
Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 2010, 20092012, 2011 and 20082010 (in thousands). With the exception of property and equipment, we do not identify or allocate our assets (including long-lived assets) by geographic area.
Revenue  2010  2009  2008  2012 2011 2010
Americas:Americas:         Americas:      
United States
United States
 $1,665,714  $1,244,631  $1,473,319 United States $1,969,924
 $1,823,205
 $1,641,985
Other
Other
  193,309   137,940   159,507 Other 226,430
 221,399
 193,309
Total Americas
Total Americas
  1,859,023   1,382,571   1,632,826 Total Americas 2,196,354
 2,044,604
 1,835,294
EMEA
EMEA
  1,168,217   928,857   1,229,161 EMEA 1,294,566
 1,317,417
 1,191,946
Asia:            
APAC:APAC:      
Japan
Japan
  477,462   410,055   450,799 Japan 531,028
 517,378
 477,462
Other
Other
  295,298   224,370   267,103 Other 381,729
 336,859
 295,298
Total Asia
  772,760   634,425   717,902 
Total APACTotal APAC 912,757
 854,237
 772,760
Revenue
Revenue
 $3,800,000  $2,945,853  $3,579,889 Revenue $4,403,677
 $4,216,258
 $3,800,000

Property and Equipment   2010   2009 
Americas:        
United States $388,863  $336,303 
Other  3,369   5,806 
Total Americas  392,232   342,109 
EMEA  35,263   23,729 
Asia:        
India  13,468   14,625 
Other  7,918   7,669 
Total Asia                                                                                              21,386   22,294 
Property and equipment, net                                                                                                  $448,881  $388,132 
Property and Equipment  2012 2011
Americas:    
United States $552,634
 $437,701
Other 1,426
 1,926
Total Americas 554,060
 439,627
EMEA 63,515
 53,474
APAC:    
India 30,007
 18,955
Other 16,720
 15,772
Total APAC                                                                                             46,727
 34,727
Property and equipment, net                                                                                                  $664,302
 $527,828
 
Significant Customers
As listed, our significant customers are distributors who sell products across our various segments. Our significant customers, as a percentage of net revenue for fiscal 2010, 20092012, 2011 and 20082010 were as follows:
  2012 2011 2010
Ingram Micro 11% 14% 15%
 
   2010   2009   2008 
Ingram Micro
  15%  15%  18%
Receivables fromIn fiscal 2012, no single customer was responsible for over 10% of our significant customers, as a percentage of gross trade receivables forreceivables. In fiscal 2010 and 2009 were as follows:2011, Ingram Micro, Inc. represented 14% of our gross trade receivables.

120
Table of Contents

   2010   2009 
Ingram Micro
  14%  16%
ADOBE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 20.19.  SELECTED QUARTERLY FINANCIAL DATA (unaudited)
    2010  2012
(in thousands, except per share data)   Quarter Ended  
 Quarter Ended
  March 5   June 4   September 3   December 3  March 2 June 1 August 31 November 30
Revenue $858,700  $943,035  $990,319  $1,007,946  $1,045,220
 $1,124,449
 $1,080,580
 $1,153,428
Gross profit $769,332  $835,202  $891,235  $900,729  $936,955
 $993,531
 $960,959
 $1,028,450
Income before income taxes $166,215  $194,173  $296,752  $286,011  $270,377
 $294,574
 $263,212
 $290,631
Net income $127,154  $148,611  $230,065  $268,850  $185,209
 $223,876
 $201,357
 $222,333
Basic net income per share $0.24  $0.28  $0.44  $0.53  $0.37
 $0.45
 $0.41
 $0.45
Diluted net income per share $0.24  $0.28  $0.44  $0.53  $0.37
 $0.45
 $0.40
 $0.44
125
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2009  2011
(in thousands, except per share data)  Quarter Ended  
 Quarter Ended
 February 27  May 29 August 28  November 27  March 4 June 3 September 2 December 2
Revenue $786,390  $704,673  $697,507  $757,283  $1,027,706
 $1,023,179
 $1,013,212
 $1,152,161
Gross profit $709,037  $632,665  $632,460  $674,959  $920,067
 $913,978
 $908,558
 $1,035,782
Income before income taxes $203,162  $163,730  $174,416  $160,212  $286,087
 $259,244
 $256,719
 $233,180
Net income (loss) $156,435  $126,071  $136,045  $(32,043)
Basic net income (loss) per share $0.30  $0.24  $0.26  $(0.06)
Diluted net income (loss) per share $0.30  $0.24  $0.26  $(0.06)
Net income $234,591
 $229,436
 $195,101
 $173,719
Basic net income per share $0.47
 $0.46
 $0.39
 $0.35
Diluted net income per share $0.46
 $0.45
 $0.39
 $0.35
Our fiscal year is a 52- or 53-week year that ends on the Friday closest to November 30. Each of the fiscal quarters presented were comprised of 13 weeks with exception of the first quarter of fiscal 2010 which was comprised of 14 weeks.
NOTE 21.20.  SUBSEQUENT EVENTS
 
