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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K


(Mark One)

ý



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended November 28, 2003December 2, 2005

OR

o



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file Number: 0-15175

Commission file Number: 0-15175


ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)




Delaware
(State or other jurisdiction of
incorporation or organization)
 77-0019522
(I.R.S. Employer
Identification No.)

345 Park Avenue, San Jose, California 95110-2704

(Address of principal executive offices and zip code)

(408) 536-6000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None


Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock


        Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No 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 o    No ý

        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 (the "Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. ý

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large accelerated filer ý    Accelerated filer o    Non-accelerated filer o

        Indicate by check mark whether the registrant is an accelerated filera shell company (as defined in Rule 12b-2 of the Act). Yes ýo    No oý

        The aggregate market value of the registrant's common stock, $0.0001 par value per share, held by non-affiliates of the registrant on May 30, 2003,June 3, 2005, the last business day of the registrant's most recently completed second fiscal quarter, was $8,136,680,867$14,128,765,011 (based on the closing sales price of the registrant's common stock on that date). Shares of the registrant's common stock held by each officer and director and each person who owns 5% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of January 30, 2004, 238,469,04427, 2006, 599,810,699 shares of the registrant's common stock, $.0001 par value per share, were issued and outstanding.


DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Proxy Statement for the 20042006 Annual Meeting of Stockholders (the "Proxy Statement"), to be filed within 120 days of the end of the fiscal year ended November 28, 2003,December 2, 2005, are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof.





TABLE OF CONTENTS

 
 
 Page No.
PART I  

Item 1.


Business

 

3
Item 1A.Risk Factors30
Item 1B.Unresolved Staff Comments37
Item 2.Properties 2737
Item 3.Legal Proceedings 2738
Item 4.Submission of Matters to a Vote of Security Holders 2939

PART II

 

 



Item 5.


Market for Registrant's Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities

 

3040
Item 6.Selected Financial Data 3142
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations 3243
Item 7A.Quantitative and Qualitative Disclosures About Market Risk 5759
Item 8.Financial Statements and Supplementary Data 6163
Item 99.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 6264
Item 9A9A.Controls and Procedures 6264
Item 9B.Other Information65

PART III

 

 



Item 10.


Directors and Executive Officers of the Registrant

 

6267
Item 11.Executive Compensation 6267
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 6367
Item 13.Certain Relationships and Related Transactions 6367
Item 14.Principal Accounting Fees and Services 6367

PART IV

 

 



Item 15.


Exhibits and Financial Statement Schedule, and Reports on Form 8-KSchedules

 

6468

Signatures

 
104
103
Summary of Trademarks 106105
Exhibits 106

2



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 investing activities thatmarket opportunities, which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in thethis section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Our Future Performance.under "Risk Factors." 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 the Quarterly Reports on Form 10-Q to be filed in 2004.2006. When used in this report, the words "expects," "could," "would", "may," "anticipates," "intends," "plans," "believes," "seeks," "targets," "estimates," "looks for," "looks to," and similar expressions, as well as statements regarding Adobe'sour 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 ("Adobe" oris one of the "Company") offerslargest and most diversified software companies in the world. We offer a line of creative, business and mobile software and services forused by high-end consumers, creative professionals, designers, knowledge workers, original equipment manufacturers ("OEM"), developers and enterprises. Our products are market-leading digital imaging, design,enterprises for creating, managing, delivering and document technology platforms which enable customers to create, manageengaging with compelling content and deliver visually rich, compellingexperiences across multiple operating systems, devices and reliable content.media. We distribute our products through a network of distributors and dealers, value-added resellers ("VARs"), systems integrators, independent software vendors ("ISVs") and original equipment manufacturers ("OEMs");OEMs, direct to end users;users, and through our own Web site at www.adobe.com. We also license our technology to major hardware manufacturers, software developers and service providers and we offer integrated software solutions to businesses of all sizes. We have operations in the Americas; Europe, Middle East and Africa ("EMEA"); and Asia. Our software runs on personal computers with Microsoft Windows, Apple Macintosh,OS, Linux, UNIX and various non-personal computerother platforms, depending on the product.

        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 Web site at www.adobe.com. Investors can obtain copies of our SEC filings from this site free of charge, as well as from the SEC Web site at www.sec.gov.


BUSINESS OVERVIEW

        InSince the early 1980's, Adobe developed software that pioneered desktop publishing. Today, we continueand technologies have helped redefine how people engage with ideas and information—anytime, anywhere and through any medium. From rich images in print, video, film, and on personal computers and mobile devices to be uniquely positioned to make changes not only to how societydynamic digital content for a variety of media, the impact of Adobe solutions is evident across industries and felt by anyone who creates, visually rich information for printviews and the Web, but also as to how it distributes and accesses that information electronically.interacts with information.