Subsequent to December 3, 2010,November 30, 2012, as part of our $1.6$2.0 billion stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $125.0 million.$100.0 million. This amount will be classified as treasury stock on our Consolidated Balance Sheets. Upon completion of the $125.0$100.0 million stock repurchase agreement, $875.0 million$1.8 billion remains under our time-constrained dollar-basedcurrent authority. See Note 1413 for further discussion of our stock repurchase programs.program.
Subsequent to On December 3, 2010,20, 2012, we acquired privately held Demdex, a leading data managementBehance, an online social media platform company.to showcase and discover creative work, for approximately $130.0 million in merger consideration, including cash and the assumption of certain employee equity awards. The initial purchase accounting for this transaction has not yet been completed given the short period of time between the acquisition date and the issuance of these financial statements.
Behance will be integrated into our Digital Media reportable segment for financial reporting purposes beginning in the first quarter of fiscal 2013. This acquisition will not have a material impact to our consolidated balance sheetsConsolidated Balance Sheets and results of operations.


121
126

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Adobe Systems Incorporated:
We have audited the accompanying consolidated balance sheets of Adobe Systems Incorporated and subsidiaries (the “Company”) as of November 30, 2012 and December 3, 2010 and November 27, 2009,2, 2011, and the related consolidated statements of income, stockholders’stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 3, 2010.November 30, 2012. We also have audited Adobe Systems Incorporated’sIncorporated's internal control over financial reporting as of December 3, 2010,November 30, 2012, based on criteria established in Internal Control—Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”). Adobe System Incorporated’sSystems 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 control over financial reporting, included in the accompanying Management’sManagement's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’sCompany's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, ass essingassessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Adobe Systems Incorporated and subsidiaries as of November 30, 2012 and December 3, 2010 and November 27, 2009,2, 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 3, 2010,November 30, 2012, 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 December 3, 2010,November 30, 2012, based on criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
COSO.
As discussed in notesnote 1 and 10 to the consolidated financial statements, the Company changed its method offor accounting for multiple element revenue transactions in fiscal 2010, and its method for accounting for uncertainty in income taxes in fiscal 2008, resulting from the adoption of new accounting pronouncements.

/s/(signed) KPMG LLP
Mountain View,Santa Clara, California
January 27, 201122, 2013

122
127

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.  CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 3, 2010.November 30, 2012. Based on their evaluation as of December 3, 2010,November 30, 2012, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chi efChief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Adobe have been detected.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 3, 2010.November 30, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 3, 2010,November 30, 2012, 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 10-K, has issued an attestation report on our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 3, 2010November 30, 2012 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B.  OTHER INFORMATION
None.
PART III
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 of Form 10-K that is found in our 20112013 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company’s 20112013 Annual Meeting of Stockholders (“20112013 Proxy Statement”) is incorporated by reference to our 20112013 Proxy Statement. The 20112013 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates. For information with respect to our executive officers, see “Executive Officers” at the end of Part I, Item 1 of this report.
ITEM 11.  EXECUTIVE COMPENSATION
The information required by this Item 11 of Form 10-K that is found in our 2011 Proxy Statement is incorporated by reference to our 20112013 Proxy Statement.
128

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSMATTERS
The information required by this Item 12 of Form 10-K that is found in our 2011 Proxy Statement is incorporated by reference to our 20112013 Proxy Statement.

123
Table of Contents

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEINDEPENDENCE
The information required by this Item13 of Form 10-K that is found in our 2011 Proxy Statement is incorporated by reference to our 20112013 Proxy Statement.
ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 of Form 10-K that is found in our 2011 Proxy Statement is incorporated by reference to our 20112013 Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1.Financial Statements. See “IndexIndex to Consolidated Financial Statements”Statements in Part II, Item 8 of this Form 10-K.
2.Exhibits. The exhibits listed in the accompanying “IndexIndex to Exhibits”Exhibits are filed or incorporated by reference as part of this Form 10-K.

124
129

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of 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 27, 2011.22, 2013.
 ADOBE SYSTEMS INCORPORATED
  
 By:/s/ MARK GARRETT
  By:
/s/ Mark Garrett
  
Mark Garrett,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

POWER OF ATTORNEY
 
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Shantanu Narayen and Mark Garrett, and each or any one of them, his or her lawful attorneys-in-fact and agents, for such person in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact and agent, or substitute or substitutes, may do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
     
/s/ JohnJOHN E. Warnock
WARNOCK		   January 27, 201122, 2013
John E. Warnock Chairman of the Board of Directors  
     
/s/ CharlesCHARLES M. Geschke
GESCHKE		   January 27, 201122, 2013
Charles M. Geschke Chairman of the Board of Directors  
     
/s/ Shantanu narayen
SHATANU NARAYEN		   January 27, 201122, 2013
Shantanu Narayen
 
 
Director, President and Chief Executive Officer
(Principal Executive Officer)
  
     
/s/ Mark Garrett
MARK GARRETT		   January 27, 201122, 2013
Mark Garrett Executive Vice President and Chief Financial Officer (Principal Financial Officer)  
     
/s/ RichardRICHARD T. Rowley
ROWLEY		 �� January 27, 201122, 2013
Richard T. Rowley Vice President, Corporate Controller and Principal Accounting Officer  
     
/s/ Edward W. Barnholt
AMY BANSE		   January 27, 201122, 2013
Amy BanseDirector
/s/ KELLY BARLOWJanuary 22, 2013
Kelly BarlowDirector
/s/ EDWARD W. BARNHOLTJanuary 22, 2013
Edward W. Barnholt Director  
     
/s/ Robert K. Burgess
January 27, 2011
Robert K. BurgessDirector

125
Table of Contents

130
Signature Title Date
     
/s/ Michael R. Cannon
ROBERT K. BURGESS		   January 27, 201122, 2013
Robert K. BurgessDirector
/s/ FRANK CALDERONIJanuary 22, 2013
Frank CalderoniDirector
/s/ MICHAEL R. CANNONJanuary 22, 2013
Michael R. Cannon Director  
     
/s/ JamesJAMES E. Daley
DALEY		   January 27, 201122, 2013
James E. Daley Director  
     
/s/ Carol Mills
s/ LAURA DESMOND		   January 27, 201122, 2013
Carol MillsLaura Desmond Director  
     
/s/ DanielDANIEL L. Rosensweig
ROSENSWEIG		   January 27, 201122, 2013
Daniel L. Rosensweig Director  
     
/s/ Robert Sedgewick
ROBERT SEDGEWICK		   January 27, 201122, 2013
Robert Sedgewick Director  



126
131
TABLE OF CONTENTSTable of Contents

SUMMARY OF TRADEMARKS
 The following trademarks of Adobe Systems Incorporated or its subsidiaries, which may be registered in the United States and/or other countries, are referenced in this Form 10-K:
Acrobat
ActionScript
AdLens
Adobe
Adobe AIR
Adobe Audition
Adobe Connect
Adobe DataWarehouse
Adobe Discover
Adobe Genesis
Acrobat
ActionScript
Adobe AIR
Adobe AuditionMuse
Adobe Premiere
Adobe SiteSearch
Adobe Type Manager
After Effects
AIR
Auditude
Authorware
BusinessCatalyst
Buzzword
Captivate
ColdFusion
ColdFusion Builder
CommuniquéContribute
ContributeCreative Cloud
Creative Suite
CS LiveCRX
Director
Dreamweaver
EchoSign
Encore
Fireworks
Flash
Flash Access
Flash Builder
Flash Catalyst
Flash Lite
Flex
Font Folio
FrameMaker
FreeHand
HBX
Illustrator
InCopy
InDesign
JRun
Lightroom
LiveCycle
Omniture
Open Screen ProjectPageMaker
OvationPhoneGap
PageMakerPhoneGap Build
Photoshop
PostScript
Prelude
Reader
RoboHelpRevelRoboHelp
Scene7
Shockwave
SiteCatalyst
SiteCatalyst NetAverages
Soundbooth
Test&Target
Version Cue

127
132

SUMMARY OF TRADEMARKS (Continued)

SpeedGrade
Test&Target
Typekit
Visual Communicator
All other trademarks are the property of their respective owners.