        In the simplest of terms, Adobe helps people and businesses communicate better. By delivering powerful graphic design, publishing, animation and imaging software for print, Web and video production and by delivering ubiquitous platforms, we help people express, share, manage and collaborate on their ideas in imaginative and meaningful new ways. For businesses, we provide solutions to improve the way customers and employees interact with information and with each other.

        Our strategy is to address the needs of a variety of customers, which include creative professionals—graphic designers, Web designers, videographers, photographers and professional publishers; knowledge



workers—teams of workers and those who deliver presentations; enterprise users—knowledge workers, IT managers, line of business managers and executives; andhigh-end consumers—digital imaging and digital video hobbyists and enthusiasts.enthusiasts; OEM partners—mobile device manufacturers, printer manufacturers, Internet service providers and developers. We execute against this strategy by delivering products that support industry standards and can be deployed on multiple computing environments, depending on the product.

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PRODUCTS AND MARKETS OVERVIEW

        We categorizeIn fiscal 2005, we categorized our products into four principal business segments: Creative Professional, Digital Imaging and Video, ePaper,Creative Professional, Intelligent Document and OEM PostscriptPostScript and Other. BeginningOn December 1, 2003,3, 2005, we renamedcompleted the acquisition of Macromedia, Inc. ("Macromedia"), a provider of software technologies that enables the development of a wide range of Web and mobile application solutions, for approximately $3.4 billion. Coinciding with the integration of Macromedia and the start of our former ePaper2006 fiscal year, we changed our reported business segments to be aligned with our market opportunities and how we internally manage our combined businesses. Our new business segments are: Creative Solutions, Knowledge Worker Solutions, Mobile and Device Solutions, Enterprise and Developer Solutions, and Other.

        This overview combines a review of our fiscal year 2005 business by our prior business segment the Intelligent Documentsclassifications with a discussion of our market opportunities and products as classified in our new business segment. However, no changes were made to product classifications in any of the business segments.segment organization.

Creative ProfessionalFiscal Year 2005 Business Segment Review

Creative Professional Business Summary

        In fiscal 2005, we maintained our focus on meeting the software needs of creative professional users through the release of new versions of the Adobe Creative Suite. Available in two options (Standard and Premium), the Adobe Creative Suite incorporates several of our technologies used by creative professionals into one product and is a complete design solution that provides efficiency through improved product integration and powerful Adobe Portable Document Format ("PDF") workflow capabilities.

        After achieving record revenue for our Adobe Creative Suite products in the first quarter of fiscal 2005, we delivered a new version 2 of the Creative Suite products beginning in the second quarter of fiscal 2005. In addition, we delivered version "CS2" of our individual Creative Professional software application products (Illustrator, InCopy, InDesign and GoLive, as well as Photoshop from our Digital Imaging and Video business segment) in the second quarter. These new releases combined to achieve record Creative Suite and Creative Professional revenue for Adobe in the second quarter. This performance was followed by another quarter of record Creative Suite and Creative Professional revenue in our third quarter, when the majority of the foreign language versions of the CS2 product family began shipping to customers. As was the case in fiscal 2004, many of our Creative Professional customers chose to migrate from licensing individual products such as Photoshop to licensing the Creative Suite products during fiscal 2005.

        Another key component of our Creative Professional business strategy was to grow revenue for InDesign, our professional page layout product. In fiscal 2005, due in part to the new features available in the CS2 version of InDesign and favorable industry reviews, we enjoyed increased adoption by our professional publishing customer, resulting in increased market share in the professional page layout segment. This success resulted in record revenue for InDesign in fiscal 2005.

Digital Imaging and Video Business Summary

        In fiscal 2005, we maintained our focus on meeting the digital imaging and video software needs of creative professionals, professional photographers, professional videographers, business users and



hobbyists. These customers rely on Adobe's digital imaging and video editing solutions to create and enhance many of the pictures and video we see everyday in print, on television, in movies and on the Web.

        During fiscal 2005, we delivered several new releases of our digital imaging and video software applications. In the second quarter of fiscal 2005, we released the CS2 version of Photoshop—our industry-leading product for digital imaging. This English version release was followed by the delivery of the foreign language versions of the product, which began shipping during the early part of our third quarter of fiscal 2005. The release of Photoshop CS2 received positive reviews from industry press and analysts, and generated strong revenue. However, as indicated previously, many customers began licensing Photoshop capabilities via the Creative Suite products, as opposed to licensing the product via its standalone version. This planned migration has impacted standalone Photoshop revenue, and thus Digital Imaging and Video segment revenue, as we predicted last year.