128
133

INDEX TOEXHIBITS
 
Exhibit   Incorporated by Reference** Filed
Number Exhibit Description Form Date Number Herewith
           
3.1 Amended and Restated Bylaws 8-K 1/13/09 3.1  
           
3.2 Restated Certificate of Incorporation of Adobe Systems Incorporated 10-Q 7/16/01 3.6  
           
3.2.1 Certificate of Correction of Restated Certificate of Incorporation of Adobe Systems Incorporated 10-Q 4/11/03 3.6.1  
           
3.3 Certificate of Designation of Series A Preferred Stock of Adobe Systems Incorporated 10-Q 7/08/03 3.3  
           
4.2 Specimen Common Stock Certificate S-3 1/15/10 4.3  
           
4.3 Form of Indenture S-3 1/15/10 4.1  
           
4.4 Forms of Global Note for Adobe Systems Incorporated’s 3.250% Notes due 2015 and 4.750% Notes due 2020, together with Form of Officer’s Certificate setting forth the terms of the Notes 8-K 1/26/10 4.1  
           
10.1 Amended 1994 Performance and Restricted Stock Plan* 10-Q 4/09/10 10.1  
           
10.2 Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 10-K 1/23/09 10.3  
           
10.3 1997 Employee Stock Purchase Plan, as amended* 10-Q 10/08/10 10.3  
           
10.4 1996 Outside Directors Stock Option Plan, as amended* 10-Q 4/12/06 10.6  
           

   Incorporated by Reference**  
Exhibit
Number
 Exhibit Description Form Date Number 
Filed
Herewith
           
3.1
 Restated Certificate of Incorporation of Adobe Systems Incorporated 8-K 4/26/11 3.3
  
           
3.2
 Amended and Restated Bylaws 8-K 10/30/12 3.1
  
           
4.1
 Specimen Common Stock Certificate S-3 1/15/10 4.3
  
           
4.2
 Form of Indenture S-3 1/15/10 4.1
  
           
4.3
 Forms of Global Note for Adobe Systems Incorporated’s 3.250% Notes due 2015 and 4.750% Notes due 2020, together with Form of Officer’s Certificate setting forth the terms of the Notes 8-K 1/26/10 4.1
  
           
10.1
 Amended 1994 Performance and Restricted Stock Plan* 10-Q 4/9/10 10.1
  
           
10.2
 Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 10-K 1/23/09 10.3
  
           
10.3
 1997 Employee Stock Purchase Plan, as amended* 8-K 4/26/11 10.1
  
           
10.4
 1996 Outside Directors Stock Option Plan, as amended* 10-Q 4/12/06 10.6
  
           
10.5
 Forms of Stock Option Agreements used in connection with the 1996 Outside Directors Stock Option Plan* S-8 6/16/00 4.8
  
           
10.6
 2003 Equity Incentive Plan, as amended and restated* 8-K 4/13/12 10.1
  
           
10.7
 Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.4
  
           
10.8
 Form of Indemnity Agreement* 10-Q 6/26/09 10.12
  
           
10.9
 Forms of Retention Agreement* 10-K 2/17/98 10.44
  
           
10.10
 Second Amended and Restated Master Lease of Land and Improvements by and between SMBC Leasing and Finance, Inc. and Adobe Systems Incorporated 10-Q 10/7/04 10.14
  
           
10.11
 Lease between Adobe Systems Incorporated and Selco Service Corporation, dated March 26, 2007 8-K 3/28/07 10.1
  

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 8-K 3/28/07 10.2
  
           
10.13
 Master Amendment No. 2 among Adobe Systems Incorporated, Selco Service Corporation and KeyBank National Association dated October 31, 2011       X
           
10.14
 Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 10-K 1/26/12 10.13
  
           
10.15
 Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan* 10-K 1/26/12 10.14
  
           
10.16
 Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan* 10-Q 10/7/04 10.11
  
           
10.17
 2005 Equity Incentive Assumption Plan, as amended* 10-Q 4/9/10 10.19
  
           
10.18
 Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan* 8-K 12/20/10 99.10
  
           
10.19
 Allaire Corporation 1997 Stock Incentive Plan* S-8 3/27/01 4.06
  
           
10.20
 Allaire Corporation 1998 Stock Incentive Plan, as amended* S-8 3/27/01 4.07
  
           
10.21
 Allaire Corporation 2000 Stock Incentive Plan* S-8 3/27/01 4.08
  
           
10.22
 Andromedia, Inc. 1999 Stock Plan* S-8 12/7/99 4.09
  
           
10.23
 Blue Sky Software Corporation 1996 Stock Option Plan* S-8 12/29/03 4.07
  
           
10.24
 Macromedia, Inc. 1999 Stock Option Plan* S-8 8/17/00 4.07
  
           
10.25
 Macromedia, Inc. 2002 Equity Incentive Plan* S-8 8/10/05 4.08
  
           
10.26
 Form of Macromedia, Inc. Stock Option Agreement* S-8 8/10/05 4.09
  
           
10.27
 Form of Macromedia, Inc. Revised Non-Plan Stock Option Agreement* S-8 11/23/04 4.10
  
           
10.28
 Form of Macromedia, Inc. Restricted Stock Purchase Agreement* 10-Q 2/8/05 10.01
  

130
Table of Contents


   Incorporated by Reference**  
Exhibit
Number
 Exhibit Description Form Date Number 
Filed
Herewith
           