        During fiscal 2005, we also maintained our focus on our digital video products, including Adobe Premiere Pro software for video editing, Adobe After Effects software for adding special effects to video, Adobe Audition software for audio editing and Adobe Encore DVD software for DVD creation. In addition to these individual digital video products, we continued to focus on marketing the Adobe Video Collection which contains these products and comes in two versions: Standard and Professional.

        In the fourth quarter of fiscal 2005, we released version 4.0 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 2.0 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. In addition, we released a software bundle that includes the new versions of Photoshop Elements and Adobe Premiere Elements to target hobbyists who desire both applications in one affordable package.

Intelligent Document Business Summary

        In fiscal 2005, we achieved strong year-over-year growth and record revenue in our Intelligent Document business. Driving this performance was the release of version 7.0 of our Acrobat family of products, which began shipping in the first quarter of the fiscal year. The updated product family offers enhanced features that allow workgroups to manage a range of essential business activities such as assembling documents from multiple sources, creating intelligent forms and more securely collaborating on projects. In addition, the new Acrobat 7.0 family of products offers new functionality to address specific customer workflow issues in vertical markets such as architecture, engineering, construction, manufacturing, education, government and financial services. This vertical market focus helped to significantly increase our penetration of Acrobat desktop licenses.

        Our focus on the enterprise software server market targeting the document service needs of governments and enterprises also drove record revenue in fiscal 2005. Focusing primarily on our targeted vertical markets of financial services and government, we continued to gain traction in marketing and licensing the capabilities of our Adobe LiveCycle server products. In addition, we made progress with integration of our document generation technologies with other software vendors' platforms, such as those from SAP AG and EMC. As a result, we began generating revenue based on the inclusion of our technologies within their platforms.

OEM Postscript and Other Business Summary

        In fiscal 2005, graphics professionals and professional publishers continued to rely on our Postscript technology to meet their sophisticated printing requirements. OEM Postscript revenue, generated by licensing our technology to OEMs that manufacture printers and other output devices, decreased slightly in fiscal 2005 when compared to fiscal 2004. This performance was consistent with our expectations, due to the mature nature of this market.



Fiscal 2006 Business Segments, Products and Market Opportunities

        This section provides an overview of our new principal business reporting segments that we began using at the beginning of fiscal year 2006. For each segment, a discussion of the market opportunities, our strategies and our products is provided.

Creative Solutions Business Segment

Creative Solutions Market Opportunity

        Since Adobe was founded inOur Creative Solutions business unit focuses primarily on the early 1980's, a core Adobe customer has beenneeds of the creative professional.customer. This new segment combines most of the products of our prior Creative Professional and Digital Imaging and Video business units, along with the creative professional-focused products and solutions that we obtained through our acquisition of Macromedia.

        Over the past twenty years, our core customers have been creative professionals. Graphic designers, production artists, Web designers, user interface designers, technical writers, videographers, photographers and prepress professionals who use and rely on Adobe's solutions for professional publishing, Web design, business document publishing,professional photography, video production, animation and motion graphic production, and printing visually rich information. Our software tools are used by creative professionals to create much of the printed and on-line information people see and read every day, including newspapers, magazines, Web sites, catalogs, advertisements, brochures, product documentation, technical manuals, 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, Web design, music, entertainment, corporate and marketing communications, product design, user interface design, sales training, printing, architecture, and fine arts.

        As technology continues to improve, the market dynamics for these creative professionals continue to evolve. Due to the ever changing ways in which people wishchoose to receive information, creative professionals look to their software tools as a means to make their information impactful and repurpose content across a variety of media and applications. They wish to derivedesire 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 content and information to hand-held devices such as mobile handsets and consumer electronic devices.

        Adobe's brand and customer loyalty in this market continues to be strong. ExistingCreative professional customers purchase upgradeslicense upgrade and new units of our Creative ProfessionalSolutions products due to the high degree of innovative new features and significant productivity gained through their use. In addition, business users at work and hobbyists at home purchase our Creative Solutions products because of the frequent use of thethey desire professional-quality products in their daily workto accomplish tasks such as creating visually-rich sales presentations, real estate flyers, school year books, photo albums, community newsletters, as well as the productivity gained by their use.animations and videos that can be shared or be viewed from Web sites.

        The Creative Professional market isbusinesses of creative professionals are sensitive to the economy as most users of Creative Professional software productsthey derive their revenue mainly from corporate marketing, product marketing and ad spending in corporations. In difficult economic times, corporations tend to reduce marketing spending. In such environments,spending and the businesses of creative professionals tends to suffer; there often is a decline in spending by creative professionals on software, a decline in growth of the number of creative professionals, and for Adobe, a decline in revenue in its Creative Professional customer segment.may decline. Conversely, in an environment where the economy is stable or improving, corporations tend to increase their marketing spending. This typically creates anspending, which leads to stable or improved business conditions for creative professionals. Thus, depending on economic conditions and the status of their businesses, these users adjust their spending on items such as hardware and software, market servingand the staffing levels within their company. Due to this correlation, our Creative Solutions opportunity is closely linked to the performance of the economy in each of the countries we do business.