10.29
 Adobe Systems Incorporated Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/26/12 10.2
  
           
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 2003 Equity Incentive Plan* 8-K 1/30/08 10.2
  
           
10.31
 2008 Award Calculation Methodology Exhibit A to the 2008 Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/30/08 10.3
  
           
10.32
 Adobe Systems Incorporated Deferred Compensation Plan* 10-K 1/24/08 10.52
  
           
10.33
 Adobe Systems Incorporated Executive Cash Performance Bonus Plan* DEF 14A 2/24/06 Appendix B
  
           
10.34
 
Second Amendment to Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective as of
December 17, 2010*
 10-K 1/27/11 10.40
  
           
10.35
 Employment offer letter between Adobe Systems Incorporated and Richard Rowley, dated October 30, 2006* 8-K 11/16/06 10.1
  
           
10.36
 Employment offer letter between Adobe Systems Incorporated and Mark Garrett dated January 5, 2007* 8-K 1/26/07 10.1
  
           
10.37
 
Credit Agreement, dated as of March 2, 2012, among Adobe Systems Incorporated and certain subsidiaries as Borrowers, The Royal Bank of Scotland PLC and U.S. Bank National Association as Co-Documentation Agents, JPMorgan Chase Bank, N.A., as Syndication Agent, Bank of America, N.A. as Administrative Agent and Swing Line Lender, and the Other Lenders Party Thereto

 8-K 3/7/12 10.1
  
           
10.38
 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 8-K 5/15/08 10.1
  
           
10.39
 Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.8
  
           
10.40
 Form of Director Initial Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.6
  

131
Table of Contents


   Incorporated by Reference**  
Exhibit
Number
 Exhibit Description Form Date Number 
Filed
Herewith
           
10.41
 Form of Director Annual Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.7
  
           
10.42
 2009 Executive Annual Incentive Plan* 8-K 1/29/09 10.4
  
           
10.43
 Omniture, Inc. 1999 Equity Incentive Plan, as amended (the “Omniture 1999 Plan”)* S-1 4/4/06 10.2A
  
           
10.44
 Forms of Stock Option Agreement under the Omniture 1999 Plan* S-1 4/4/06 10.2B
  
           
10.45
 Form of Stock Option Agreement under the Omniture 1999 Plan used for Named Executive Officers and Non-Employee Directors* S-1 6/9/06 10.2C
  
           
10.46
 Omniture, Inc. 2006 Equity Incentive Plan and related forms* 10-Q 8/6/09 10.3
  
           
10.47
 Omniture, Inc. 2007 Equity Incentive Plan and related forms* 10-K 2/27/09 10.9
  
           
10.48
 Omniture, Inc. 2008 Equity Incentive Plan and related forms* 10-K 2/27/09 10.10
  
           
10.49
 Visual Sciences, Inc. (formerly, WebSideStory, Inc.) Amended and Restated 2000 Equity Incentive Plan* 10-K 2/29/08 10.5
  
           
10.50
 Visual Sciences, Inc. (formerly, WebSideStory, Inc.) 2004 Equity Incentive Award Plan (the “VS 2004 Plan”) and Form of Option Grant Agreement* 10-K 2/29/08 10.6
  
           
10.51
 Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under the VS 2004 Plan* 10-K 2/29/08 10.6A
  
           
10.52
 Visual Sciences, Inc. (formerly, WebSideStory, Inc.) 2006 Employment Commencement Equity Incentive Award Plan and Form of Option Grant Agreement* 10-K 2/29/08 10.8
  
           
10.53
 Avivo Corporation 1999 Equity Incentive Plan and Form of Option Grant Agreement* 10-K 2/29/08 10.7
  
           
10.54
 The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002* S-8 3/16/07 99.5
  
           
10.55
 Forms of Agreements under The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002* S-8 3/16/07 99.6
  
           

132
Table of Contents


   Incorporated by Reference**  
Exhibit
Number
 Exhibit Description Form Date Number 
Filed
Herewith
10.56
 Form of Performance Share Program Award Grant Notice and Performance Share Program Performance Share Award Agreement pursuant to the 2003 Equity Incentive Plan* 10-K 1/26/12 10.61
  