        With the increasing use of the Web as a means for marketing and advertising, we believe a key driver of our Creative Solutions business will also be the growing amount of Web site and mobile device content



created by our customers to deliver impactful and compelling Web-based experiences for their constituents.

        Another driver of our Creative 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, and other non-PC Internet-connected devices. In addition, Internet broadband adoption makes 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 cable and commercial television.

        As the use of digital photography and digital videography grows, we believe creative professionals and for Adobe, additional opportunitiesprofessional photographers throughout the world will continue to growrequire software solutions to edit, enhance and manage their digital photographs and digital videos. In addition, we believe video professionals are upgrading their systems to support HD video content creation, enhancement and delivery. We also believe hobbyists will use, with more frequency, digital imaging and digital video software as they purchase more affordable digital SLR cameras and digital video cameras.

        In fiscal 2006, our Creative Professional segment revenue.Solutions strategy focuses on driving revenue growth and increasing market share of our products through the continued delivery of comprehensive software platforms that meet the evolving needs of our customers. Initially, we have released software bundles that combine our existing Creative Suite products with various Macromedia products to creative professional customers who desire these applications in one affordable package. Over the course of fiscal 2006 and beyond, we will focus on developing improved integration of our Creative Solutions products to enhance product functionality and to enable more efficient collaboration and workflow.

        AsIn addition, the creation and enhancement of digital video and motion graphics by creative professionals, and opportunities for the creation, workflow, and delivery of this type of content to mobile and other non-PC related devices, represent an emerging opportunity we intend to address as part of our corporate strategy in fiscal 2003, we increased our focus onCreative Solution offerings.

        We believe that, while many customers have made or will make the Creative Professional customer with the establishment of a new Creative Professional business unit that concentrates solely on the needs of this customer. We executed against this strategy by delivering several new major releases ofswitch to our Creative Professional softwareSuite and/or our Studio products from individual applications during fiscal 2003. In additionover time, there continues to releasing newexist an opportunity of upgrading existing individual application users to newer versions of Illustrator, InCopy, InDesign, GoLive, and Photoshop (from our Digital Imaging and Video business segment) in our fourth quarter, we delivered a brand new product platform integrating these new products called the Adobe Creative Suite. Available in two versions (Standard and Premium), the Adobe Creative Suite is a complete design solution that provides efficiency through improved product integration, a new innovative file management tool call Version Cue, and powerful Adobe Portable Document Format ("PDF") workflow capabilities. The Adobe Creative Suite also supports collaboration by providing Acrobat 6.0 Professional in the Premium edition. With the release of the Adobe Creative Suite, in English in fiscal 2003 and in other languages in fiscal 2004,individual applications. In addition, we will market the complete designbenefits of newer versions of the Creative Suite and publishingStudio products to existing Creative Suite and Studio users to drive Creative Suite-to-Creative Suite and Studio-to-Studio upgrades. We also will market the features of these products to new users of creative applications—those who aspire to be creative professionals, or those at home or at work who wish to use the professional-level capabilities of our solutions, but are not trained creative professionals.

        We plan to continue to enhance our Photoshop product offerings to meet the evolving needs of professional photographers and creative professional customers, including graphic designers, Web designers, video producers and imaging enthusiasts to drive upgrades and new user adoption. We also plan to improve integrated digital photography workflows by expanding our digital imaging platform benefitsto include Adobe Lightroom, a new product designed for professional photographers. In addition, as we have seen during the past two fiscal years, we believe many customers will continue to license Photoshop capabilities via our Creative Suite products as opposed to licensing the standalone version.

        For the digital imaging hobbyist, we plan to continue to enhance our Photoshop Elements product and overall valuepartner with other digital imaging vendors to deliver integrated photo services. With our strong brand in digital imaging, we hope to attract additional digital camera users and migrate them from the low-end and free imaging software they use to our more advanced Photoshop product offerings.

        With our set of professional digital video and motion graphic products, we strive to provide the strongest, market-leading digital video, motion graphic and animation authoring platform for our



customers. To grow this business, we will continue to market the benefits of this new productplatform to customers.

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        Wecreative professionals and videographers in the film, broadcast, corporate and event videography market segments, and we are working with partners to deliver integrated video systems. With broad adoption of Macromedia Flash Player and its high-quality video playback features, we will continue this strategy in fiscal 2004, focusingwork to provide a seamless video authoring-to-playback capability for those wishing to provide a rich video experience on increasingthe Web. In addition, as the number of Adobe products our customers use by delivering more valuehobbyists desiring easy-to-use video editing solutions grows, we intend to them,enhance the video editing and by enabling more efficient collaboration and workflow through improved product integration.