           
10.57
 2010 Performance Share Program Award Calculation Methodology pursuant to the 2003 Equity Incentive Plan* 8-K 1/29/10 10.3
  
           
10.58
 Fiscal Year 2010 Executive Annual Incentive Plan* 8-K 1/29/10 10.4
  
           
10.59
 Day Software Holding AG International Stock Option/Stock Issuance Plan* S-8 11/1/10 99.1
  
           
10.60
 Day Interactive Holding AG U.S. Stock Option/ Stock Issuance Plan* S-8 11/1/10 99.2
  
           
10.61
 
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement used in connection with the 2005 Equity Incentive Assumption Plan*

 10-K 1/26/12 10.66
  
           
10.62
 Description of 2011 Director Compensation* 10-K 1/27/11 10.73
  
           
10.63
 
Demdex, Inc. 2008 Stock Plan, as amended*

 S-8 1/27/11 99.1
  
           
10.64
 Award Calculation Methodology to the 2011 Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/28/11 10.3
  
           
10.65
 2011 Executive Cash Performance Bonus Plan* 8-K 1/28/11 10.4
  
           
10.66
 2011 Executive Annual Incentive Plan* 8-K 1/28/11 10.5
  
           
10.67
 EchoSign, Inc. 2005 Stock Plan, as amended* S-8 7/29/11 99.1
  
           
10.68


 TypeKit, Inc. 2009 Equity Incentive Plan, as amended* 
S-8

 
10/7/11

 99.1
  
           
10.69


 Auditude, Inc. 2009 Equity Incentive Plan, as amended* 
S-8

 
11/18/11

 99.1
  
           
10.70


 Auditude, Inc. Employee Stock Option Plan, as amended* 
S-8

 
11/18/11

 99.2
  
           
10.71


 Description of 2012 Director Compensation* 10-K 1/26/12 10.76
  
           
10.72
 Adobe Systems Incorporated 2011 Executive Severance Plan in the Event of a Change of Control for Prior Participants * 8-K 12/15/11 10.1
  

133
Table of Contents


   Incorporated by Reference**  
Exhibit
Number
 Exhibit Description Form Date Number 
Filed
Herewith
           
10.73
 Adobe Systems Incorporated 2011 Executive Severance Plan in the Event of a Change of Control* 8-K 12/15/11 10.2
  
           
10.74
 Award Calculation Methodology to the 2012 Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/26/12 10.3
  
           
10.75
 
2012 Executive Annual Incentive Plan*

 8-K 1/26/12 10.4
  
           
10.76
 Efficient Frontier, Inc. 2003 Stock Option/Stock Issuance Plan, as Amended and Restated* S-8 1/27/12 99.1
  
           
10.77
 Form of Efficient Frontier, Inc. Non-Plan Notice of Grant, Stock Option Agreement and Stock Purchase Agreement* S-8 1/27/12 99.2
  
           
10.78
 Nomination and Standstill Agreement between the Company and the ValueAct Group dated December 4, 2012 8-K 12/5/12 99.1
  
           
12.1


 
Ratio of Earnings to Fixed Charges

       X
           
21


 
Subsidiaries of the Registrant

       
X

           
23.1


 Consent of Independent Registered Public Accounting Firm, KPMG LLP       
X

           
24.1


 Power of Attorney (set forth on the signature page to this Annual Report on Form 10-K)       X
           
31.1
 Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934      
 X
           
31.2
 Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934      
 X
           
32.1
 Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†       X
           
32.2
 Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†       X
           
101.INS XBRL Instance       X
           
101.SCH
 XBRL Taxonomy Extension Schema       X
           
101.CAL
 XBRL Taxonomy Extension Calculation       X
           

134
Table of Contents

TABLE OF CONTENTS
Exhibit

   Incorporated by Reference** Filed
Exhibit
Number
 Exhibit Description Form Date Number 
Filed
Herewith
           
10.5 Forms of Stock Option Agreements used in connection with the 1996 Outside Directors Stock Option Plan* S-8 6/16/00 4.8  
           
10.6 1999 Nonstatutory Stock Option Plan, as amended* S-8 10/29/01 4.6  
           
10.7 2003 Equity Incentive Plan, as amended and restated* 8-K 4/20/10 10.1  
           
10.8 Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.4  
           
10.9 Form of Indemnity Agreement* 10-Q 6/26/09 10.12  
           
10.10 Forms of Retention Agreement* 10-K 11/28/97 10.44  
           
10.11 Second Amended and Restated Master Lease of Land and Improvements by and between SMBC Leasing and Finance, Inc. and Adobe Systems Incorporated 10-Q 10/07/04 10.14  
           