        If we are successful with this strategy, we believe that manyDVD creation capabilities of our Creative Professional customers will migrate from licensing individual products such as Photoshop or Illustrator to licensing them inAdobe Premiere Elements product for the Creative Suite product. This could cause a shift in revenue from our Digital Imaging and Video business segment to our Creative Professional business segment. Given that individual Photoshop product revenue is a significant componentsharing of the Digital Imaging and Video segment, customers may in the future acquire Photoshop via the Creative Suite, the revenue for which is reported in the Creative Professional business segment, instead of by individual Photoshop product purchase, the revenue for which is reported in the Digital Imaging and Video segment.

        We also believe that, over time, we can deliver additional revenue generating products and integrated services as add-on offerings to the Creative Suite.

        Our Creative Professional strategy also focuses on growing our market share with InDesign in the professional page layout software market, and with Illustrator in the professional graphics illustration software market. In addition, we have implemented anti-piracy measures in Photoshop CS and the Creative Suite to guard against illegal use of the software. As we stated earlier, we believe that this business could benefit from a broad, global economic recovery and subsequent increase in marketing spending, if it were to occur in 2004.digital video memories.

Creative ProfessionalSolutions Products

        Adobe Content Server—an easy-to-use, all-in-one systemAfter Effects—professional software used to create sophisticated animation, motion graphics and visual effects found in television broadcast, film, DVD authoring and the Web; available in two versions: After Effects Standard provides basic 2D and 3D compositing, animation and visual effects tools; After Effects Professional adds advanced features such as motion tracking and stabilization, advanced keying and warping tools, more than 30 additional visual effects, and additional audio effects.

        Adobe Audition—a professional audio editing environment designed for publishers, distributors, retailers,demanding audio and individual authors to prepare, secure,video professionals; provides advanced audio mixing, editing and license eBooks in Adobe PDF directly from their Web sites.effects processing capabilities.

        Adobe Creative Suite Premium Edition—suite ofan integrated software solutionssolution that creative professionals can use as a platform to modify and enhance digital images, create graphics, produce professional-quality printed publications, create and maintain dynamic Web sites, author visually rich content for wireless Web devices, and share content reliably for print and screen display. The different applications share a similar user interface and several commands, tools, palettes and keyboard short-cuts. The suite combines Adobe Acrobat Professional, Adobe GoLive, Adobe Illustrator, Adobe InDesign and Adobe Photoshop technologies as well as a newwith file management and integration technology called Version Cue.Cue and a new navigational control center called Adobe Bridge.

        Adobe Creative Suite Standard Edition—suite ofan integrated software solutionssolution that creative professionals can use as a platform to modify and enhance digital images, create graphics, and produce professional-quality printed publications. The different applications share a similar user interface and several commands, tools, palettes and keyboard short-cuts. The suite combines Adobe Illustrator, Adobe InDesign and Adobe Photoshop technologies as well as a newwith file management and integration technology called Version Cue.Cue and a new navigational control center called Adobe Bridge.

        Adobe Font Folio OpenType Edition—contains more than 2,200 typefaces from the Adobe Type Library in OpenType format, offering Encore DVD—a complete type solution for print, the Web, digital video, or electronic documents.

        Adobe FrameMaker—an application forprofessional DVD authoring and publishing long, structured, content-rich documents including books, documentation, technical manuals,creation software; provides a comprehensive set of design tools and reports;integration with other Adobe software to create a streamlined DVD creation workflow; provides usersability to output projects to recordable DVD formats, ensuring a way to publish their content to multiple output formats, including print, Adobe PDF, HTML, XML, and Microsoft Word.wide degree of playback compatibility.

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        Adobe GoLive—Web design and publishing software that provides innovative tools that Web authors requireuse to design, layout, produce and maintain content for Web sites and wireless Web devices without the need for complex multimedia programming.

        Adobe Graphics Server—imaging server software used to create and maintain digital graphics and images on frequently updated data-driven content, such as Web sites and printed catalogs, by automating the creation and the reuse of images; integrates with content management and e-commerce systems to automate workflows, and eliminates the tedious manual tasks of refining and reformatting images for specific purposes.

        Adobe Illustrator—a vector-based illustration design tool used to create compelling graphic artwork for print publications and the Web.

        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 is extensible, it enables Adobe and its industry partners to deliver powerful publishing solutions for magazine, newspaper and other high-end publishing applications.

        Adobe PageMaker—Lightroom—new, innovative, pre-release beta version software usedthat addresses the unique photography workflow needs of professional photographers; enables users to create high-quality business documents simplyeasily import, develop, enhance, and reliably with robust page layout tools, templates, and stock art.

        Adobe Type Basics OpenType Edition—includes Adobe's best-selling typefaces, plus Adobe Type Manager; makes it easy to create beautiful text for print, Web, and video projects.

        Adobe Type Classics for Learning—a low-cost, introductory font library designed for students and educators.

        Adobe Type Manager—available in Light (free) and Deluxe versions; provides powerful, easy management of all PostScript Type 1, OpenType, and TrueType fonts.

        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.

Digital Imaging and Video

Digital Imaging and Video Market Opportunity

        With the first release of Adobe Photoshop more than ten years ago, and with a strong market presence with our imaging and video editing tools today, Adobe sets the standard for digital imaging software. Adobe's digital imaging and video segment consists of powerful software products used by creative professionals, business users, and consumers to create visually rich content. Customers in the Digital Imaging and Video segment include graphic designers, photographers, Web content creators, and multimedia, film, audio, and video producers who work in industries such as advertising, graphic design, book publishing, magazine publishing, newspaper publishing, Web site design, intranet site development, music and entertainment, corporate and marketing communications, product design, user interface design, sales training, printing, architecture, and fine arts. They rely on Adobe's digital imaging and digital video editing solutions to create and enhance many of the pictures and video we see everyday in print, on television, in movies, and on the Web.

        Driving the market opportunities for Adobe in this segment is the growth in the useshowcase large volumes of digital devices such as digital cameras, digital video cameras, multi-media-enabled computers, DVD players, scanners, Web-capable and image-enabled handheld devices, and cellular phones. As more users migrate towards digital photography and digital video recording, the potential market for Adobe grows. Internet broadband adoption also makes the Web a viable platform for the delivery of rich media, especially digital video.

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        Creative professionals use Adobe's digital imaging and video software to create visually rich content found in communication media such as books, newspapers and magazines, as well as television commercials and movies. Business users utilize digital imaging and digital video software to enhance digital images and video when accomplishing tasks such as enhancing corporate communications, creating presentations and sales training materials, and developing content for internal (Intranet) and external Web sites. Consumers use this type of software to take advantage of the advancements made in digital photography and video technology to enhance, manage, and share their personal photographs and videos.

        As the use of digital photography and digital videography grow, we believe creative professionals throughout the world will continue to require software solutions to edit, enhance, and manage their digital photographs and digital videos. We also believe hobbyists will use, with more frequency, digital imaging and digital video software as more people purchase digital still cameras and digital video cameras.

        We have responded to these market opportunities by delivering several new releases of our digital imaging and video software applications. In the first quarter of fiscal 2003, we released version 1.0 of our Adobe Photoshop Album product, which is a new easy to use, consumer-focused software product that helps users organize and share their digital photos. In the third quarter of fiscal 2003, we released a new integrated family of digital video products, including a new rewritten version of Adobe Premiere Pro software for video editing, version 6.0 of Adobe After Effects software for adding special effects to video, Adobe Audition software for audio editing, and Adobe Encore DVD software for DVD creation. In addition to these individual digital video products, we released a new Adobe Video Collection that contains these products and comes in two versions: Standard and Professional. In the fourth quarter of fiscal 2003, we released the latest upgrade to Photoshop—Photoshop CS—which is the industry-leading product for digital imaging. We also released version 2.0 of Adobe Photoshop Album, and version 1.0 of Adobe Atmosphere, a new software tool which allows professionals to create three dimensional multimedia interactive environments.

        With our digital imaging products, we plan to continue to innovate with our Photoshop product to meet the needs of creative professional customers, including professional photographers, graphic designers, Web designers, and video producers. We plan to improve the integrated digital photography workflow that centers on Photoshop, while expanding the potential customer base by improving the interface of the product to be more accessible to non-professional users (including amateur photographers and consumers). In addition, we have implemented anti-piracy measures in Photoshop CS and the Creative Suite to guard against illegal use of the software.

        In the consumer digital imaging market, we offer a comprehensive digital media software product line for consumers, including Photoshop Album for digital photo organization, fixing, and sharing and Photoshop Elements for amateur photographers and digital imaging hobbyists to perfect their photos. We also plan to continue partnering with vendors in the digital imaging and video market to deliver integrated photo services, and we have made Photoshop Album Starter Edition available for free to millions of users via inclusion with Adobe Reader to provide a compelling initial digital imaging experience. Finally, we continue to work on integration of Adobe PDF technology as a means for users to collaborate electronically and share their digital images.