10.12 Lease between Adobe Systems Incorporated and Selco Service Corporation, dated March 26, 2007 8-K 3/28/07 10.1  
           
10.13 Participation Agreement among Adobe Systems Incorporated, Selco Service Corporation, et al. dated March 26, 2007 8-K 3/28/07 10.2  
           
10.14 Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 8-K 12/20/10 99.2  
           
135
Exhibit101.LAB
 Incorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
           
10.15 Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.3  
           
10.16 Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan* 10-Q 10/07/04 10.11  
           
10.17 2008 Executive Officer Annual Incentive Plan* 8-K 1/30/08 10.4  
           
10.18 2005 Equity Incentive Assumption Plan, as amended* 10-Q 4/09/10 10.19  
           
10.19 Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan* 8-K 12/20/10 99.10  
           
10.20 Allaire Corporation 1997 Stock Incentive Plan* S-8 3/27/01 4.06  
           
10.21 Allaire Corporation 1998 Stock Incentive Plan* S-8 3/27/01 4.07  
           
10.22 Allaire Corporation 2000 Stock Incentive Plan* S-8 3/27/01 4.08  
           
10.23 Andromedia, Inc. 1999 Stock Plan* S-8 12/07/99 4.09  
           
10.24 Blue Sky Software Corporation 1996 Stock Option Plan* S-8 12/29/03 4.07  
           
10.25 Macromedia, Inc. 1999 Stock Option Plan* S-8 8/17/00 4.07  
           
10.26 Macromedia, Inc. 1992 Equity Incentive Plan* 10-Q 8/03/01 10.01  
           
10.27 Macromedia, Inc. 2002 Equity Incentive Plan* S-8 8/10/05 4.08  
           
10.28 Form of Macromedia, Inc. Stock Option Agreement* S-8 8/10/05 4.09  
           
136
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
           
10.29 Form of Macromedia, Inc. Revised Non-Plan Stock Option Agreement* S-8 11/23/04 4.10  
           
10.30 Form of Macromedia, Inc. Restricted Stock Purchase Agreement* 10-Q 2/08/05 10.01  
           
10.31 Adobe Systems Incorporated Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/29/10 10.1  
           
10.32 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 2003 Equity Incentive Plan* 8-K 1/30/08 10.2  
           
10.33 2008 Award Calculation Methodology Exhibit A to the 2008 Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/30/08 10.3  
           
10.34 Adobe Systems Incorporated Deferred Compensation Plan* 10-K 1/24/08 10.52  
           
10.35 Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/30/07 10.1  
           
137
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
           
10.36 Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/30/07 10.2  
           
10.37 Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* 8-K 1/30/07 10.3  
           
10.38 Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* 8-K 1/30/07 10.4  
           
10.39 Adobe Systems Incorporated Executive Cash Bonus Plan* DEF 14A 2/24/06 Appendix B  
           
10.40 
Second Amendment to Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective as of
December 17, 2010*
       X
           
10.41 Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control*       X
           
138
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
           
10.42 Employment offer letter between Adobe Systems Incorporated and Richard Rowley, dated October 30, 2006* 8-K 11/16/06 10.1  
           
10.43 Employment offer letter between Adobe Systems Incorporated and Mark Garrett dated January 5, 2007* 8-K 1/26/07 10.1  
           
10.44 Credit Agreement, dated as of February 16, 2007, among Adobe Systems Incorporated and Certain Subsidiaries as Borrowers; BNP Paribas, Keybank National Association, and UBS Loan Finance LLC as Co-Documentation Agents; JPMorgan Chase Bank, N.A. as Syndication Agent; Bank of America, N.A. as Administrative Agent and Swing Line Lender; the Other Lenders Party Thereto; and Banc of America Securities LLC and J.P. Morgan Securities Inc. as Joint Lead Arrangers and Joint Book Managers 8-K 8/16/07 10.1  
           
10.45 Amendment to Credit Agreement, dated as of August 13, 2007, among Adobe Systems Incorporated, as Borrower; each Lender from time to time party to the Credit Agreement; and Bank of America, N.A. as Administrative Agent 8-K 8/16/07 10.2  
           
139
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
           
10.46 Second Amendment to Credit Agreement, dated as of February 26, 2008, among Adobe Systems Incorporated, as Borrower; each Lender from time to time party to the Credit Agreement; and Bank of America, N.A. as Administrative Agent 8-K 2/29/08 10.1  
           