        With our new set of digital video products, we strive to provide the strongest, market-leading digital video authoring platform for our customers. To grow our digital video business, we are marketing the benefits of our digital video platform to creative professionals and videographers in the film, broadcast, corporate, and event videography market segments, and we are working with partners to deliver integrated video systems on the Microsoft Windows platform which utilize our software.

Digital Imaging and Video Products

        Adobe After Effects—software used to create sophisticated animation, motion compositing, and special effects found in multimedia, television broadcast, film, and the Web; available in two versions:

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After Effects Standard provides basic 2D and 3D compositing, animation, and visual effects tools; After Effects Professional adds advanced features such as motion tracking and stabilization, advanced keying and warping tools, more than 30 additional visual effects, and additional audio effects.

        Adobe Atmosphere—a software tool for authoring graphically rich three dimensional worlds that viewers on the Web can figuratively enter and interact in; provides a platform for creating realistic and immersive environments that offer a revolutionary approach to content, Web navigation, community, and communication.

        Adobe Audition—a professional audio editing environment designed for demanding audio and video professionals; provides advanced audio mixing, editing, and effects processing capabilities.

        Adobe Encore DVD—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 all recordable DVD formats, ensuring a wide degree of playback compatibility.

        Adobe Photoshop—provides photo design, enhancement and editing capabilities for print, the Internet,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 Album—offers unique, easy-to-use interface to find, organize, share and edit digital photographs; designed for consumers to manage their collections of digital photographs, easily share photos via e-mail and the Web, create digital slide shows and photo albums, and get their photographs printed via on-line photo finishing services; works well with Photoshop Elements when more advanced digital photograph editing and touch-up is needed.services.

        Adobe Photoshop Album Starter Edition—a limited-feature version of Photoshop Album available for free; lets consumers find photos fast, fix common flaws and easily share images with others.

        Adobe Photoshop Elements—offers unique,powerful yet easy-to-use powerful image-editing tools designed specificallyphoto 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 Premiere Pro—Elements—a new, 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 Pro—professional digital video-editing software used to create broadcast-quality moviescontent for video, film, DVD, multimedia and streaming over the Web.

        Adobe SVG Viewer—Production Studio Premium Edition—a plug-in for Web browsers that allows users to view Web graphics created in Scalable Vector Graphics ("SVG") format.

        Adobe Video Collection Professional Edition—new suite of five integrated application products that provides a complete digital video post-production environment and allows users to produce professional-quality video, film and multimedia;DVDs; includes Adobe After Effects Professional Edition, Adobe Audition, Adobe Encore DVD, Adobe Illustrator, Adobe Photoshop, and Adobe Premiere Pro.Pro, along with Creative Suite 2 features for timesaving workflow features such as Adobe Dynamic Link and Adobe Bridge.

        Adobe Video CollectionProduction Studio Standard Edition—a new suite of four integrated application products that provides a digital video post-production environment and allows users to produce professional-quality video, film, multimedia;video; includes Adobe After Effects Standard Edition, Adobe Audition, Adobe Encore DVDPhotoshop, and Adobe Premiere Pro.Pro, along with Creative Suite 2 features for timesaving workflow features such as Adobe Dynamic Link and Adobe Bridge.

        Macromedia Dreamweaver—a professional software development application used by designers and developers to create a broad range of Web 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.

        Macromedia Flash Basic—a software development application for creating internet and rich interactive applications which integrate animations, motion graphics, sound, text and video functionality; solutions built with Macromedia Flash are deployed via the Web to browsers and to devices that run the Macromedia Flash Player.

        Macromedia 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 Macromedia Flash Professional are deployed via the Web to browsers and to devices that run Macromedia Flash Player.



        Macromedia Fireworks—a professional graphics design tool for building interactive Web graphics; gives professional designers and developers tools for creating images that can be deployed to Web browsers and the Macromedia Flash Player; integrates with Macromedia Flash and Macromedia Dreamweaver.

        Macromedia Studio Professional—an advanced suite of integrated application tools for developers and experienced designers who develop internet and mobile solutions, and require additional video capabilities when developing Flash content; includes Macromedia Dreamweaver, Macromedia Flash Professional, Macromedia Fireworks, Macromedia Contribute and Macromedia Flash Player.

Intelligent DocumentsKnowledge Worker Solutions Business Segment

Intelligent DocumentsKnowledge Worker Solutions Market Opportunity

        Enterprises are under increasing pressure to save money, offer improvedOur Knowledge Worker Solutions Business Unit focuses on the needs of the knowledge worker customer, service, adhere to regulatory requirements,who we define as someone focused on creating and leverage existing investments in core systems. We believe that significant market opportunities exist to help enterprises address these issues by making their business processes more efficient.