10.47 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 8-K 5/15/08 10.1  
           
10.48 Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.8  
           
10.49 Form of Director Initial Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.6  
           
10.50 Form of Director Annual Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* 8-K 12/20/10 99.7  
           
10.51 Description of 2009 Director Compensation* 10-K 1/23/09 10.63  
           
10.52 2009 Executive Annual Incentive Plan* 8-K 1/29/09 10.4  
           
10.53 Omniture, Inc. 1999 Equity Incentive Plan, as amended (the “Omniture 1999 Plan”)* S-1 4/04/06 10.2A  
           
10.54 Forms of Stock Option Agreement under the Omniture 1999 Plan* S-1 4/04/06 10.2B  
140
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
           
10.55 Form of Stock Option Agreement under the Omniture 1999 Plan used for Named Executive Officers and Non-Employee Directors* S-1 6/09/06 10.2C  
           
10.56 Omniture, Inc. 2006 Equity Incentive Plan and related forms* 10-Q 08/06/09 10.3  
           
10.57 Omniture, Inc. 2007 Equity Incentive Plan and related forms* 10-K 2/27/09 10.9  
           
10.58 Omniture, Inc. 2008 Equity Incentive Plan and related forms* 10-K 2/27/09 10.10  
           
10.59 Visual Sciences, Inc. (formerly, WebSideStory, Inc.) Amended and Restated 2000 Equity Incentive Plan* 10-K 2/29/08 10.5  
           
10.60 Visual Sciences, Inc. (formerly, WebSideStory, Inc.) 2004 Equity Incentive Award Plan (the “VS 2004 Plan”) and Form of Option Grant Agreement* 10-K 2/29/08 10.6  
           
10.61 Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under the VS 2004 Plan* 10-K 2/29/08 10.6A  
           
10.62 Visual Sciences, Inc. (formerly, WebSideStory, Inc.) 2006 Employment Commencement Equity Incentive Award Plan and Form of Option Grant Agreement* 10-K 2/29/08 10.8  
           
141
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
           
10.63 Avivo Corporation 1999 Equity Incentive Plan and Form of Option Grant Agreement* 10-K 2/29/08 10.7  
           
10.64 The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002* S-8 3/16/07 99.5  
           
10.65 Forms of Agreements under The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002* S-8 3/16/07 99.6  
           
10.66 Description of 2010 Director Compensation* 10-K 1/22/10 10.71  
           
10.67 Form of Performance Share Program Award Grant Notice and Performance Share Award Agreement pursuant to the 2003 Equity Incentive Plan* 8-K 12/20/10 99.5  
           
10.68 2010 Performance Share Program Award Calculation Methodology  pursuant to the 2003 Equity Incentive Plan* 8-K 1/29/10 10.3  
           
10.69 Fiscal Year 2010 Executive Annual Incentive Plan* 8-K 1/29/10 10.4  
           
10.70 Day Software Holding AG International Stock Option/Stock Issuance Plan* S-8 11/01/10 99.1  
           
10.71 Day Interactive Holding AG U.S. Stock Option/ Stock Issuance Plan* S-8 11/01/10 99.2  
           
10.72 Form of Restricted Stock Unit Award Agreement used in connection with the 2005 Equity Incentive Assumption Plan* 8-K 12/20/10 99.9  
           
142
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
10.73Description of 2011 Director Compensation*XBRL Taxonomy Extension Labels       X
           
12.1 101.PRE Ratio of Earnings to Fixed Charges X
21  Subsidiaries of the Registrant X
23.1  Consent of Independent Registered Public Accounting Firm, KPMG LLP X
24.1  Power of Attorney (set forth on the signature page to this Annual Report on Form 10-K) X
31.1Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934X
31.2Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934X
32.1Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†X
32.2Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†X
101.INSXBRL Instance††X
101.SCH
 XBRL Taxonomy Extension Schema††X
101.CALXBRL Taxonomy Extension Calculation††X
101.LABXBRL Taxonomy Extension Labels††X
143
ExhibitIncorporated by Reference**Filed
NumberExhibit DescriptionFormDateNumberHerewith
101.PREXBRL Taxonomy Extension Presentation††Presentation       X
           
101.DEF
 XBRL Taxonomy Extension Definition††Definition       X

* Compensatory plan or arrangement.
**References to Exhibits 10.2010.19 through 10.3010.28 are to filings made by Macromedia, Inc. References to Exhibits 10.5310.43 through 10.6510.55 are to filings made by Omniture, 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 amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.

††
In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

135
144