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        Printed documents are an essentialdisseminating information as part of most enterprise business processes because they aretheir job on a familiar method for communicating, collaborating,regular basis. Knowledge workers include a wide variety of job functions such as accountants, administrative assistants, architects, educators, graphic designers, insurance underwriters, software developers and conducting transactions with customers, partners,stock brokers. These jobs typically require the sharing of information, either in an information dissemination (one-way) format, or in a collaborative (multi-way) format.

        Knowledge workers must create information and employees. While over time, enterprises may replace documents with Webcontent from a variety of applications, and similar technologies, we believebe able to exchange this information within a reliable and ubiquitous format that many of these documents will continueensures coworkers and constituents can reliably and securely access the information. When appropriate, this information often needs to persist, and organizations will need to integrate electronic versions of printed documentsbe protected or securely managed.

        Collaboration among knowledge workers can occur through face-to-face meetings, via phone calls, through e-mail, or through Web conferencing technologies. Knowledge workers that participate in collaborations with their business processes.

        A critical componentcolleagues 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's business processesemployee base, or, be a consultant or third party partner.

        Adobe Knowledge Worker Solutions enable knowledge workers to effectively and more securely engage, communicate and collaborate within their local and extended workgroups. They 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.

        Our Acrobat family of products provides for the needreliable 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 interact with data stored in enterprise applications. As this need expands beyond the core users of those applications, adapting systems to accommodate a diverse group of users has become an expensive and time-consuming endeavor. The outcome is a proliferation of manual workarounds that result in process inefficiencies, delays, and poor quality of information.distribute reliable Adobe PDF documents.

        We believe that Adobe can address these issues and realize significant market opportunities with our Adobe Intelligent Documents business, which provides organizations with a secure and flexible way to extend the power and reachoffer three versions of enterprise applications inside and outside their computer network firewall. Intelligent Documents uses a set of document services to create intelligent electronic documents, and integrate them into existing business processes.

        With intelligent documents, customers can create documents from the desktop or from enterprise applications, and collaborate with internal and external people while maintaining the visual fidelity and integrity of the original source documents. It also enables them to capture data more securely through electronic forms, even when working offline; and automate and manage processes that are not managed by core systems.

        Our strategy to address these market opportunities consists of delivering an Intelligent Document platform that contains three architecture components:


        Intelligent documents interact with core business applications and integrate information contained in those documents into business processes. Because they are exact electronic replicas, intelligent documents retain the best characteristics of paper documents, such as a familiar look. To this, Adobe has added powerful XML-based business logic capabilities, such as data validations and automated routing instructions. These features allow for more efficient interaction with enterprise applications while still providing the ability for people to manually access and interact with the data when necessary.

        A universal client is a commonly available interface or access point between people and intelligent documents. Adobe Reader software and Web browsers are examples of universal clients. With more than 500 million distributed copies of Adobe Reader, Adobe has created a ubiquitous platform for accessing and interacting with intelligent documents. Adobe Reader is available on the most common operating system platforms, including Microsoft Windows, Apple Macintosh, Linux, various Unix-based platforms, and portable device systems such as Palm OS, Pocket PC, and the Symbian operating system for cellular phones. As a universal client, Adobe Reader enables users inside and outside the firewall to interact with intelligent PDF documents on most platforms, including desktops, laptops, PDAs, mobile phones, and kiosks, regardless of the application used to author the document.

        Finally, document services are underlying technologies that create, integrate, and manage intelligent documents—leveraging the use of a universal client for constituents to interact with data within the document. Document services include, but are not limited to, the following:

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        The market opportunity for each of these document services, and Adobe's strategy to realize these opportunities is described below in more detail.

        There is a significant document generation market opportunity for transforming raw business data from enterprise applications into visually rich, dynamic, customer-focused documents for delivery on most platforms. In many cases, documents are the main source of interaction governments and businesses have with their constituents, partners, and customers. Documents are used to generate revenue (such as catalogs, brochures, mailers), conduct transactions (such as tax forms, invoices, loan documents and account statements), and transfer knowledge (such as user manuals, product specifications and financial reports). We believe the key to producing documents that drive business is an enterprise class document generation solution that takes content from multiple sources, dynamically generates documents, and securely and reliably delivers those documents over a variety of systems and devices.

        Adobe's solutions for document generation are intended to: improve customer satisfaction by enabling customized and personal dynamic document generation for multiple devices and platforms; ensuring that documents appear exactly as intended and are protected from unauthorized changes; and reducing costs by automating document and image production processes. We provide both desktop and server-based solutions for the document generation market.

        On the desktop, the Adobe Acrobat product family creates PDF documents from everyday office applications, such as Microsoft Office. In fiscal 2003, we expanded the Acrobat product line from one product into three distinct products to meet the needs of the different types of customers that require Acrobat functionality:our customers: