UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~August 28, 2009~~September 3, 2010

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

For the transition period from to

Commission File Number: 0-15175

ADOBE SYSTEMS INCORPORATED

(Exact name of registrant as specified in its charter)

_________________________

Delaware

(State or other jurisdiction of

incorporation or organization)

77-0019522

(I.R.S. Employer

Identification No.)

345 Park Avenue, San Jose, California 95110-2704

(Address of principal executive offices and zip code)

(408) 536-6000

(Registrant’s telephone number, including area code)

_________________________

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~Web site,~~Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated ~~filer,”~~filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x

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 o No x

The number of shares outstanding of the registrant’s common stock as of ~~September 25, 2009~~October 1, 2010 was ~~523,760,118~~.508,716,666.

ADOBE SYSTEMS INCORPORATED

FORM 10-Q

TABLE OF CONTENTS

			Page No.
PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:		3

		Condensed Consolidated Balance Sheets ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008~~27, 2009	3

		Condensed Consolidated Statements of Income Three and Nine Months Ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~	4

		Condensed Consolidated Statements of Cash Flows Nine Months Ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~	5

		Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
			33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		40
			49
Item 4.	Controls and Procedures		4049

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		40
			49
Item 1A.	Risk Factors		40
			50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49
			61
Item 6.	Exhibits		4961

Signature			5862

Summary of Trademarks			5963
Index to Exhibits			64

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

	August 28, 2009			November 28, 2008				September 3, 2010			November 27, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	1,132,144		$	886,450		$	814,149		$	999,487
Short-term investments		1,424,317			1,132,752			1,764,125			904,986
Trade receivables, net of allowances for doubtful accounts of $6,153 and $4,128, respectively		281,807			467,234
Trade receivables, net of allowances for doubtful accounts of $13,701 and $15,225, respectively								484,550			410,879
Deferred income taxes		72,163			110,713			76,765			77,417
Prepaid expenses and other current assets		80,503			137,954			96,826			80,855
Total current assets		2,990,934			2,735,103			3,236,415			2,473,624
Property and equipment, net		335,752			313,037			422,920			388,132
Goodwill		2,125,946			2,134,730			3,489,938			3,494,589
Purchased and other intangibles, net		117,384			214,960			413,091			527,388
Investment in lease receivable		207,239			207,239			207,239			207,239
Other assets		184,705			216,529			177,426			191,265
Total assets	$	5,961,960		$	5,821,598		$	7,947,029		$	7,282,237
													LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	48,416		$	55,840		$	56,465		$	58,904
Accrued expenses		349,077			399,969			468,477			419,646
Captial lease obligations, current								8,698			—
Accrued restructuring		8,230			35,690			9,222			37,793
Income taxes payable		20,332			27,136			48,413			46,634
Deferred revenue		188,328			243,964			375,927			281,576
Total current liabilities		614,383			762,599			967,202			844,553
Long-term liabilities:
Debt		350,000			350,000
Debt and captial lease obligations, non-current								1,515,752			1,000,000
Deferred revenue		29,866			31,356			44,988			36,717
Accrued restructuring		4,967			6,214			7,831			6,921
Income taxes payable		137,296			123,182			221,736			223,528
Deferred income taxes		105,597			117,328			73,108			252,486
Other liabilities		25,293			20,565			31,554			27,464
Total liabilities		1,267,402			1,411,244			2,862,171			2,391,669
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; 524,665 and 526,111 shares outstanding, respectively		61			61
Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued; 513,057 and 522,657 shares outstanding, respectively								61			61
Additional paid-in-capital		2,303,342			2,396,819			2,425,083			2,390,061
Retained earnings		5,331,957			4,913,406			5,738,864			5,299,914
Accumulated other comprehensive income		21,728			57,222			21,571			24,446
Treasury stock, at cost (76,169 and 74,723 shares, respectively), net of reissuances		(2,962,530	)		(2,957,154	)
Treasury stock, at cost (87,777 and 78,177 shares, respectively), net of reissuances								(3,100,721	)		(2,823,914	)
Total stockholders’ equity		4,694,558			4,410,354			5,084,858			4,890,568
Total liabilities and stockholders’ equity	$	5,961,960		$	5,821,598		$	7,947,029		$	7,282,237

See accompanying Notes to Condensed Consolidated Financial Statements.

TABLE OF CONTENTS

ADOBE SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

														Three Months Ended						Nine Months Ended
	Three Months Ended						Nine Months Ended
	August 28, 2009			August 29, 2008			August 28, 2009			August 29, 2008				September 3, 2010			August 28, 2009			September 3, 2010			August 28, 2009
Revenue:
Products	$	649,865		$	838,813		$	2,052,119		$	2,532,076		$	829,096		$	636,546		$	2,328,294		$	2,014,392
Subscription														98,632			13,319			286,418			37,727
Services and support		47,642			48,444			136,451			132,512			62,591			47,642			177,342			136,451
Total revenue		697,507			887,257			2,188,570			2,664,588			990,319			697,507			2,792,054			2,188,570
Cost of revenue:
Products		49,365			84,623			164,041			202,657			29,147			40,754			92,302			139,867
Subscription														50,483			8,611			146,408			24,174
Services and support		15,682			26,228			50,367			73,535			19,454			15,682			57,575			50,367
Total cost of revenue		65,047			110,851			214,408			276,192			99,084			65,047			296,285			214,408
Gross profit		632,460			776,406			1,974,162			2,388,396			891,235			632,460			2,495,769			1,974,162
Operating expenses:
Research and development		138,902			170,124			427,289			508,909			168,296			138,902			509,954			427,289
Sales and marketing		231,320			271,439			724,020			813,399			303,219			231,320			921,489			724,020
General and administrative		79,593			97,156			224,462			257,163			102,177			79,593			283,176			224,462
Restructuring charges		65			1,194			15,866			2,625			(2,090	)		65			21,073			15,866
Amortization of purchased intangibles		14,978			17,024			45,654			51,222			17,620			14,978			53,946			45,654
Total operating expenses		464,858			556,937			1,437,291			1,633,318			589,222			464,858			1,789,638			1,437,291
Operating income		167,602			219,469			536,871			755,078			302,013			167,602			706,131			536,871
Non-operating income (expense):
Interest and other income, net		6,667			9,338			24,753			34,778
Interest and other income (expense), net														7,607			6,667			1,905			24,753
Interest expense		(460	)		(2,390	)		(1,872	)		(8,027	)		(16,395	)		(460	)		(40,166	)		(1,872	)
Investment gains (losses), net		607			2,097			(18,444	)		20,335			3,527			607			(10,730	)		(18,444	)
Total non-operating income (expense), net		6,814			9,045			4,437			47,086			(5,261	)		6,814			(48,991	)		4,437
Income before income taxes		174,416			228,514			541,308			802,164			296,752			174,416			657,140			541,308
Provision for income taxes		38,371			36,906			122,757			176,267			66,687			38,371			151,310			122,757
Net income	$	136,045		$	191,608		$	418,551		$	625,897		$	230,065		$	136,045		$	505,830		$	418,551
Basic net income per share	$	0.26		$	0.36		$	0.79		$	1.15		$	0.44		$	0.26		$	0.97		$	0.79
Shares used in computing basic net income per share		525,911			531,060			528,015			542,624
Shares used to compute basic net income per share														518,710			525,911			523,039			528,015
Diluted net income per share	$	0.26		$	0.35		$	0.79		$	1.13		$	0.44		$	0.26		$	0.95		$	0.79
Shares used in computing diluted net income per share		531,809			541,311			532,846			552,739
Shares used to compute diluted net income per share														523,179			531,809			530,356			532,846

See accompanying Notes to Condensed Consolidated Financial Statements.

TABLE OF CONTENTS

ADOBE SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended							Nine Months Ended
	August 28, 2009			August 29, 2008				September 3, 2010			August 28, 2009
Cash flows from operating activities:
Net income	$	418,551		$	625,897		$	505,830		$	418,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		197,386			202,841			216,641			197,386
Stock-based compensation		126,231			137,613			174,245			126,231
Deferred income taxes		22,671			34,336			(176,882	)		22,671
Unrealized losses (gains) on investments		13,308			(9,690	)
Retirements of property and equipment		3,435			185
Unrealized losses on investments								8,766			13,308
Tax benefit from employee stock option plans		2,711			83,740			37,987			2,711
Provision for losses on trade receivables		3,049			3,870
Other non-cash items		2,464			2,709			2,054			8,948
Excess tax benefits from stock-based compensation		(84	)		(23,635	)		(10,172	)		(84	)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables		182,377			(13,695	)
Trade receivables, net								(74,722	)		182,377
Prepaid expenses and other current assets		15,663			2,044			(11,953	)		15,663
Trade payables		(7,424	)		(3,574	)		(2,439	)		(7,424	)
Accrued expenses		(44,351	)		(43,996	)		52,100			(44,351	)
Accrued restructuring		(27,527	)		(5,418	)		(26,294	)		(27,527	)
Income taxes payable		12,619			(73,957	)		3,445			12,619
Deferred revenue		(57,126	)		23,163			103,758			(57,126	)
Net cash provided by operating activities		863,953			942,433			802,364			863,953
Cash flows from investing activities:
Purchases of short-term investments		(1,142,015	)		(840,782	)		(1,999,341	)		(1,142,015	)
Maturities of short-term investments		333,219			520,784			512,534			333,219
Proceeds from sales of short-term investments		504,958			486,904			629,673			504,958
Purchases of property and equipment		(84,659	)		(88,481	)		(114,215	)		(84,659	)
Acquisitions, net of cash acquired		—			485
Proceeds from sale of property and equipment								32,151			—
Purchases of long-term investments and other assets		(24,891	)		(102,085	)		(22,876	)		(24,891	)
Proceeds from sale of long-term investments		4,909			18,085			3,586			4,909
Other		3,271			—			2,198			3,271
Net cash used for investing activities		(405,208	)		(5,090	)		(956,290	)		(405,208	)
Cash flows from financing activities:
Purchases of treasury stock		(350,013	)		(1,422,735	)		(650,020	)		(350,013	)
Proceeds from issuance of treasury stock		122,219			301,454			129,640			122,219
Excess tax benefits from stock-based compensation		84			23,635			10,172			84
Proceeds from borrowings under credit facility		—			450,000
Repayments of borrowings under credit facility		—			(100,000	)
Proceeds from debt								1,493,439			—
Repayment of debt and captial lease obligations								(1,001,559	)		—
Debt issuance costs								(10,662	)		—
Net cash used for financing activities		(227,710	)		(747,646	)		(28,990	)		(227,710	)
Effect of foreign currency exchange rates on cash and cash equivalents		14,659			(1,856	)		(2,422	)		14,659
Net increase in cash and cash equivalents		245,694			187,841
Net (decrease) increase in cash and cash equivalents								(185,338	)		245,694
Cash and cash equivalents at beginning of period		886,450			946,422			999,487			886,450
Cash and cash equivalents at end of period	$	1,132,144		$	1,134,263		$	814,149		$	1,132,144
Supplemental disclosures:
Cash paid for income taxes, net of refunds	$	78,635		$	129,320		$	286,271		$	78,635
Cash paid for interest	$	453		$	2,311		$	34,135		$	1,941
Non-cash investing activities:
Property and equipment acquired under capital leases							$	32,151		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

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ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other ~~interim~~int erim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended November ~~28, 2008~~27, 2009 on file with the SEC. The nine months ended September 3, 2010 financial results 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.

~~There~~Significant Accounting Policies

With the exception of the adoption of an accounting pronouncement related to revenue recognition, discussed below, there have been no material changes into our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended November ~~28, 2008.~~27, 2009.

In October 2009, the Financial Accounting Standards Board (“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 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

·	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 2010 on a prospective basis for applicable transactions originating or materially modified after November 27, 2009.

Multiple Element Arrangements

We enter into multiple element revenue arrangements in which a customer may purchase a combination of software, upgrades, hosting services, maintenance and support, and consulting.

For multiple element arrangements that contain non-software related elements, for example our software as a service (“SaaS”) offerings, we allocate revenue to each non-software element based upon the relative selling price of each and if software and software-related elements are also included in the arrangement, to those elements as a group based on our BESP for the group. When applying the relative selling price method, 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 our BESP for that deliverable. Revenue allocated to each element is then recognized when the basic revenue recognition criteria is met for each element. The manner in which we account for multiple element arrangemen ts that contain only software and software-related elements remains unchanged.

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.

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ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings.

We determine BESP for a product or service by considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives and pricing practices. 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 three and nine months ended September 3, 2010 resulting from changes in VSOE, TPE or BESP, nor do we expect a material impact from such changes in the near term.

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 three and nine months ended September 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.

Recent Accounting Pronouncements

~~With the exception of those discussed below, there~~There have also been no ~~recent accounting pronouncements or changes in~~new accounting pronouncements during the nine months ended ~~August 28, 2009,~~September 3, 2010, with the exception of those discussed below, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended November ~~28, 2008,~~27, 2009, that are of significance, or potential significance, to us.

Fair Value Measurements

In ~~June 2009,~~January 2010, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Statement~~new accounting guidance expanding disclosures about fair value measurements by adding disclosures about the different classes of ~~Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification~~assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements and the ~~Hierarchy~~transfers between Levels 1, 2 and 3. The new disclosures and clarifications of ~~GAAP, a replacement of SFAS No. 162” (“SFAS 168”). SFAS 168 will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is~~existing disclosures are effective ~~for financial statements issued~~ for interim and annual reporting periods ~~ending~~beginning after ~~September~~December 15, 2009, ~~and will be~~except for the disclosure requirements related to the activity in Level 3 fair value measurements. Those disclosure requirements are effective for usfiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. We adopted the new disclosures in the ~~fourth~~second quarter of fiscal ~~2009. On~~2010, which included changing t he description of certain asset classes in the ~~effective date~~tables in Notes 3 and 4 to conform with the requirements of ~~SFAS 168, it~~the new guidance. We will ~~supersede all then-existing non-SEC accounting and reporting standards. As SFAS 168 is~~adopt the Level 3 requirements in the first quarter of fiscal 2012. Since the adoption of the new standards only required additional disclosure, the adoption did not ~~intended to change or alter existing GAAP, it is not expected to~~ have ~~any~~an impact on our consolidated financial ~~statements~~position, results of operations and ~~will only impact references for accounting guidance.~~cash flows.

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ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Variable Interest Entities

In June 2009, the FASB issued ~~SFAS No. 167, “Amendments~~amended standards for determining whether to ~~FASB Interpretation (“FIN”) No. 46(R)” (“SFAS 167”), which amends~~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 ~~SFAS 167~~the new standards are effective for ~~interim and~~ annual reporting periods ~~ending~~beginning after November 15, 2009 and ~~will be~~interim periods within those fiscal years. These standards were effective for us beginning in the ~~fourth~~first quarter of fiscal ~~2009. We are currently evaluating~~2010. The adoption of the new standards did not have an impact ~~of adopting SFAS 167~~ on our consolidated financial position, results of operations and cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The provisions of SFAS 165 are effective for interim and annual reporting periods ending after June 15, 2009. We adopted SFAS 165 during the third quarter of fiscal 2009 and as the pronouncement only requires additional disclosures, the adoption did not have an impact on our consolidated financial position, results of operations or cash flows. We have evaluated subsequent events through ~~October 1, 2009, the date that these financial statements were issued.~~

In April 2009, the FASB issued three related FASB Staff Positions (“FSP”): (i) FSP Financial Accounting Standard (“FAS”) No. 115-2 and FAS No. 124-2, “Recognition of Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”), (ii) FSP FAS No. 107-1 and Accounting Principles Board Opinion (“APB”) No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), and (iii) FSP FAS No. 157-4, “Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4), which are effective for interim and annual reporting periods ending after June 15, 2009. FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in GAAP for debt securities to modify the requirement for recognizing other-than-temporary impairments, change the existing

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

impairment model, and modify the presentation and frequency of related disclosures. FSP FAS 107-1 and APB 28-1 requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). We adopted these FSPs during the third quarter of fiscal 2009 and they did not have a material effect on our consolidated financial position, results of operations or cash flows.

In September 2008, the FASB issued FSP FAS No. 133-1 and FIN No. 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of SFAS No. 133 and FIN No. 45; and Clarification of the Effective Date of SFAS No. 161” (“FSP FAS 133-1 and FIN 45-4”). FSP FAS 133-1 and FIN 45-4 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) to require disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. FSP FAS 133-1 and FIN 45-4 also amend FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of SFAS No. 5, 57, and 107 and rescission of FIN No. 34” (“FIN 45”), to require additional disclosure about the current status of the payment/performance risk of a guarantee. The provisions of the FSP that amend SFAS 133 and FIN 45 are effective for reporting periods ending after November 15, 2008. FSP FAS 133-1 and FIN 45-4 also clarifies the effective date in SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS 133” (“SFAS 161”). We adopted the disclosures required by SFAS 161 in the first quarter of fiscal 2009. Since FSP FAS 133-1 and FIN 45-4 only required additional disclosures, the adoption did not impact our consolidated financial position, results of operations or cash flows.Intangible Assets Useful Lives

In April 2008, the FASB issued ~~FSP FAS No. 142-3, “Determination~~new standards which provided guidance on how to determine the useful life of ~~the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends~~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 under SFAS No. 142, “Goodwill and Other Intangible Assets.”~~assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. ~~FSP FAS 142-3 is~~These standards are effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal ~~years. FSP FAS 142-3 is~~years and was effective for us beginning in the first quarter of fiscal 2010. ~~Early adoption is not permitted. As this guidance is to be applied prospectively, on adoption, there is~~There was no impact to our current consolidated financial ~~statements.~~statements as we did not purchase any intangible assets during the three and nine months end ed September 3, 2010.

~~In March 2008, the FASB issued SFAS 161 which requires companies with derivative instruments to disclose information that should enable financial statement users to understand how~~Business Combinations and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. We adopted SFAS 161 in the first quarter of fiscal 2009. Since SFAS 161 only required additional disclosure, the adoption did not impact our consolidated financial position, results of operations or cash flows.Non-Controlling Interests

In December 2007, the FASB ~~issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”)~~revised their guidance for business combinations and ~~SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (“ARB”) No. 51” (“SFAS 160”). SFAS 141R will~~non-controlling interests. The new standards change how business acquisitions are accounted for and ~~will~~ impact financial statements both on the acquisition date and in subsequent periods. ~~SFAS 160 will change~~The changes also impact the accounting and reporting for minority interests, which ~~will be~~are recharacterized as ~~noncontrolling~~non-controlling interests and classified as a component of equity. ~~SFAS 141R and SFAS 160 are~~The new standards were effective for us beginning in the first quarter of fiscal 2010. ~~Early~~We currently believe that depending on the size and frequency of acquisitions, the adoption ~~is not permitted. We are currently evaluating the impact that SFAS 141R and SFAS 160 will~~of these standards may have a material effect on our future consolidated financial statements.

In September 2006, the FASB issued SFAS 157, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. Effective November 29, 2008, There was no material impact to our current consolidated financial statements as we adopted SFAS 157 for all nonfinancial assets and nonfinancial liabilities measured at fair value on a non-recurring basis. Examples include goodwill, intangibles, and other long-lived assets. The adoption of SFAS 157 did not have any business combinations close during the three and nine months ended September 3, 2010.

NOTE 2. ACQUISITIONS

Omniture, Inc.

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 ~~material impact on~~price of $21.50 per share, net to the seller in cash, without interest. Acquiring Omniture accelerates our ~~consolidated~~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 ~~position,~~ results of ~~operations or cash flows.~~Omniture in our Condensed Consolidated Financial Statements beginning on the acquisition date. Following the closing, we integrated Omniture a s a new segment for financial reporting purposes.

The total purchase price for Omniture was approximately $1.8 billion which consisted of $1.7 billion in cash paid for outstanding common stock, $85.0 million for the estimated fair value of earned stock options and restricted stock units assumed and converted and $14.4 million for direct transaction costs. The preliminary allocation of the purchase price was based upon a preliminary valuation and our estimates and assumptions. 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. Of the total final purchase price, $1.34 billion has been allocated to goodwill, $ 436.1 million to identifiable intangible assets, $33.4 million to net tangible assets and $11.3 million to restructuring liabilities. We also expensed $4.6 million for in-process research and development charges.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents the results of Adobe and Omniture for the three and nine months ended August 28, 2009, on a pro forma basis, as though the companies had been combined as of the beginning of fiscal 2009. 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 at the beginning of fiscal 2009 or of results that may occur in the future.

(in thousands, except per share data)		Three Months Ended		Nine Months Ended
		August 28, 2009		August 28, 2009
Net revenue	$	751,602	$	2,417,394
Net income	$	96,685	$	351,213
Basic net income per share	$	0.18	$	0.67
Shares used to compute basic net income per share		525,911		528,015
Diluted net income per share	$	0.18	$	0.66
Shares used to compute diluted net income per share		533,284		534,033

Day Software Holding AG

In July 2010, we entered into a definitive agreement with Day Software Holding AG (“Day”). Under the terms of the agreement, we have commenced a 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 254.7 million Swiss Francs 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. The market value of this forward contract was $8.1 million U.S. dollars as of Sep tember 3, 2010 and is included in other assets on our Condensed Consolidated Balance Sheets, with changes in the market value of $8.1 million recorded to interest and other income (expense), net on our Condensed Consolidated Statements of Income. Upon maturity of the forward contract, any remaining changes in the market value will be recorded to interest and other income (expense), net. This forward contract is accounted for as a separate transaction apart from the acquisition.

Day is a provider of web content management solutions that leading global enterprises rely on for Web 2.0 content application and content infrastructure, 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. The transaction is subject to customary closing conditions and is expected to close in the fourth quarter of our fiscal 2010. Following the closing, we intend to integrate Day as a product line within our Enterprise segment for financial reporting purposes.

NOTE 2.3. 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.” ~~These~~In general, these investments are free of trading ~~restrictions or become free of trading restrictions within one year.~~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.~~equity in our Condensed Consolidated Balance Sheets. Gains and losses are recognized when realized in our Condensed Consolidated Statements of Income. ~~Losses are recognized as realized or when~~When we have determined that an other-than-temporary decline in fair value has ~~occurred.~~occurred, the amount of the decline that is relat ed to a credit loss is recognized in earnings. Gains and losses are determined using the specific identification method.

~~Cash, cash equivalents and short-term investments consisted of the following as of August 28, 2009 (in thousands):~~

Carrying
Value

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value

Current assets:
Cash $ 33,923 $ — $ — $ 33,923
Cash equivalents:
Money market mutual funds 1,043,750 — — 1,043,750
Bank deposits 49,451 — — 49,451
United States treasury notes 5,021 — (1 ) 5,020
Total cash equivalents 1,098,222 — (1 ) 1,098,221
Total cash and cash equivalents 1,132,145 — (1 ) 1,132,144
Short-term investments:
United States treasury notes 749,616 5,164 (10 ) 754,770
United States government agency bonds 133,164 127 (21 ) 133,270
Government guaranteed bonds 265,448 1,724 (73 ) 267,099
Corporate bonds 204,126 3,626 (2 ) 207,750
Obligations of foreign governments 28,222 488 — 28,710
Bonds of multi-lateral government agencies 27,434 340 — 27,774
Subtotal 1,408,010 11,469 (106 ) 1,419,373
Other marketable equity securities 2,504 2,440 — 4,944
Total short-term investments 1,410,514 13,909 (106 ) 1,424,317
Total cash, cash equivalents and short-term investments $ 2,542,659 $ 13,909 $ (107 ) $ 2,556,461

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Cash, cash equivalents and short-term investments consisted of the following as of ~~November 28, 2008~~September 3, 2010 (in thousands):

	Carrying Value		Unrealized Gains		Unrealized Losses			Estimated Fair Value			Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Current assets:
Cash	$	117,681	$	—	$	—		$	117,681	$	93,170	$	—	$	—		$	93,170
Cash equivalents:
Money market mutual funds		682,148		—		—			682,148		597,801		—		—			597,801
Bank deposits		40,594		—		—			40,594
United States treasury notes		35,992		7		—			35,999
Time deposits											57,238		—		—			57,238
U.S. agency securities											19,599		1		—			19,600
Corporate bonds		10,028		—		—			10,028		46,340		—		—			46,340
Total cash equivalents		768,762		7		—			768,769		720,978		1		—			720,979
Total cash and cash equivalents		886,443		7		—			886,450		814,148		1		—			814,149
Short-term investments:
United States treasury notes		863,772		14,384		(1	)		878,155
Short-term fixed income securities:
U.S. Treasury securities											401,173		3,155		(8	)		404,320
U.S. agency securities											339,476		1,088		(35	)		340,529
Municipal securities											120,904		46		(29	)		120,921
Corporate bonds		109,415		219		(997	)		108,637		808,745		8,720		(252	)		817,213
Obligations of foreign governments		115,316		811		(33	)		116,094
Bonds of multi-lateral government agencies		26,559		260		—			26,819
Foreign government securities											65,475		633		(2	)		66,106
Subtotal		1,115,062		15,674		(1,031	)		1,129,705		1,735,773		13,642		(326	)		1,749,089
Other marketable equity securities		2,773		274		—			3,047
Marketable equity securities											10,950		4,086		—			15,036
Total short-term investments		1,117,835		15,948		(1,031	)		1,132,752		1,746,723		17,728		(326	)		1,764,125
Total cash, cash equivalents and short-term investments	$	2,004,278	$	15,955	$	(1,031	)	$	2,019,202	$	2,560,871	$	17,729	$	(326	)	$	2,578,274

Cash, cash equivalents and short-term investments consisted of the following as of November 27, 2009 (in thousands):

		Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Current assets:
Cash	$	75,110	$	—	$	—		$	75,110
Cash equivalents:
Money market mutual funds		884,240		—		—			884,240
Time deposits		40,137		—		—			40,137
Total cash equivalents		924,377		—		—			924,377
Total cash and cash equivalents		999,487		—		—			999,487
Short-term fixed income securities:
U.S. Treasury securities		373,180		3,199		(1	)		376,378
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
Marketable equity securities		2,527		2,500		—			5,027
Total short-term investments		890,239		14,749		(2	)		904,986
Total cash, cash equivalents and short-term investments	$	1,889,726	$	14,749	$	(2	)	$	1,904,473

See Note 34 for further information regarding the fair value of our financial ~~instruments~~.instruments.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category ~~and length of time~~ that ~~individual securities~~ have been in a continuous unrealized loss position ~~at August 28,~~for less than twelve months, as of September 3, 2010 and November 27, 2009 (in thousands):

	Less Than 12 Months					Total						2010					2009
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses				Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
United States treasury notes and agency bonds	$	108,878	$	(32	)	$	108,878	$	(32	)
Government guaranteed bonds		23,084		(73	)		23,084		(73	)
U.S. Treasury and agency securities											$	89,272	$	(43	)	$	11,179	$	(1	)
Corporate bonds		3,473		(2	)		3,473		(2	)		117,257		(252	)		5,041		(1	)
Foreign government securities												4,335		(2	)		—		—
Municipal securities												31,092		(29	)		—		—
Total	$	135,435	$	(107	)	$	135,435	$	(107	)	$	241,956	$	(326	)	$	16,220	$	(2	)

As of ~~August 28,~~September 3, 2010 and November 27, 2009, there were no securities in a continuous unrealized loss position for more than twelve months. There were 1876 securities and 4 securities that were in an unrealized loss position at ~~August 28, 2009.~~September 3, 2010 and at November 27, 2009, respectively.

The following table summarizes the cost and estimated fair value ~~and gross unrealized losses related to available-for-sale~~of short-term fixed income securities ~~aggregated by investment category and length~~classified as short-term investments based on stated maturities as of ~~time that individual securities have been in a continuous unrealized loss position, at November 28, 2008~~September 3, 2010 (in thousands):

Less Than 12 Months Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses

United States treasury notes $ 37,400 $ (1 ) $ 37,400 $ (1 )
Corporate bonds 67,606 (997 ) 67,606 (997 )
Obligations of foreign governments 28,033 (33 ) 28,033 (33 )
Total $ 133,039 $ (1,031 ) $ 133,039 $ (1,031 )

		Amortized Cost		Estimated Fair Value
Due within one year	$	854,720	$	856,275
Due within two years		472,194		477,545
Due within three years		336,531		340,439
Due after three years		72,328		74,830
Total	$	1,735,773	$	1,749,089

As of September 3, 2010, we did not consider any of our investments to be other-than-temporarily impaired.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~As of November 28, 2008, there were no securities in a continuous loss position for more than twelve months. There were 33 securities that were in an unrealized loss position at November 28, 2008.~~

~~The following table summarizes the cost and estimated fair value of debt securities classified as short-term investments based on stated maturities as of August 28, 2009 (in thousands):~~

Cost
Estimated
Fair Value

Due within one year
$ 772,898 $ 775,869
Due within two years
317,246 320,399
Due within three years
241,150 243,434
Due after three years
76,716 79,671
Total
$ 1,408,010 $ 1,419,373

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’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. The portion of the write-down related to credit loss would be recorded to investment gains (losses), net on our Condensed Consolidated Statements of Income for equity securities and to interest and other income, net for debt securities. Any portion of the other-than-temporary decline not related to credit loss would be recorded to accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity on our Condensed Consolidated Balance Sheets. As of August 28, 2009, we do not consider any of our investments to be other-than-temporarily impaired.

NOTE ~~3. FINANCIAL INSTRUMENTS~~4. FAIR VALUE MEASUREMENTS

We measure certain financial assets and liabilities at fair value on a recurring basis. There have been no transfers between fair value measurement levels during the three months ended September 3, 2010.

The fair value of ~~these~~our financial assets and liabilities at September 3, 2010 was determined using the following inputs ~~at August 28, 2009~~ (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)
Current assets:
Money market funds and overnight deposits(1)
$ 1,093,201 $ 1,093,201 $ — $ —
Fixed income available-for-sale securities(2)
1,424,393 — 1,424,393 —
Available-for-sale equity securities(3)
4,944 4,944 — —
Total current assets 2,522,538 1,098,145 1,424,393 —
Non-current assets:
Investments of limited partnership(4)
34,705 — — 34,705
Foreign currency derivatives(5)
4,688 — 4,688 —
Deferred compensation plan assets(4):

Money market funds
770 770 — —
Equity and fixed income mutual funds 7,754 — 7,754 —
Subtotal for deferred compensation plan assets 8,524 770 7,754 —
Total non-current assets 47,917 770 12,442 34,705
Total assets
$ 2,570,455 $ 1,098,915 $ 1,436,835 $ 34,705
Liabilities:
Foreign currency derivatives(6)
$ 729 $ — $ 729 $ —
Total liabilities
$ 729 $ — $ 729 $ —

		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	$	597,801	$	597,801	$	—	$	—
Time deposits		57,238		57,238		—		—
U.S. agency securities		19,600		—		19,600		—
Corporate bonds		46,340		—		46,340		—
Short-term investments:
U.S. Treasury securities		404,320		—		404,320		—
U. S. agency securities		340,529		—		340,529		—
Municipal securities		120,921		—		120,921		—
Corporate bonds		817,213		—		817,213		—
Foreign government securities		66,106		—		66,106		—
Marketable equity securities		15,036		15,036		—		—
Prepaid expenses and other current assets:
Foreign currency derivatives		18,290		—		18,290		—
Other assets:
Investments of limited partnership		26,793		—		—		26,793
Deferred compensation plan assets		9,873		614		9,259		—
Total assets	$	2,540,060	$	670,689	$	1,842,578	$	26,793
Liabilities:
Accrued expenses:
Foreign currency derivatives	$	1,680	$	—	$	1,680	$	—
Total liabilities	$	1,680	$	—	$	1,680	$	—

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value of ~~these~~our financial assets and liabilities at November 27, 2009 was determined using the following inputs ~~at November 28, 2008~~ (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)
Current assets:
Money market funds and overnight deposits(1)
$ 722,742 $ 722,742 $ — $ —
Fixed income available-for-sale securities(2)
1,175,732 — 1,175,732 —
Available-for-sale equity securities(3)
3,047 3,047 — —
Total current assets 1,901,521 725,789 1,175,732 —
Non-current assets:
Investments of limited partnership(4)
39,004 251 — 38,753
Foreign currency derivatives(5)
49,848 — 49,848 —
Deferred compensation plan assets(4):

Money market funds
704 704 — —
Equity and fixed income mutual funds 6,856 — 6,856 —
Subtotal for deferred compensation plan assets 7,560 704 6,856 —
Total non-current assets 96,412 955 56,704 38,753
Total assets
$ 1,997,933 $ 726,744 $ 1,232,436 $ 38,753
Liabilities:
Foreign currency derivatives(6)
$ 1,739 $ — $ 1,739 $ —
Total liabilities
$ 1,739 $ — $ 1,739 $ —

		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	$	—

~~(1)~~

~~Included in cash and cash equivalents on our Condensed Consolidated Balance Sheets.~~

~~(2)~~

~~Included in either cash and cash equivalents or short-term investments on our Condensed Consolidated Balance Sheets.~~

~~(3)~~

~~Included in short-term investments on our Condensed Consolidated Balance Sheets.~~

~~(4)~~

~~Included in other assets on our Condensed Consolidated Balance Sheets.~~

~~(5)~~

~~Included in prepaid expenses and other current assets on our Condensed Consolidated Balance Sheets.~~

~~(6)~~

~~Included in accrued expenses on our Condensed Consolidated Balance Sheets.~~

See Note 23 for further information regarding the fair value of our financial instruments.

~~Fixed~~Our fixed income available-for-sale securities ~~include United States (“U.S.”) treasury securities, Agency or U.S. government guaranteed securities (75%~~consist of total), corporate bonds (15% of total), obligations of foreign governments and their agencies (8% of total), and obligations of multi-lateral government agencies (2% of total) at August 28, 2009 and U.S. treasury securities, Agency or U.S. government guaranteed securities (78% of total), corporate bonds (10% of total), obligations of foreign governments and their agencies (10% of total), and obligations of multi-lateral government agencies (2% of total) at November 28, 2008. These are all high quality, investment grade securities from diverse issuers with a minimum credit rating of A- and a weighted average credit rating ~~better than~~of 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, or pricing m odels, 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.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

The investments of limited partnership relate to our interest in Adobe Ventures IV L.P. (“Adobe Ventures”), which are consolidated in our Condensed Consolidated Financial Statements. The ~~Level 1 investments of limited partnership relate to investments in publicly-traded companies and the~~ Level 3 investments consist of investments in privately-held companies. These investments are remeasured at fair value each period with any gains or losses recognized in investment gains (losses), net in our Condensed Consolidated Statements of Income. There was no impact to other comprehensive income (“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.

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(Unaudited)

A reconciliation of the beginning and ending balances for investments of limited partnership using significant unobservable inputs (Level 3) as of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008~~27, 2009 was as follows (in thousands):

Balance as of November 28, 2008	$	38,753		$	38,753
Purchases and sales of investments, net		966			1,921
Unrealized net investment losses included in earnings		(5,014	)		(3,553	)
Balance as of August 28, 2009	$	34,705
Balance as of November 27, 2009					37,121
Purchases and sales of investments, net					(2,599	)
Unrealized net investment losses included in earnings					(7,729	)
Balance as of September 3, 2010				$	26,793

We also have direct investments in privately-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-down the investment to its fair value. We ~~estimated~~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 the three and nine months ended ~~August 28, 2009,~~September 3, 2010, we determined that certain of our direct cost method investments were other-than-temporarily impaired which resulted in ~~a charge~~charges of ~~$13.9~~$1.9 million and $2.3 million, respectively, which were included in investment gains (losses), net in ~~our~~ou r Condensed Consolidated Statements of Income. The fair value of cost method investments that were impaired was estimated using Level 3 inputs. We did not have any other-than-temporary impairments of our cost method investments during the three months ended August 28, 2009.

See Note 67 for further information regarding our limited partnership interest in Adobe Ventures and our cost method investments.

NOTE 5. DERIVATIVES AND HEDGING ACTIVITIES

In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. ~~In Europe and Japan, transactions that are denominated in Euro and Yen~~Therefore, we are subject to exposure from movements in ~~exchange~~foreign currency rates. We may use foreign exchange option contracts or forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in ~~these~~ 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.

~~In accordance with SFAS 133, we~~We recognize derivative instruments ~~and~~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 on our Condensed 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. 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 (expense), net on our Condensed Consolidated Statements of Income at that time.

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 on our Condensed 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 intended to offset gains and losses on the assets and liabilities being hedged.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

We mitigate concentration of risk related to foreign currency hedges as well as interest rate hedges through a policy that establishes counterparty limits. The bank counterparties into 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

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(Unaudited)

requirements under our counterparty risk assessment 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 ~~August 28,~~September 3, 2010 and November 27, 2009 was ~~$4.7 million. This amount represents~~$18.3 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. This exposure could be reduced by up to ~~$0.7~~$1.7 million and $1.6 million, respectively, of liabilities included in master netting arrangements with those same counterparties.

The fair value of derivative instruments inon our Condensed Consolidated Balance Sheets as of ~~August 28,~~September 3, 2010 and November 27, 2009 were as follows (in thousands):

	Fair Values of Derivative Instruments
	Asset Derivatives			Liability Derivatives				2010				2009
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value			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(*)	Prepaid expense and other current assets	$	4,507	Accrued expenses	$	—
Foreign exchange option contracts(3)							$	9,439	$	—	$	4,175	$	—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expense and other current assets		181	Accrued expenses		729		8,851		1,680		132		1,589
Total derivatives		$	4,688		$	729	$	18,290	$	1,680	$	4,307	$	1,589

~~(*)~~ ~~Hedging effectiveness expected to be recognized to income within the next twelve months.~~

(1)	Included in prepaid expenses and other current assets on our Condensed Consolidated Balance Sheets.

(2)	Included in accrued expenses on our Condensed 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 onin our Condensed Consolidated Statements of Income for ~~the~~three and nine months ended September 3, 2010 was as follows (in thousands):

		Three Months						Nine Months
		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)	$	15,208		$	—		$	23,580		$	—
Net gain (loss) reclassified from accumulated OCI into income, net of tax(2)	$	13,223		$	—		$	19,428		$	—
Net gain (loss) recognized in income(3)	$	(8,383	)	$	—		$	(18,149	)	$	—
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income(4)	$	—		$	(5,627	)	$	—		$	16,174

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(Unaudited)

The effect of derivative instruments designated as cash flow hedges and of derivative instruments not designated as hedges in our Condensed Consolidated Statements of Income for three and nine months ended August 28, 2009 ~~were~~was as follows (in thousands):

	Three Months						Nine Months							Three Months						Nine Months
	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(1)	$	(329	)	$	—		$	(14,516	)	$	—
Net gain (loss) reclassified from accumulated OCI into income(2)	$	749		$	—		$	27,138		$	—
Net gain (loss) recognized in OCI, net of tax(1)													$	(329	)	$	—		$	(14,516	)	$	—
Net gain (loss) reclassified from accumulated OCI into income, net of tax(2)													$	749		$	—		$	27,138		$	—
Net gain (loss) recognized in income(3)	$	(3,734	)	$	—		$	(12,782	)	$	—		$	(3,734	)	$	—		$	(12,782	)	$	—

Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income(4)	$	—		$	(1,650	)	$	—		$	(10,200	)	$	—		$	(1,650	)	$	—		$	(10,200	)

(1)	Net change in the fair value of the effective portion classified in ~~other comprehensive income (“OCI”).~~OCI.

(2)	Effective portion classified as revenue.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

(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.

~~NOTE 4. ACQUISTIONS~~

On August 13, 2009, we entered into a definitive agreement related to a potential business combination. We completed this business combination subsequent to our quarter ended August 28, 2009 for cash consideration of approximately $35.3 million. This acquisition was not material to our consolidated balance sheets and results of operations. ~~See Note 18 for further discussion of this transaction and for a discussion of the planned acquisition of Omniture, Inc. ("Omniture").~~

NOTE 5.6. GOODWILL AND PURCHASED AND OTHER INTANGIBLES

Goodwill as of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008~~27, 2009 was ~~$2.126~~$3.490 billion and ~~$2.135~~$3.495 billion, respectively. The change includes ~~reductions in goodwill~~adjustments to our Omniture purchase price allocation through the second quarter of ~~$7.5 million related to the release of tax reserves associated with the acquisitions of Accelio~~fiscal 2010 and ~~Macromedia in addition to a facility lease obligation adjustment of $1.7 million related to Macromedia, offset in part by small~~ foreign currency translation adjustments. We also recorded adjustments for restructuring and tax deductions from acquired stock options associated with our Omniture and Macromedia acquisitions.

Purchased and other intangible assets subject to amortization as of ~~August 28,~~September 3, 2010 and November 27, 2009 were as follows (in thousands):

									2010							2009
	Cost		Accumulated Amortization			Net			Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Purchased technology	$	405,830	$	(375,412	)	$	30,418	$	219,843	$	(51,709	)	$	168,134	$	586,952	$	(387,731	)	$	199,221
Localization	$	24,441	$	(16,567	)	$	7,874	$	16,090	$	(10,343	)	$	5,747	$	20,284	$	(15,222	)	$	5,062
Trademarks		130,925		(97,940	)		32,985		172,015		(128,599	)		43,416		172,030		(104,953	)		67,077
Customer contracts and relationships		196,617		(150,754	)		45,863		364,231		(187,457	)		176,774		363,922		(159,450	)		204,472
Other intangibles		800		(556	)		244		46,421		(27,401	)		19,020		54,535		(2,979	)		51,556
Total other intangible assets	$	352,783	$	(265,817	)	$	86,966	$	598,757	$	(353,800	)	$	244,957	$	610,771	$	(282,604	)	$	328,167
Total purchased and other intangible assets	$	758,613	$	(641,229	)	$	117,384
Purchased and other intangible assets								$	818,600	$	(405,509	)	$	413,091	$	1,197,723	$	(670,335	)	$	527,388

~~Purchased~~During the first half of fiscal 2010, purchased and other intangible assets ~~subject to amortization as of November 28, 2008~~from prior acquisitions, primarily Macromedia, became fully amortized and were ~~as follows (in thousands):~~

Cost
Accumulated
Amortization
Net
Purchased technology
$ 411,408 $ (338,608 ) $ 72,800
Localization
$ 23,751 $ (6,156 ) $ 17,595
Trademarks
130,925 (78,181 ) 52,744
Customer contracts and relationships
198,891 (127,520 ) 71,371
Other intangibles
800 (350 ) 450
Total other intangible assets
$ 354,367 $ (212,207 ) $ 142,160
Total purchased and other intangible assets
$ 765,775 $ (550,815 ) $ 214,960

removed from the balance sheet. Amortization expense related to purchased and other intangible assets was $38.5 million and $117.6 million for the three and nine months ended September 3, 2010, respectively. Comparatively, amortization expense was $34.4 million and $109.7 million for the three and nine months ended August 28, 2009, respectively. ~~Comparatively, amortization expense was $43.2~~Of these amounts, $21.0 million and ~~$140.7~~$63.6 million were included in cost of sales for the three and nine months ended ~~August~~ ~~29, 2008, respectively. Of these amounts,~~September 3, 2010, respectively, and $19.4 million and $64.1 million were included in cost of sales for the three and nine months ended August 28, 2009, ~~respectively, and $26.2 million and $89.5 million were included in cost of sales for the three and nine months ended~~ ~~August~~ ~~29, 2008,~~ respectively.

1416

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

As of ~~August 28, 2009,~~September 3, 2010, we expect amortization expense in future periods to be as follows (in thousands):

Fiscal year		Purchased Technology		Other Intangible Assets
Remainder of 2009		$	13,736	$	20,133
2010			8,301		52,202
Fiscal Year								Purchased Technology		Other Intangible Assets
Remainder of 2010						Remainder of 2010	$	8,813	$	24,624
2011	2011		4,994		12,444	2011		31,870		50,740
2012	2012		3,387		1,009	2012		30,263		22,385
2013	2013		—		789	2013		26,403		21,686
2014						2014		24,983		21,286
Thereafter	Thereafter		—		389	Thereafter		45,802		104,236
Total expected amortization expense	Total expected amortization expense	$	30,418	$	86,966	Total expected amortization expense	$	168,134	$	244,957

NOTE 6.7. OTHER ASSETS

Other assets as of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008~~27, 2009 consisted of the following (in thousands):

	2009		2008			2010		2009
Acquired rights to use technology	$	87,806	$	90,643	$	74,719	$	84,313
Investments		61,110		76,589		42,831		63,526
Security and other deposits		8,655		16,087		10,760		11,692
Prepaid royalties						9,359		12,059
Debt issuance costs						9,901		—
Deferred compensation plan assets		8,524		7,560		9,873		9,045
Prepaid royalties		8,191		9,026
Restricted cash		4,089		7,361		2,452		4,650
Prepaid land lease		3,156		3,185		13,254		3,209
Prepaid rent		1,524		2,658		934		1,377
Other		1,650		3,420		3,343		1,394
Total other assets	$	184,705	$	216,529
Other assets					$	177,426	$	191,265

Included in investments are our indirect investments through our limited partnership interest in Adobe Ventures of approximately ~~$34.7~~$26.8 million and ~~$39.0~~$37.1 million as of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008, respectively, which is consolidated~~27, 2009, respectively. We consolidate Adobe Ventures in accordance with ~~FIN No. 46R, a revision~~the provisions for consolidating variable interest entities as we have determined we have the power to ~~FIN No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.”~~direct the activities that most significantly impact the entity’s economic performance and we have the obligation to absorb losses or the right to receive benefits through our limited partnership interest in Adobe Ventures. The partnership is controlled by Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures. We are the primary beneficiary of Adobe Ventures and bear virtually all of the risks and rewards related to our ownership. Our investment in Adobe Ventures does not have a significant impact on our ~~condensed~~ consolidated financial position, results of operations or cash flows.

The primary purpose of our limited partnership interest in Adobe Ventures is to invest in securities of private companies which either operate in, or are expected to operate in, industries where technology and business model trends are expected to have an impact on our core business. Our limited partnership interest in Adobe Ventures terminated on September 30, 2010 and no additional investments will be made. Our maximum capital commitment to Adobe Ventures was $104.6 million, of which approximately $95.7 million was invested.

~~See Note~~Adobe Ventures carries its investments in equity securities at estimated fair value and investment gains and losses are included in our Condensed Consolidated Statements of Income. Substantially all of the investments held by Adobe Ventures at September 3, 2010 and November 27, 2009 are not publicly traded and, therefore, there is no established market for ~~further~~these securities. In order to determine the fair value of these investments, we use the most recent round of financing involving new non-strategic investors or estimates of fair value made by Granite Ventures. We evaluate the fair value of these investments held by Adobe Ventures on a regular basis. This evaluation includes, but is not limited to, reviewing each company’s cash position, financing needs, earnings and revenue outlook, operational performance, management and ownership changes and competition. In the case of privately-held companies, this evaluation is based on information ~~regarding Adobe Ventures.~~that we request from these companies. This information 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 the accuracy of the data received from these companies.

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(Unaudited)

Also included in investments are our direct investments in privately-held companies of approximately ~~$26.4~~$16.0 million and ~~$37.6~~$26.4 million as of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008,~~27, 2009, respectively, which are accounted for based on the cost method. We assess these investments for impairment in value as circumstances dictate.~~See Note 3 for further information regarding our cost method investments.~~

We entered into a Purchase and Sale Agreement, effective May 12, 2008, for the acquisition of real property located in Waltham, Massachusetts. We purchased the property upon completion of construction of an office building shell and core, parking structure, and site improvements. The purchase price for the property was $44.7 million and closed on June 16, 2009. We made an initial deposit of $7.0 million which was included in security and other deposits as of November 28, 2008 and the remaining balance was paid at closing. This deposit was held in escrow until closing and then applied to the purchase price.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

NOTE 7.8. ACCRUED EXPENSES

Accrued expenses as of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008~~27, 2009 consisted of the following (in thousands):

	2009		2008			2010		2009
Accrued compensation and benefits	$	141,814	$	177,760	$	213,630	$	164,352
Sales and marketing allowances						29,587		32,774
Accrued marketing						31,130		28,233
Taxes payable		7,924		21,760		17,664		11,879
Sales and marketing allowances		22,888		28,127
Accrued interest expense						5,642		1,355
Other		176,451		172,322		170,824		181,053
Total accrued expenses	$	349,077	$	399,969
Accrued expenses					$	468,477	$	419,646

Other primarily includes general corporate accruals for ~~corporate marketing programs,~~ 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 ~~derivatives~~derivatives.

NOTE 9. INCOME TAXES

The gross liability for unrecognized tax benefits at September 3, 2010 was $212.7 million, exclusive of interest and penalties. If the total unrecognized tax benefits at September 3, 2010 were recognized in the future, $195.2 million of unrecognized tax benefits would decrease the effective tax rate, which is net of an estimated $17.4 million federal benefit related to deducting certain payments on future state tax returns.

As of September 3, 2010, the combined amount of accrued interest and penalties related to tax positions taken on ~~the credit facility.~~our tax returns was approximately $18.5 million. This amount is included in non-current income 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 within the 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, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0 to approximately $100 million. These amounts could decrease income tax expense.

In December 2009, we repatriated $700 million of undistributed foreign earnings for which a deferred tax liability had been previously accrued. As such, a long-term deferred tax liability of approximately $200 million was reclassified from deferred income taxes to income taxes payable. During the second and third quarters of fiscal 2010, $150 million of these liabilities in income taxes payable were paid.

NOTE 8.10. STOCK-BASED COMPENSATION

The assumptions used to value option grants during the three and nine months ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ were as follows:

	Three Months						Nine Months						Three Months				Nine Months
	2009			2008			2009			2008			2010		2009		2010		2009
Expected life (in years)		3.7 – 3.8			3.5 – 3.6			3.0 – 3.8			2.3 – 4.7		3.8 – 4.1		3.7 – 3.8		3.8 – 5.1		3.0 – 3.8
Volatility		37 – 43	%		34 – 37	%		37 – 57	%		32 – 39	%	35	%	37 – 43	%	29 – 36	%	37 – 57	%
Risk free interest rate		1.93 – 2.24	%		2.79 – 3.50	%		1.16 – 2.24	%		1.70 – 3.50	%	1.04 – 1.30	%	1.93 – 2.24	%	1.04 – 2.66	%	1.16 – 2.24	%

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The expected term of employee stock purchase plan (“ESPP”) shares is the average of the remaining purchase periods under each offering period. The assumptions used to value employee stock purchase rights during the three and nine months ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ were as follows:

	Three Months						Nine Months						Three Months				Nine Months
	2009			2008			2009			2008			2010		2009		2010		2009
Expected life (in years)		0.5 – 2.0			0.5 – 2.0			0.5 – 2.0			0.5 – 2.0		0.5 – 2.0		0.5 – 2.0		0.5 – 2.0		0.5 – 2.0
Volatility		40	%		34 – 36	%		40 – 57	%		30 – 36	%	37 – 40	%	40	%	32 – 40	%	40 – 57	%
Risk free interest rate		0.33 – 1.05	%		2.12 – 2.66	%		0.27 – 1.05	%		2.12 – 3.29	%	0.22 – 0.63	%	0.33 – 1.05	%	0.18 – 1.09	%	0.27 – 1.05	%

Summary of Stock Options

Option activity for the nine months ended ~~August 28, 2009~~September 3, 2010 and the fiscal year ended November ~~28, 2008~~27, 2009 was as follows (in thousands):

2009 2008
Beginning outstanding balance
40,704 47,742
Granted
4,914 5,462
Exercised
(4,370 ) (9,983 )
Cancelled
(2,699 ) (2,517 )
Ending outstanding balance
38,549 40,704

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

	2010		2009
Beginning outstanding balance	41,251		40,704
Granted	3,135		5,758
Exercised	(4,503	)	(7,560	)
Cancelled	(2,397	)	(3,160	)
Increase due to acquisition	—		5,509
Ending outstanding balance	37,486		41,251

Information regarding stock options outstanding at September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ is summarized below:

									Number of Shares (thousands)		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value(*) (millions)
2010
Options outstanding									37,486	$	30.63	3.83	$	112.5
Options vested and expected to vest									36,184	$	30.69	3.77	$	107.4
Options exercisable									27,280	$	31.06	3.21	$	74.7
	Number of Shares (thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value(*) (millions)
2009
Options outstanding		38,549	$	29.75		3.92	$	176.9	38,549	$	29.75	3.92	$	176.9
Options vested and expected to vest		36,986	$	29.78		3.84	$	168.5	36,986	$	29.78	3.84	$	168.5
Options exercisable		26,573	$	29.21		3.23	$	127.8	26,573	$	29.21	3.23	$	127.8

2008
Options outstanding		42,070	$	29.67		4.16	$	554.5
Options vested and expected to vest		39,936	$	29.29		4.07	$	541.2
Options exercisable		27,252	$	25.94		3.35	$	460.3

(*)

The intrinsic value is calculated as the difference between the market value as of the end of the fiscal period and the exercise price of the shares. As reported by the NASDAQ Global Select Market, the market values as of September 3, 2010 and August 28, 2009 were $29.49 and ~~August 29, 2008 were~~ $31.73, ~~and $42.83,~~ respectively.

Summary of Employee Stock Purchase Plan Shares

~~The weighted~~Employees purchased 3.3 million shares at an average ~~subscription date fair value~~price of ~~shares under the ESPP during the nine months ended August 28, 2009~~$20.19 and ~~August 29, 2008 was $5.40 and $9.03, respectively. Employees purchased~~ 3.2 million shares at an average price of $19.04 ~~and 2.4 million shares at an average price of $30.40~~ for the nine months ended September 3, 2010 and August 28, 2009, ~~and August 29, 2008,~~ respectively. The intrinsic value of shares purchased during the nine months ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ was ~~$21.7~~$33.9 million and ~~$25.0~~$21.7 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Summary of Restricted Stock Units

Restricted stock unit activity for the nine months ended ~~August 28, 2009~~September 3, 2010 and the fiscal year ended November ~~28, 2008~~27, 2009 was as follows (in thousands):

2009 2008
Beginning outstanding balance
4,261 1,701
Awarded
3,333 3,177
Released
(984 ) (422 )
Forfeited
(291 ) (195 )
Ending outstanding balance
6,319 4,261

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

	2010		2009
Beginning outstanding balance	10,433		4,261
Awarded	6,814		6,176
Released	(2,170	)	(1,162	)
Forfeited	(1,112	)	(401	)
Increase due to acquisition	—		1,559
Ending outstanding balance	13,965		10,433

Information regarding restricted stock units outstanding at September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ is summarized below:

							Number of Shares (thousands)	Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value(*) (millions)
2010
Restricted stock units outstanding							13,965	1.72	$	411.8
Restricted stock units vested and expected to vest							10,959	1.55	$	322.9
	Number of Shares (thousands)		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value(*) (millions)
2009
Restricted stock units outstanding		6,319		1.70	$	200.5	6,319	1.70	$	200.5
Restricted stock units vested and expected to vest		4,978		1.52	$	157.8	4,978	1.52	$	157.8

2008
Restricted stock outstanding		4,025		1.91	$	172.4
Restricted stock units vested and expected to vest		3,083		1.69	$	132.0

(*)	The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market values as of September 3, 2010 and August 28, 2009 were $29.49 and ~~August 29, 2008 were~~ $31.73, ~~and $42.83,~~ respectively.

Summary of Performance Shares

Effective January ~~26, 2009,~~25, 2010, the Executive Compensation Committee adopted the ~~2009~~2010 Performance Share Program (the ~~“2009~~“2010 Program”). The purpose of the ~~2009~~2010 Program is to align key management and senior leadership with stockholders’ interests and to retain key employees. The measurement period for the ~~2009~~2010 Program is our fiscal ~~2009~~2010 year. All members of our executive management and other key senior leaders are participating in the ~~2009~~2010 Program. Awards granted under the ~~2009~~2010 Program were granted in the form of performance shares pursuant to the terms of our 2003 Equity Incentive Plan. If pre-determined performance goals are met, shares of stock will be granted to the recipient, with ~~25%~~one third vesting on the later of the date of certification of achievement or the first anniversary date of the grant, and the ~~remaining 75%~~rem aining two thirds vesting evenly on the following ~~three~~two annual anniversary dates of the grant, contingent upon the recipient’s continued service to Adobe. Participants in the ~~2009~~2010 Program have the ability to receive up to ~~115%~~150% of the target number of shares originally granted.

The following table sets forth the summary of performance share activity under our ~~2009~~2010 Program for the nine months ended ~~August 28, 2009~~September 3, 2010 (in thousands):

	Shares Granted			Maximum Shares Eligible to Receive			Shares Granted		Maximum Shares Eligible to Receive
Beginning outstanding balance		—			—		—		—
Awarded		558			642		263		394
Forfeited		(3	)		(4	)	(13	)	(19	)
Ending outstanding balance		555			638		250		375

In the first quarter of fiscal 2009, the Executive Compensation Committee certified the actual performance achievement of participants in the 2008 Performance Share Program (the “2008 Program”). Based upon the achievement of goals outlined in the 2008 Program, participants had the ability to receive up to 200% of the target number of shares originally granted. Actual performance resulted in participants achieving approximately 124% of target or approximately 1.0 million shares for the 2008 Program. Shares under the 2008 Program vested 25% in the first quarter of fiscal 2009, and the remaining 75% vest evenly on the following three annual anniversary dates of the grant, contingent upon the recipient’s continued service to Adobe.

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(Unaudited)

The performance metrics under the 2009 Performance Share Program were not achieved and therefore no shares were awarded. The following table sets forth the summary of performance share activity under our ~~2006 through~~2007 and 2008 programs, based upon share awards actually achieved, for the nine months ended ~~August 28, 2009~~September 3, 2010 and the fiscal year ended November ~~28, 2008~~27, 2009 (in thousands):

	2009			2008			2010		2009
Beginning outstanding balance		383			—		950		383
Achieved		1,022			993		—		1,022
Released		(382	)		(480	)	(350	)	(382	)
Forfeited		(59	)		(130	)	(28	)	(73	)
Ending outstanding balance		964			383		572		950

Information regarding performance shares outstanding at September 3, 2010 and August 28, 2009 ~~and August 29, 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)
2009
2010
Performance shares outstanding		964		1.30	$	30.6	572	0.84	$	16.9
Performance shares vested and expected to vest		801		1.21	$	25.3	508	0.79	$	14.8

2008
Performance shares outstanding		454		1.44	$	19.4
2009
Performance shares units outstanding							964	1.30	$	30.6
Performance shares vested and expected to vest		369		1.34	$	15.8	801	1.21	$	25.3

(*)	The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market values as of September 3, 2010 and August 28, 2009 were $29.49 and ~~August 29, 2008 were~~ $31.73, ~~and $42.83,~~ respectively.

Compensation Costs

As of ~~August 28, 2009,~~September 3, 2010, there was ~~$225.4~~$365.0 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 ~~2.5~~2.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Total stock-based compensation costs that have been included in our Condensed Consolidated Statements of Income for the three months ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ were as follows (in thousands):

2009 2008

Income Statement Classifications

Option Grants
and Stock
Purchase Rights(*)

Restricted
Stock and
Performance
Share
Awards(*)

Option Grants
and Stock
Purchase Rights(*)

Restricted
Stock and
Performance
Share
Awards(*)

Cost of revenue—services and support $ 437 $ 190 $ 1,189 $ 230
Research and development 11,922 6,338 15,612 6,377
Sales and marketing 9,100 4,730 10,576 5,370
General and administrative 4,938 2,087 6,113 2,793
Total $ 26,397 $ 13,345 $ 33,490 $ 14,770

~~(*)~~

~~For the three months ended August 28, 2009 and August 29, 2008, we recorded $0.1 million and $2.1 million, respectively, associated with cash recoveries of fringe benefit tax from employees in India.~~

		2010				2009
Income Statement Classifications		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards
Cost of revenue— subscription	$	264	$	384	$	—	$	—
Cost of revenue—services and support		147		278		437		190
Research and development		6,792		11,224		11,922		6,338
Sales and marketing		7,820		13,189		9,100		4,730
General and administrative		4,134		5,436		4,938		2,087
Total	$	19,157	$	30,511	$	26,397	$	13,345

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Total stock-based compensation costs that have been included in our Condensed Consolidated Statements of Income for the nine months ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ were as follows (in thousands):

2009 2008

Income Statement Classifications

Option Grants
and Stock
Purchase Rights(*)

Restricted
Stock and
Performance
Share
Awards(*)

Option Grants
and Stock
Purchase Rights(*)

Restricted
Stock and
Performance
Share
Awards(*)

Cost of revenue—services and support $ 1,595 $ 527 $ 2,968 $ 483
Research and development 35,317 21,271 43,382 16,380
Sales and marketing 27,681 14,565 31,701 15,558
General and administrative 19,220 6,962 18,841 10,368
Total $ 83,813 $ 43,325 $ 96,892 $ 42,789

~~(*)~~ ~~For the nine months ended August 28, 2009 and August 29, 2008, we recorded $0.9 million and $2.1 million, respectively, associated with cash recoveries of fringe benefit tax from employees in India.~~

~~NOTE 9. EMPLOYEE BENEFIT PLAN~~

		2010				2009
Income Statement Classifications		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards
Cost of revenue—subscription	$	944	$	988	$	—	$	—
Cost of revenue—services and support		832		876		1,595		527
Research and development		29,717		38,574		35,317		21,271
Sales and marketing		31,340		38,346		27,681		14,565
General and administrative		15,380		17,248		19,220		6,962
Total	$	78,213	$	96,032	$	83,813	$	43,325

~~Deferred Compensation Plan~~

As of August 28, 2009 and November 28, 2008, the invested amounts under our Deferred Compensation Plan totaled $8.5 million and $7.6 million, respectively, and are recorded as other assets on our Condensed Consolidated Balance Sheets. As of August 28, 2009 and November 28, 2008, we recorded $8.5 million and $7.6 million, respectively, as a long-term liability to recognize undistributed deferred compensation due to employees.

NOTE ~~10.~~11. RESTRUCTURING CHARGES

Fiscal 2009 Restructuring Plan

On November 10, 2009, in order to appropriately align our costs 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 and the consolidation of facilities. 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. As of November 27, 2009, approximately $2.5 million was paid. The restructuring activities related to this program affected only those employees that were associated with Adobe prior to the acquisition of Omniture on October 23, 2009.

In the first half of fiscal 2010, we continued to implement restructuring activities under this program. We vacated approximately 48,000 square feet of sales and or research and development facilities in Australia, Canada, Denmark and the U.S. We accrued $6.5 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 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 $10.8 million. We also recorded charges of $17.6 million in termination benefits for the elimination of approximately 245 full-time positions which represents substantially all of the remaining full-time positions expected to be terminated worldwide.

In the third quarter of fiscal 2010, we recorded net adjustments of approximately $2.1 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 $13.3 million, respectively.

Omniture Restructuring Plan

We completed our acquisition of Omniture on October 23, 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.

Fiscal 2008 Restructuring ~~Charges~~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 in the fourth quarter of fiscal 2008 totaling $29.2 million related to termination benefits for the elimination of approximately 460 of the 560 full-time positions globally. Charges associated with these ongoing termination benefits were recorded in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits.” As of November 28, 2008, $0.4 million was paid.

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(Unaudited)

Incharges in the ~~first~~fourth quarter of fiscal 2008 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. ~~In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” we~~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. Total costs incurred to date and expected to be incurred for closing redundant facilities are $8.7 million and $8.9 million, respectively. We also recorded additional charges of ~~$3.4~~$6.7 million ~~for~~in termination benefits for the elimination of ~~approximately 43~~substantially all of the ~~remaining~~remai ning 100 full-time positions expected to be terminated.

In the second quarter of fiscal 2009, we accrued an additional $3.0 million under this program for termination benefits related to the elimination of approximately 48 of the remaining 57 full-time positions expected to be terminated.

In the third quarter of fiscal 2009, we accrued an additional $0.4 million under this program for termination benefits related to the elimination of substantially all of the remaining full-time positions expected to be terminated.

~~The following table sets forth a summary of Adobe restructuring activities during the nine months ended August 28, 2009 (in thousands):~~

November 28,
2008
Costs Incurred
Cash
Payments
Other Adjustments
August 28,
2009

Total Costs
Incurred to
Date

Total
Costs
Expected
to be
Incurred

Termination benefits
$ 28,759 $ 6,722 $ (34,042 ) $ 174 $ 1,613 $ 36,102 $ 36,121
Cost of closing redundant facilities — 8,514 (4,488 ) 613 4,639 9,127 9,601
Total
$ 28,759 $ 15,236 $ (38,530 ) $ 787 $ 6,252 $ 45,229 $ 45,722

Accrued restructuring charges of approximately $6.3 million at August 28, 2009 include $3.3 million recorded in accrued restructuring, current and $3.0 million related to long-term facilities obligations recorded in accrued restructuring, non-current in the accompanying Condensed Consolidated Balance Sheets. We expect to pay substantially all of the accrued termination benefits during the remainder of fiscal 2009. We expect to pay facilities-related liabilities through fiscal 2013.

~~Included in the other adjustments column are foreign currency translation adjustments of $0.5 million and small changes to previous estimates.~~

Macromedia ~~Merger~~ Restructuring ~~Charges~~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. ~~Costs~~Total costs incurred for termination benefits and contract terminations were ~~completed during fiscal 2007. Total costs incurred were~~ $27.0 million and $3.2 million, ~~respectively.~~respectively, and all actions were completed during fisc al 2007.

Summary of Restructuring Plans

The following table sets forth a summary of ~~Macromedia~~ restructuring activities related to all of our restructuring plans described above during the nine months ended ~~August 28, 2009~~September 3, 2010 (in thousands):

	November 28, 2008		Cash Payments			Other Adjustments			August 28, 2009		Total Costs Incurred to Date		Total Costs Expected to be Incurred			November 27, 2009		Costs Incurred		Cash Payments			Other Adjustments			September 3, 2010
Fiscal 2009 Plan:
Termination benefits															$	22,984	$	17,683	$	(35,416	)	$	(3,813	)	$	1,438
Cost of closing redundant facilities																—		6,586		(446	)		145			6,285
Omniture Plan:
Termination benefits																6,712		—		(5,654	)		(609	)		449
Cost of closing redundant facilities																5,324		—		(1,863	)		187			3,648
Contract termination																242		—		(184	)		102			160
Fiscal 2008 Plan:
Termination benefits																1,057		—		(212	)		(279	)		566
Cost of closing redundant facilities																3,382		—		(836	)		(72	)		2,474
Macromedia Plan:
Cost of closing redundant facilities	$	12,168	$	(3,986	)	$	(1,255	)	$	6,927	$	41,060	$	41,060		5,006		—		(2,569	)		(410	)		2,027
Other		977		(879	)		(80	)		18		2,277		2,277		8		—		(2	)		—			6
Total	$	13,145	$	(4,865	)	$	(1,335	)	$	6,945	$	43,337	$	43,337
Total restructuring plans															$	44,715	$	24,269	$	(47,182	)	$	(4,749	)	$	17,053

Accrued restructuring charges of approximately $17.0 million at September 3, 2010 includes $9.2 million recorded in accrued restructuring, current and $7.8 million related to long-term facilities obligations recorded in accrued restructuring, non-current on our Condensed Consolidated Balance Sheets. We expect to pay accrued termination benefits through fiscal 2010 and facilities-related liabilities per contract through fiscal 2021 of which over 80% will be paid through 2013.

Included in the other adjustments column are $(3.2) million related to changes in previous estimates, $(1.1) million related to foreign currency translation adjustments and $(0.4) million in adjustments to goodwill associated with our acquisitions.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Accrued restructuring charges of approximately $6.9 million at August 28, 2009 related to facilities obligations include $5.0 million recorded in accrued restructuring, current and $1.9 million recorded in accrued restructuring, non-current in the accompanying Condensed Consolidated Balance Sheets. We expect to pay these liabilities through fiscal 2012. At November 28, 2008, accrued restructuring charges of $13.1 million related to long-term facilities obligations included $6.9 million recorded in accrued restructuring, current and $6.2 million recorded in accrued restructuring, non-current in the accompanying Condensed Consolidated Balance Sheets.

Included in the other adjustments column is a change to previous estimates of $1.3 million and small foreign currency translation adjustments. Included in the change in previous estimates of $1.3 million is an adjustment of $1.7 million associated with an accrual for a leased facility that was included in the purchase price of Macromedia as an assumed liability. During the third quarter of fiscal 2009, adjustments were made to the liability for this lease facility that were recorded as a reduction to Macromedia goodwill. Accordingly, during the nine months ended August 28, 2009, only $0.4 million represents adjustments recorded as an increase to restructuring charges.

NOTE ~~11.~~12. STOCKHOLDERS’ EQUITY

Retained Earnings

The changes in retained earnings for the nine months ended September 3, 2010 were as follows (in thousands):

Balance as of November 27, 2009	$	5,299,914
Net income		505,830
Re-issuance of treasury stock		(66,880	)
Balance as of September 3, 2010	$	5,738,864

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 Condensed 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 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 Condensed Consolidated Balance Sheets.

Comprehensive Income (Loss)

The following table sets forth the activity for each component of comprehensive income, net of related taxes, for the three and nine months ended September 3, 2010 and August 28, 2009 (in thousands):

		Three Months						Nine Months
		2010			2009			2010			2009
Net income	$	230,065		$	136,045		$	505,830		$	418,551
Other comprehensive income (loss):
Available-for-sale securities:
Unrealized gains on available-for-sale securities		3,263			278			2,717			1,856
Reclassification adjustment for gains on available-for-sale securities recognized during the period		(605	)		(2,449	)		(1,308	)		(5,026	)
Subtotal available-for-sale securities		2,658			(2,171	)		1,409			(3,170	)
Derivatives designated as hedging instruments:
Unrealized (losses) gains on derivative instruments		(15,208	)		(329	)		23,580			(14,516	)
Reclassification adjustment for gains on derivative instruments recognized during the period		(13,223	)		(749	)		(19,428	)		(27,138	)
Subtotal derivatives designated as hedging instruments		(28,431	)		(1,078	)		4,152			(41,654	)
Foreign currency translation adjustments		7,349			(2,333	)		(8,436	)		9,330
Other comprehensive income (loss)		(18,424	)		(5,582	)		(2,875	)		(35,494	)
Total comprehensive income, net of taxes	$	211,641		$	130,463		$	502,955		$	383,057

The following table sets forth the components of accumulated other comprehensive income, net of related taxes, as of September 3, 2010 and November 27, 2009 (in thousands):

		2010			2009
Net unrealized gains on available-for-sale securities:
Unrealized gains on available-for-sale securities	$	15,551		$	13,818
Unrealized losses on available-for-sale securities		(326	)		(2	)
Total net unrealized gains on available-for-sale securities		15,225			13,816
Net unrealized gains (losses) on derivative instruments		4,146			(5	)
Cumulative foreign currency translation adjustments		2,200			10,635
Total accumulated other comprehensive income, net of taxes	$	21,571		$	24,446

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

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 billion in common stock through the end of fiscal 2012. This amended program did not affect the $250.0 million structured stock repurchase agreement entered into during March 2010. As of September 3, 2010, no prepayments remain under that agreement.

During the nine months ended September 3, 2010 and August 28, 2009, ~~and August 29, 2008,~~ we entered into several structured stock repurchase agreements with large financial institutions, whereupon we provided the financial institutions with prepayments of $650.0 million and $350.0 million, respectively. Of the $650.0 million of prepayments in the nine months ended September 3, 2010, $250.0 million was under the stock repurchase program prior to the program amendment and ~~$325.0~~the remaining $400.0 million ~~respectively.~~was under the amended $1.6 billion time-constrained dollar-based authority. We entered 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 cash prepayments to the financial institutions.~~ There were no explicit commissions or fees on these structured ~~repurchases.~~repur chases. 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 the nine months ended September 3, 2010, we repurchased approximately 19.0 million shares at an average price of $30.32 through structured repurchase agreements entered into during fiscal 2009 and fiscal 2010. During the nine months ended August 28, 2009, we repurchased approximately 9.9 million shares at an average price of $25.31 through structured repurchase agreements, which included prepayments from fiscal 2008 and ~~2009. During the nine months ended August 29, 2008, we repurchased 19.0 million shares at an average price of $37.12 through structured repurchase agreements, which included prepayments from~~ fiscal ~~2007. During the nine months ended August 29, 2008, we also repurchased 0.75 million shares at an average price of $39.19 in open market transactions.~~2009.

As of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008,~~27, 2009, the prepayments were classified as treasury stock on our Condensed Consolidated Balance Sheets at the payment date, though only shares physically delivered to us by the financial statement date are excluded from the ~~denominator in the computation of earnings~~shares used to compute basic and diluted net income per share. As of September 3, 2010 and August 28, 2009, ~~and August 29, 2008,~~ approximately ~~$233.9~~$132.9 million and ~~$41.0~~$233.9 million, respectively, of up-front payments remained under ~~the~~these agreements.

~~Stock Repurchase Program II~~

~~Under this~~Subsequent to September 3, 2010, as part of our $1.6 billion stock repurchase program, we ~~had authorization to~~entered into a structured stock repurchase ~~50.0~~agreement with a large financial institution whereupon we provided them with a prepayment of $200.0 million. This amount will be classified as treasury stock on our Condensed Consolidated Balance Sheets. Upon completion of the $200.0 million ~~shares~~stock repurchase agreement, $1.0 billion now remains under our time-constrained dollar-based authority. See Note 18 for further discussion 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~~stock repurchase ~~agreements to large financial institutions. During the third quarter of fiscal 2008, the remaining authorized number of shares were repurchased.~~

During the nine months ended August 29, 2008, we provided prepayments of $1.0 billion and repurchased 31.9 million shares through structured share repurchase agreements at an average price of $37.15. As of August 29, 2008, thereprogram.

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~~(Unaudited)~~

were no up-front payments remaining under these agreements. During the nine months ended August 29, 2008, we also repurchased 0.5 million shares at an average price of $39.79 in open market transactions.

~~NOTE 12. COMPREHENSIVE INCOME~~

The following table sets forth the activity for each component of other comprehensive income, net of related taxes (income tax effects were insignificant for all periods presented), for the three and nine months ended August 28, 2009 and August 29, 2008 (in thousands):

Three Months Nine Months
2009 2008 2009 2008
Net income
$ 136,045 $ 191,608 $ 418,551 $ 625,897
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities 278 (1,954 ) 1,856 (11,158 )
Reclassification adjustment for (gains) losses on available-for-sale securities recognized during the period (2,449 ) (44 ) (5,026 ) 157
Unrealized (losses) gains on derivative instruments (329 ) 10,494 (14,516 ) 10,776
Reclassification adjustment for gains on derivative instruments recognized during the period (749 ) — (27,138 ) —
Foreign currency translation adjustments
(2,333 ) (6,358 ) 9,330 (4,284 )
Other comprehensive (loss) income
(5,582 ) 2,138 (35,494 ) (4,509 )
Total other comprehensive income, net of taxes
$ 130,463 $ 193,746 $ 383,057 $ 621,388

~~The following table sets forth the components of accumulated other comprehensive income, net of related taxes, as of August 28, 2009 and November 28, 2008 (in thousands):~~

2009 2008
Net unrealized gains on available-for-sale securities:
Unrealized gains on available-for-sale securities
$ 12,844 $ 16,062
Unrealized losses on available-for-sale securities
(107 ) (155 )
Total net unrealized gains on available-for-sale securities
12,737 15,907
Net unrealized gains on derivative instruments
96 41,750
Cumulative foreign currency translation adjustments
8,895 (435 )
Total accumulated other comprehensive income, net of taxes
$ 21,728 $ 57,222

NOTE 13. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share for the three and nine months ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ (in thousands, except per share data):

	Three Months				Nine Months					Three Months				Nine Months
	2009		2008		2009		2008			2010		2009		2010		2009
Net income	$	136,045	$	191,608	$	418,551	$	625,897	$	230,065	$	136,045	$	505,830	$	418,551
Shares used to compute basic net income per share		525,911		531,060		528,015		542,624		518,710		525,911		523,039		528,015
Dilutive potential common shares:
Unvested restricted stock and performance share awards		1,940		1,063		1,696		991		2,022		1,940		3,037		1,696
Stock options		3,958		9,188		3,135		9,124		2,447		3,958		4,280		3,135
Shares used to compute diluted net income per share		531,809		541,311		532,846		552,739		523,179		531,809		530,356		532,846
Basic net income per share	$	0.26	$	0.36	$	0.79	$	1.15	$	0.44	$	0.26	$	0.97	$	0.79
Diluted net income per share	$	0.26	$	0.35	$	0.79	$	1.13	$	0.44	$	0.26	$	0.95	$	0.79

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(Unaudited)

For the three and nine months ended September 3, 2010, options to purchase approximately 28.1 million and 18.8 million shares, respectively, of common stock with exercise prices greater than the average fair market value of our stock of $28.97 and $32.82, respectively, were not included in the calculation because the effect would have been anti-dilutive. Comparatively, for the three and nine months ended August 28, 2009, options to purchase approximately 24.5 million and 30.6 million shares, respectively, of common stock with exercise prices greater than the average fair market value of our stock of $30.40 and $24.99, respectively, were not included in the calculation because the effect would have been anti-dilutive. Comparatively, for the three and nine months ended August 29, 2008, options to purchase approximately 14.4 million and 15.4 million shares, respectively, of common stock with exercise prices greater than the average fair market value of our stock of $42.06 and $39.21, respectively, were not included in the calculation because the effect would have been anti-dilutive.

NOTE 14. COMMITMENTS AND CONTINGENCIES

Lease Commitments

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 extended the lease agreement for our East and West Towers for an additional five years with an option to extend for an additional five years solely at our election. In June 2009, we submitted notice to the lessor that we intended to exercise our option to renew this agreement for an additional five years effective August 2009. As stated in the original lease agreement, in conjunction with the lease renewal, we were required to obtain a standby letter of credit for approximately $16.5 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~~repr esents the lease investment equity balance ~~equity~~ which is callable in the event of default. In March 2007, the Almaden Tower lease was extended for five years, with 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, both of which are recorded as investments in lease receivables on our Condensed Consolidated Balance Sheets. 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 ~~any time~~anytime during the lease term for approximately $143.2 million and $103.6 million, respectively. The residual value guarantees under ~~the~~th e 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 ~~August 28, 2009,~~September 3, 2010, 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 ~~under SFAS No. 13, “Accounting for Leases,”~~ and, as such, the buildings and the related obligations are not included on our Condensed 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~~th e 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.

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 15 for further discussion of our capital lease obligation.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following are our future minimum lease payments under our non-cancellable capital leases for each of the next five years and thereafter as of September 3, 2010 (in thousands):

Fiscal Year		Capital Lease Obligation
Remainder of 2010	$	1,666
2011		9,936
2012		9,925
2013		9,925
2014		1,654
Gross lease commitment	$	33,106
Less: interest		(2,466	)
Net lease commitment	$	30,640

Guarantees

The lease agreements for our corporate headquarters provide for residual value guarantees as noted above. ~~Under FIN 45, the~~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 Condensed 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 are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As of ~~August 28, 2009~~September 3, 2010 and November ~~28, 2008,~~27, 2009, the unamortized portion of the fair value of the residual value guarantees, for both leases, remaining in other long-term liabilities and prepaid rent was ~~$1.5~~$0.9 million and ~~$2.6~~$1.3 million, respectively.

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~~(Unaudited)~~

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.

Indemnifications

In the ~~normal~~ordinary 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. 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 ~~directors~~officers and ~~officers~~directors for certain events or occurrences while the ~~director~~officer or ~~officer~~director is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the ~~director’s~~officer’s or ~~officer’s~~director’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.

As part of our limited partnership interest in Adobe Ventures, we have 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 is, or was serving, at our request in such capacity provided that Granite Ventures acts in good faith on behalf of the partnership. We are unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but believe the risk of having to make any payments under this general indemnification to be remote.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Legal Proceedings

OnBetween September 23, 2009 ~~Richard Miner on behalf of himself~~ and ~~all similarly situated stockholders of Omniture, Inc. filed a~~September 25, 2009, three putative class action ~~lawsuit captioned~~ ~~Miner v. Omniture, Inc., et. al.~~, ~~Case No. 090403559~~ ~~(the “Miner Lawsuit”) against Omniture, the members of Omniture’s board of directors (collectively, the “Omniture Defendants”) and Adobe~~lawsuits were filed in the ~~United States~~ Fourth Judicial District Court for Utah County, Provo Department, State of Utah, seeking to enjoin ~~the proposed~~Adobe’s acquisition ~~between~~of Omniture, Inc. and ~~Adobe. In~~to recover damages in the event the ~~acquisition is consummated,~~transaction were to close. The cases were captioned Miner v. Omniture, Inc., et. al., (the “Miner”), Barrell v. Omniture, Inc. et. al., (the “Barrell”), and Lodhia v. Omniture, Inc. et al., (the “Lodhia”). At a hearing on October 20, 2009, the ~~plaintiff seeks~~court consolidated the Miner, Barrell, and Lodhia cases into a single case under the Lodhia caption and denied the plaintiffs’ motion to ~~recover an unspecified amount~~preliminarily enjoin the closing of ~~damages. The plaintiff alleges~~the transaction. On December 30, 2009, the plaintiffs served the defendants with a consolidated am ended complaint for damages arising out of the closing of the transaction. In the consolidated amended complaint, plaintiffs allege 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 of such fiduciary duties. Also on September 23, 2009, Christopher R. Barrell filed a substantially similar lawsuit to the Miner Lawsuit in the United States Fourth Judicial District Court for Utah County, Provo Department, State of Utah, captioned ~~Barrell v. Omniture, Inc. et. al., Case No. 090403560~~ ~~(the “Barrell Lawsuit”).~~breach. The ~~Barrell Lawsuit names the same defendants as the Miner Lawsuit, and~~plaintiffs also ~~names Snowbird Acquisition Corporation as an additional defendant. Subsequently, on September 24, 2009, the plaintiff in the Barrell Lawsuit filed an amended complaint, which added allegations~~allege 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 seek unspecified damages on behalf of the former public stockholders of Omniture. On ~~September 25, 2009,~~March 8, 2010, Adobe and the ~~Omniture Defendants filed~~other defendants moved to dismiss the complaint for failure to state a claim. A hearing on this motion ~~requesting that the court consolidate the Barrell Lawsuit, Miner Lawsuit and a substantially similar lawsuit captioned~~ ~~Lodhia v. Omniture, Inc. et al., Case No. 090403499~~has been scheduled for November 2010. ~~(the “Lodhia Lawsuit”) in which the Omniture Defendants, but not~~ Adobe were named. Additionally, on September 30, 2009, the plaintiff in the Lodhia Lawsuit filed a response to defendants’ motion to consolidate, agreeing consolidation is appropriate, and also filed a motion seeking appointment as lead plaintiff in the consolidated action. The plaintiff in the Lodhia Lawsuit also filed a motion for preliminary injunction, expedited discovery and expedited proceedings. We have not yet responded to the complaints, but intendintends to defend the lawsuits vigorously. As of September 3, 2010, no amounts have been accrued as a loss is not probable or estimable.

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 September 3, 2010, no amounts have been accrued as a loss is not probable or estimable.

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 local laws. We believe we have valid defenses with

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~~(Unaudited)~~

respect to such counter-claims; however, it is possible that our ~~condensed~~ 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.

From time to time, Adobe is 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, commercial, employment and other matters. WeAdobe makes 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. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against ~~Adobe; however, litigation is inherently unpredictable and it~~Adobe. It is possible, nevertheless, that our ~~condensed~~ consolidated financial ~~position,~~pos ition, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 15. ~~CREDIT AGREEMENT~~DEBT

Our debt as of September 3, 2010 and November 27, 2009 consisted of the following (in thousands):

		2010		2009
Notes	$	1,493,810	$	—
Credit facility		—		1,000,000
Captial lease obligations		30,640		—
Total debt and captial lease obligations		1,524,450		1,000,000
Less: current portion		8,698		—
Total debt and captial lease obligations, non-current	$	1,515,752	$	1,000,000

Notes

In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $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 billion which is 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. In August 2010, we made our first semi-annual payment of $31. 1 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 September 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 September 3, 2010, 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, 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 ~~the Company’s~~our option, borrowings under the facility accrue interest based on either the London interbank offered rate (“LIBOR”) 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 subsidiaries for general corporate purposes. ~~As of both August 28,~~At November 27, 2009, ~~and November 28, 2008,~~ the amount outstanding under the credit facility was ~~$350.0 million,~~$1.0 billion, which ~~is included in long-term liabilities~~approximated fair value. On February 1, 2010, we paid the outs tanding balance on our ~~Condensed Consolidated Balance Sheets. As of August 28, 2009, we were in compliance with all of~~credit facility and the ~~covenants. Subsequent to August 28, 2009, we borrowed an additional $650.0 million~~entire $1.0 billion credit line under ~~the credit facility.~~ ~~See Note 18~~this facility remains available for ~~further discussion of this transaction.~~ ~~The carrying value of the outstanding liability approximates fair value.~~borrowing.

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Capital Lease Obligation

In June 2010, weentered 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. As of September 3, 2010, our captial lease obligations of $30.6 million includes $8.7 million of current debt.

NOTE 16. NON-OPERATING INCOME (EXPENSE)

Non-operating income (expense) for the three and nine months ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ included the following (in thousands):

Three Months Nine Months
2009 2008 2009 2008
Interest and other income, net:
Interest income
$ 7,616 $ 14,407 $ 28,655 $ 45,110
Foreign exchange losses
(3,545 ) (5,967 ) (9,621 ) (11,901 )
Realized gains on fixed income investment
2,449 85 5,027 1,184
Realized losses on fixed income investment
— (41 ) (1 ) (1,340 )
Other, net
147 854 693 1,725
Interest and other income, net
$ 6,667 $ 9,338 $ 24,753 $ 34,778
Interest expense
$ (460 ) $ (2,390 ) $ (1,872 ) $ (8,027 )
Investment gains (losses), net:
Realized investment gains
$ — $ 2,861 $ 52 $ 18,298
Unrealized investment gains
2,019 2,882 3,396 7,840
Realized investment losses
(1,362 ) (353 ) (3,347 ) (989 )
Unrealized investment losses
(50 ) (3,293 ) (18,545 ) (4,814 )
Investment gains (losses), net
$ 607 $ 2,097 $ (18,444 ) $ 20,335
Total non-operating income (expense), net
$ 6,814 $ 9,045 $ 4,437 $ 47,086

		Three Months						Nine Months
		2010			2009			2010			2009
Interest and other income (expense), net:
Interest income	$	5,883		$	7,616		$	15,975		$	28,655
Foreign exchange gains (losses)		865			(3,545	)		(16,409	)		(9,621	)
Realized gains on fixed income investment		604			2,449			1,302			5,027
Realized losses on fixed income investment		—			—			—			(1	)
Other, net		255			147			1,037			693
Interest and other income (expense), net	$	7,607		$	6,667		$	1,905		$	24,753
Interest expense	$	(16,395	)	$	(460	)	$	(40,166	)	$	(1,872	)
Investment gains (losses), net:
Realized investment gains	$	257		$	—		$	444		$	52
Unrealized investment gains(1)		11,526			2,019			11,526			3,396
Realized investment losses		(6,145	)		(1,362	)		(6,909	)		(3,347	)
Unrealized investment losses		(2,111	)		(50	)		(15,791	)		(18,545	)
Investment gains (losses), net	$	3,527		$	607		$	(10,730	)	$	(18,444	)
Non-operating income (expense), net	$	(5,261	)	$	6,814		$	(48,991	)	$	4,437

(1)	During the three and nine months ended September 3, 2010 and August 28, 2009, we recorded $0.4 million and $0.2 million and $1.8 million and $2.7 million, respectively, in unrealized holding gains and losses associated with our deferred compensation plan assets (classified as trading securities).

NOTE 17. SEGMENTS

We have the following reportable segments: ~~Creative Solutions, Knowledge Worker, Enterprise, Platform and Print and Publishing.~~

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 ~~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. The~~ 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.

TABLE OF CONTENTSneeds of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains revenue generated by Acrobat Connect and our Acrobat family of products. Our Enterprise segment provides server-based enterprise interaction solutions that automate people-centric processes and contains revenue generated by our LiveCycle line of products. The Platform segment includes client and developer technologies, such as Adobe Flash Player, Adobe Flash Lite, Adobe AIR, Adobe Flex and Adobe Flex Builder, and also encompasses products and technologies created and managed in other Adobe segments. Finally, the Print and Publishing segment addresses market opportunities ranging from the diverse publishing needs of technical and business publishing, to our legacy type and original equipment manufacturer (“OEM”) printing businesses.

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 ~~2009, our former Mobile and Devices Solutions segment, was integrated into our Platform business unit~~2010, to better align our ~~engineering and~~ marketing efforts and ~~is now reported as part of~~go-to-market strategies, we moved management responsibility for the ~~Platform~~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 ~~the integration of these business units.~~this change.

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. 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.

(in thousands)		Creative Solutions			Knowledge Worker			Enterprise			Omniture(*)			Platform			Print and Publishing			Total
Three months ended September 3, 2010
Revenue	$	549,707		$	162,576		$	94,231		$	91,035		$	40,746		$	52,024		$	990,319
Cost of revenue		28,428			4,934			13,533			46,702			2,245			3,242			99,084
Gross profit	$	521,279		$	157,642		$	80,698		$	44,333		$	38,501		$	48,782		$	891,235
Gross profit as a percentage of revenue		95	%		97	%		86	%		49	%		94	%		94	%		90	%

Three months ended August 28, 2009
Revenue	$	400,360		$	138,102		$	71,903		$	—		$	44,935		$	42,207		$	697,507
Cost of revenue		34,903			7,043			13,784			—			4,946			4,371			65,047
Gross profit	$	365,457		$	131,059		$	58,119		$	—		$	39,989		$	37,836		$	632,460
Gross profit as a percentage of revenue		91	%		95	%		81	%		—			89	%		90	%		91	%

(*)

The three months ended September 3, 2010 includes Omniture as a new reportable segment following our acquisition of Omniture on October 23, 2009. The three months ended August 28, 2009 does not include the impact of our acquisition of Omniture. Of the $91.0 million in revenue from our Omniture segment, approximately $74.9 million represents subscription revenue and the remaining amount represents professional services and support.

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ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(in thousands)
Creative
Solutions

Knowledge
Worker
Enterprise
Platform(*)

Print and
Publishing
Total
Three months ended August 28, 2009
Revenue
$ 400,360 $ 154,517 $ 55,488 $ 44,935 $ 42,207 $ 697,507
Cost of revenue
34,903 9,870 10,957 4,946 4,371 65,047
Gross profit
$ 365,457 $ 144,647 $ 44,531 $ 39,989 $ 37,836 $ 632,460
Gross profit as a percentage of revenue 91 % 94 % 80 % 89 % 90 % 91 %

Three months ended August 29, 2008
Revenue
$ 493,615 $ 217,988 $ 65,491 $ 59,077 $ 51,086 $ 887,257
Cost of revenue
53,716 15,762 20,727 14,137 6,509 110,851
Gross profit
$ 439,899 $ 202,226 $ 44,764 $ 44,940 $ 44,577 $ 776,406
Gross profit as a percentage of revenue 89 % 93 % 68 % 76 % 87 % 88 %

~~(*)~~ Platform revenue includes revenue related to our Mobile client products of $8.4 million and $27.5 million for the three months ended August 28, 2009 and August 29, 2008, respectively, or 19% and 47% of Platform revenues, respectively.

(in thousands)	Creative Solutions			Knowledge Worker			Enterprise			Platform(*)			Print and Publishing			Total				Creative Solutions			Knowledge Worker			Enterprise			Omniture(*)			Platform			Print and Publishing			Total
Nine months ended September 3, 2010																												��
Revenue																			$	1,514,427		$	484,450		$	250,816		$	262,195		$	132,798		$	147,368		$	2,792,054
Cost of revenue																				88,172			14,669			42,903			134,828			7,385			8,328			296,285
Gross profit																			$	1,426,255		$	469,781		$	207,913		$	127,367		$	125,413		$	139,040		$	2,495,769
Gross profit as a percentage of revenue																				94	%		97	%		83	%		49	%		94	%		94	%		89	%

Nine months ended August 28, 2009
Revenue	$	1,272,837		$	473,670		$	173,039		$	134,053		$	134,971		$	2,188,570		$	1,272,837		$	425,867		$	220,842		$	—		$	134,053		$	134,971		$	2,188,570
Cost of revenue		117,225			30,088			36,175			16,420			14,500			214,408			117,225			22,595			43,668			—			16,420			14,500			214,408
Gross profit	$	1,155,612		$	443,582		$	136,864		$	117,633		$	120,471		$	1,974,162		$	1,155,612		$	403,272		$	177,174		$	—		$	117,633		$	120,471		$	1,974,162
Gross profit as a percentage of revenue		91	%		94	%		79	%		88	%		89	%		90	%		91	%		95	%		80	%		—			88	%		89	%		90	%

Nine months ended August 29, 2008
Revenue	$	1,564,334		$	611,925		$	174,011		$	155,037		$	159,281		$	2,664,588
Cost of revenue		124,024			39,475			56,308			35,347			21,038			276,192
Gross profit	$	1,440,310		$	572,450		$	117,703		$	119,690		$	138,243		$	2,388,396
Gross profit as a percentage of revenue		92	%		94	%		68	%		77	%		87	%		90	%

(*)

~~Platform revenue~~The nine months ended September 3, 2010 includes ~~revenue related to~~Omniture as a new reportable segment following our ~~Mobile client products~~acquisition of ~~$42.9 million and $64.9 million for the~~Omniture on October 23, 2009. The nine months ended August 28, 2009 does not include the impact of our acquisition of Omniture. Of the $262.2 million in revenue from our Omniture segment, approximately $225.7 million represents subscription revenue and ~~August 29, 2008, respectively, or 32%~~the remaining amount represents professional services and ~~42% of Platform revenues, respectively.~~support.

NOTE 18. SUBSEQUENT EVENTS

Subsequent to ~~August 28, 2009, we completed a business combination for cash consideration~~September 3, 2010, as part of ~~approximately $35.3 million. This acquisition was not material to~~ our ~~consolidated balance sheets and results of operations.~~ ~~See Note 4 for further discussion of this transaction.~~

~~In September 2009,~~$1.6 billion stock repurchase program, we entered into a ~~definitive~~structured stock repurchase agreement with ~~Omniture under which~~a large financial institution whereupon we ~~expect to acquire Omniture for approximately $1.8 billion. Under the terms~~provided them with a prepayment of $200.0 million. This amount will be classified as treasury stock on our Condensed Consolidated Balance Sheets. Upon completion of the $200.0 million stock repurchase agreement, we ~~have commenced a tender offer to acquire all of the outstanding common stock of Omniture for $21.50 per share in cash. Omniture is an industry leader in Web~~ ~~analytics and online business optimization based in Orem, Utah. The transaction is subject to customary regulatory approvals and closing conditions and is expected to close in the fourth quarter of~~ ~~our fiscal 2009. Following the closing, we intend to integrate Omniture as a new reportable segment for financial reporting purposes.~~

~~Subsequent to August 28, 2009, we borrowed an additional $650.0 million~~$1.0 billion now remains under our ~~credit facility to be used to fund a portion of our pending acquisition of Omniture.~~time-constrained dollar-based authority. See Note 1512 for further discussion of our ~~credit facility.~~stock repurchase program.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion ~~(unaudited and presented in millions, except share and per share amounts)~~ should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto.

In addition to historical information, this Quarterly Report on Form 10-Q 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 II, 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 ~~the~~our Annual Report on Form 10-K for fiscal ~~2008.~~2009. 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 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 Quarterly Report on Form 10-Q. 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, ~~designers,~~ knowledge workers, consumers, original equipment manufacturers (“~~OEM”~~OEMs”) ~~partners,~~, developers and enterprises for creating, managing, delivering, optimizing and engaging with compelling content and experiences across multiple operating systems, devices and media. We distribute our products through a network of distributors, ~~and dealers,~~ value-added resellers (“VARs”), systems integrators, independent software vendors (“ISVs”) and OEMs, direct to end users and through our ~~Web site~~own Website at www.adobe.com. We also license our technology to 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, ~~the~~ Middle East and Africa (“EMEA”) and Asia. Our software runs on personal computers with Microsoft Windows, Apple Mac OS, Linux, UNIX and various non-PC platforms, depending on the product.

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~~Website 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~~Website at ~~www.sec.gov~~.www.sec.gov.

~~PENDING~~

ACQUISITION OF OMNITURE

~~In September~~On October 23, 2009, we ~~entered into a definitive agreement with~~completed the acquisition of Omniture, Inc. ~~("Omniture"~~(“Omniture”) ~~under which we expect to acquire Omniture for approximately $1.8 billion. Under the terms of the agreement, we~~ ~~have commenced a tender offer to acquire all of the outstanding common stock of Omniture for $21.50 per share in cash. Omniture is~~, an industry leader in Web analytics and online business optimization based in Orem, Utah. The transaction is subject to customary regulatory approvals and closing conditions and is expected to close in the fourth quarter of our fiscal 2009. Following the closing, we intend to integrate Omniture as a new reportable segmentUtah, for ~~financial reporting purposes.~~ approximately $1.8 billion. We expect the acquisition to have a significant impact on our consolidated financial position, results of operations and cash flows. We expect our revenues, cost of revenues and operating expenses to increase in the future, but we also anticipate revenue and cost saving synergies. Coinciding with the integration of Omniture, we created a new reportable segment for financial reporting purposes. The discussions in this section of the Quarterly Report on Form 10-Q, ~~relate to Adobe~~ as ~~a standalone entity and do not~~well as the financial statements contained herein, reflect the impact of the acquisition.See Note 2 of o ur Notes to Condensed Consolidated Financial Statements for further information regarding this acquisition.

OPERATIONS OVERVIEW

~~Effective~~For our third quarter of fiscal 2010, we reported record revenue with strong financial results. Our performance was driven by continued adoption of Adobe Creative Suite 5 (“CS5”), which is our flagship product family that began shipping in the second quarter of fiscal 2010. Our third quarter performance also benefitted from strength in other key business segments including our Omniture, Knowledge Worker, Enterprise and Print and Publishing segments. The nine months ended September 3, 2010 financial results also benefitted from an extra week in the first quarter of fiscal ~~2009,~~2010 due to our ~~former Mobile and Devices Solutions segment,~~52/53 week financial calendar whereby fiscal 2010 is a 53-week year compared with fiscal 2009 which was integrated into our Platform business unit to better align our engineering and marketing efforts, is now reported as part of the Platform segment. Prior year information has been updated to reflect the integration of these business units.

During the third quarter of fiscal 2009, our worldwide business continued to be impacted by the generally weak macro-economic environment. Although we believe our business in the United States (“U.S.”) has stabilized since our first fiscal quarter of this year, overall end-user demand for most of our products, particularly our Adobe Creative Suite family of products and our Adobe Acrobat family of products, remains weaker than comparable periods during fiscal 2008. Despite this impact on our overall revenue achievement, we continued to proactively control our costs to deliver earnings per share and profit margin results within the target ranges we publicly provided at the outset of the quarter.a 52-week year.

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In our Creative Solutions segment, broad adoption of CS5 continued to drive the overall performance of our creative business. Since its release, CS5 revenue ~~for our CS4 family of products continues~~has grown approximately 15% when compared to ~~fall behind the revenue achieved for the equivalent CS3 products for the~~a comparable period of ~~time. We attribute this weakness~~time for the Adobe Creative Suite 4 (“CS4”) products. The successful launch of Adobe Lightroom version 3 also contributed to ~~the economic conditions affecting the business of~~our success in our creative ~~professional customers. Based on economic predictions and market trends such as marketing and ad spending, we do not expect the market environment for creative products~~business. Combined, these factors contributed to ~~improve materially~~strong year-over-year growth of 37% in ~~the near term.~~this segment.

Our Knowledge Worker segment ~~also~~achieved 18% year-over-year growth due to continued ~~to be affected by a slow-down in~~solid demand ~~resulting in a year-over-year revenue decline.~~for our Acrobat product family. We attribute this ~~weakness~~performance to ~~reduced corporate spending due to~~strength in enterprise licensing of Acrobat as well as the ~~economy.~~ improved economic conditions in certain markets and geographies where we focus on Acrobat adoption.

We ~~do not expect the market environment to improve materially~~achieved strong growth in the ~~near term.~~

Inthird quarter with our Enterprise segment, ~~although third quarter fiscal 2009 revenue~~which grew ~~sequentially from the revenue achieved in the second quarter of fiscal 2009, our revenue declined significantly~~31% on a year-over-year basis. We ~~attribute~~believe our increased investment in this ~~year-over-year decline~~business over the past several years is beginning to result in improved financial performance in the ~~macro impact from~~segment. Further, we believe the ~~economy which has resulted in reduced spending by~~value proposition of our enterprise ~~customers.~~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 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 the third quarter of 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 the quarter was 1.26 trillion, an increase of 10% year-over-year versus the comparable period of time a year ago.

Our Platform ~~segment revenue grew~~business declined sequentially ~~but declined on a~~and year-over-year ~~basis primarily~~ due to lower revenue from ~~licensing of our Flash Lite client technologies by mobile handset~~ OEM and consumer electronic device manufacturers. We have stated we expect the May 1, 2008 announcement of the Open Screen Project to substantially reduce our mobile and device revenue this fiscal year due to the removal of licensing fees for Open Screen Project members on the next major releases of our Adobe Flash Platform technologies. Partially offsetting this revenue decline within our Platform segment is the build out of OEM relationships with companies in which we offer their applications as part of the download of our client technologies such as Adobe Reader, Adobe Flash Player and Adobe Shockwave Player.relationships.

~~Product revenues reported in our~~Our Print and Publishing business segment ~~were also affected by end-user demand weakness because~~grew year-over-year, primarily due to a non-recurring revenue deal as well as the launch of ~~economic conditions. We expect end-user demand weakness to continue in the near term.~~new products, including Adobe eLearning Suite version 2 and Adobe Captivate version 5.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our Condensed 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 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~~Bo ard of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, stock-based compensation, goodwill impairment and income taxes have the greatest potential impact on our Condensed Consolidated Financial Statements. These areas are key components of our results of operations and are based on complex rules which require 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.

~~There~~With the exception of the discussion below, there have been no significant changes in our critical accounting policies and estimates during the nine months ended ~~August 28, 2009~~September 3, 2010, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November ~~28, 2008.~~27, 2009.

Revenue Recognition

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. For example, for 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 element using the selling price hierarchy of vendor-specific objective evidence (“VSOE”), third-party evidenc e (“TPE”) or estimated selling price (“ESP”), as applicable; and (4) allocate the total price among the various elements based on the relative selling

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price method. 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 Financial Accounting Standards Board (“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 the best estimated selling price (“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 elected to early adopt this accounting guidance at the beginning of our fiscal quarter of fiscal 2010 on a prospective basis for applicable transactions originating or materially modified after November 27, 2009.

In certain instances, we were not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to us 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.

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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. However, we 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 to 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 solu tions. 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 imate of the rate of sell 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, including implementation and set-up fees, 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 using the proportionate performance method and 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. Accordingly, our estimates of consulting revenue could differ from actual events and may materially impact our financial position and results of operations.

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RESULTS OF OPERATIONS

Revenue for the Three and Nine Months Ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ (dollars in millions)

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Product	$	649.9		$	838.9			(23	)%	$	2,052.1		$	2,532.1			(19	)%	$	829.1		$	636.6		30	%	$	2,328.3		$	2,014.4		16	%
Percentage of total revenue		93	%		95	%					94	%		95	%					84	%		91	%				84	%		92	%
Subscription																				98.6			13.3		*			286.4			37.7		*
Percentage of total revenue																				10	%		2	%				10	%		2	%
Services and support		47.6			48.4			(2	)%		136.5			132.5			3	%		62.6			47.6		32	%		177.3			136.5		30	%
Percentage of total revenue		7	%		5	%					6	%		5	%					6	%		7	%				6	%		6	%
Total revenue	$	697.5		$	887.3			(21	)%	$	2,188.6		$	2,664.6			(18	)%	$	990.3		$	697.5		42	%	$	2,792.0		$	2,188.6		28	%

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*	Percentage is greater than 100%.

As described in Note 17 of our Notes to Condensed Consolidated Financial Statements, we have the following segments: Creative Solutions, Knowledge Worker, Enterprise, Omniture, Platform, and Print and Publishing.

Our subscription revenue is comprised primarily of fees we charge for our hosted service offerings including our hosted online business optimization services. We recognize subscription revenues ratably over the term of agreements with our customers, beginning on the commencement of the service. Of the $98.6 million and $286.4 million in subscription revenue for the three and nine months ended September 3, 2010, respectively, approximately $74.9 million and $225.7 million, respectively, is from our Omniture segment with the remaining amounts representing our other business 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.~~products and the sale of our hosted online business optimization 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.

Segment Information (dollars in millions)

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Creative Solutions	$	400.4		$	493.6			(19	)%	$	1,272.8		$	1,564.3			(19	)%	$	549.7		$	400.4		37	%	$	1,514.4		$	1,272.8		19	%
Percentage of total revenue		57	%		56	%					58	%		59	%					56	%		57	%				54	%		58	%
Knowledge Worker		154.5			218.0			(29	)%		473.7			612.0			(23	)%		162.6			138.1		18	%		484.5			425.9		14	%
Percentage of total revenue		22	%		25	%					22	%		23	%					16	%		20	%				17	%		20	%
Enterprise		55.5			65.5			(15	)%		173.0			174.0			(1	)%		94.2			71.9		31	%		250.8			220.8		14	%
Percentage of total revenue		8	%		7	%					8	%		7	%					10	%		10	%				9	%		10	%
Omniture																				91.0			—		*			262.2			—		*
Percentage of total revenue																				9	%		—	%				9	%		—	%
Platform		44.9			59.1			(24	)%		134.1			155.0			(13	)%		40.7			44.9		(9	)%		132.7			134.1		(1	)%
Percentage of total revenue		7	%		7	%					6	%		5	%					4	%		7	%				5	%		6	%
Print and Publishing		42.2			51.1			(17	)%		135.0			159.3			(15	)%		52.1			42.2		23	%		147.4			135.0		9	%
Percentage of total revenue		6	%		5	%					6	%		6	%					5	%		6	%				6	%		6	%
Total revenue	$	697.5		$	887.3			(21	)%	$	2,188.6		$	2,664.6			(18	)%	$	990.3		$	697.5		42	%	$	2,792.0		$	2,188.6		28	%

*	Percentage is not meaningful.

Revenue from Creative Solutions ~~decreased $93.2~~increased $149.3 million and ~~$291.5~~$241.6 million during the three and nine months ended ~~August 28, 2009,~~September 3, 2010, respectively, as compared to the three and nine months ended August ~~29, 2008.~~28, 2009. This ~~decrease during~~year-over-year increase was driven by strong licensing of CS4 in the first two quarters of fiscal 2010, as well as strong adoption of CS5 beginning in the second quarter of the fiscal year. For the three and nine months ended ~~August 28, 2009~~September 3, 2010, our Creative Suites related revenue increased 39% and 21%, respectively, and our Photoshop point product revenue increased 37% and 22%, respectively, as compared to the same periods in the prior year. The overall number of units licensed for Creative Solutions increased when compared to the three and nine months ended August ~~29, 2008 was driven largely by a 15% and 16% decline in Creative Suites related revenue and a decline of 28% and 27% in Photoshop point product revenue, respectively. Also contributing to the decrease~~28, 2009. Unit average selling prices decreased during ~~the~~th e three ~~and nine~~ months ended ~~August 28, 2009~~September 3, 2010 as compared to the ~~three and~~same period in the prior year. Unit average

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selling prices, excluding large enterprise license agreement (“ELA”) deals, remained relatively stable during the nine months ended ~~August 29, 2008 was an overall decline~~as compared to the same period in the ~~number~~prior year. Although our overall Creative business was strong during the third quarter of ~~units licensed. Average unit selling prices have remained relatively consistent.~~fiscal 2010, we experienced weakness relative to our expectations in Japan as well as our education business in the U.S.

Revenue from Knowledge Worker ~~decreased $63.5~~increased $24.5 million and ~~$138.3~~$58.6 million during the three and nine months ended ~~August 28, 2009,~~September 3, 2010, respectively, as compared to the three and nine months ended August ~~29, 2008, primarily due to a decrease in revenue from our Acrobat family of products.~~28, 2009. We attribute this success to strength in enterprise licensing of Acrobat and improved economic conditions in certain markets and geographies where we focus on Acrobat adoption. An increase in the ~~decline in revenue~~number of units licensed, excluding large ELA deals during the three and nine months ended ~~August 28, 2009~~September 3, 2010 also contributed to the increase in revenue. Unit average selling prices, excluding ELA deals, have remained relatively stable for the three and nine months ended September 3 2010, as compared to the three and nine months ended August 29, 2008 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 have remained relatively consistent.

~~Revenue from Enterprise decreased $10.0 million during the three months ended August~~ 28, 2009, as compared to the three months ended August 29, 2008. Revenue from Enterprise was relatively consistent during the nine months ended August 28, 2009, as compared to the nine months ended August 29, 2008. The decrease in Enterprise revenue during the three months ended August 28, 2009, as compared to the three months ended August 29, 2008 was primarily due to the economy’s impact on corporate spending in the markets we target with our LiveCycle product line.2009.

Revenue from ~~Platform decreased $14.2~~Enterprise increased $22.3 million and ~~$20.9~~$30.0 million during the three and nine months ended ~~August 28, 2009,~~September 3, 2010, respectively, as compared to the three and nine months ended August ~~29, 2008.~~28, 2009. The ~~decrease~~increase was ~~primarily~~ due to ~~lower mobile~~increased adoption of our Connect and LiveCycle products.

We acquired Omniture in the fourth quarter of fiscal 2009, and as such, there is no three and nine months ended August 28, 2009 periods with which to compare Omniture’s revenue ~~from OEM partners who license our Flash Lite product.~~for three and nine months ended September 3, 2010.

Revenue from ~~Print and Publishing~~Platform decreased ~~$8.9~~$4.2 million and ~~$24.3~~$1.4 million during the three and nine months ended ~~August 28, 2009,~~September 3, 2010, respectively, as compared to the three and nine months ended August ~~29, 2008.~~28, 2009. The decrease ~~resulted principally~~was due to lower developer tool revenue based on the new inclusion of developer tools within some CS5 suites and lower distribution revenue from ~~a slight decline~~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 $9.9 million and $12.4 million during the three and nine months ended September 3, 2010, respectively, as compared to the three and nine months ended August 28, 2009. The increase was primarily due to an improved economic environment in ~~revenue associated with our~~certain markets and geographies, the launch of new products, fees received for engineering service and royalties related to PostScript products.

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Geographical Information (dollars in millions)

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Americas	$	354.6		$	429.6			(17	)%	$	998.5		$	1,210.3			(18	)%	$	502.5		$	354.6		42	%	$	1,366.1		$	998.5		37	%
Percentage of total revenue		51	%		49	%					46	%		46	%					51	%		51	%				49	%		46	%
EMEA		196.2			296.0			(34	)%		688.9			914.5			(25	)%		290.9			196.2		48	%		843.7			688.9		22	%
Percentage of total revenue		28	%		33	%					31	%		34	%					29	%		28	%				30	%		31	%
Asia		146.7			161.7			(9	)%		501.2			539.8			(7	)%		196.9			146.7		34	%		582.2			501.2		16	%
Percentage of total revenue		21	%		18	%					23	%		20	%					20	%		21	%				21	%		23	%
Total revenue	$	697.5		$	887.3			(21	)%	$	2,188.6		$	2,664.6			(18	)%	$	990.3		$	697.5		42	%	$	2,792.0		$	2,188.6		28	%

Overall revenue for the three and nine months ended ~~August 28, 2009 decreased~~September 3, 2010 increased when compared to the three and nine months ended August ~~29, 2008~~28, 2009, primarily due to ~~a reduction~~the addition of Omniture revenue based on our acquisition of Omniture in the ~~adoption~~fourth quarter of fiscal 2009, as well as the launch of CS5 in the second quarter of fiscal 2010. Increased revenue in our Knowledge Worker and ~~licensing of our Creative Suite and Acrobat families of products.~~Enterprise business segments also contributed to the year-over-year growth.

~~Revenue~~The increase in revenue during the ~~Americas decreased $75.0 million~~three and ~~$211.8 million during~~nine months ended September 3, 2010 as compared to the three and nine months ended August 28, 2009 ~~respectively,~~in the Americas, EMEA and Asia was attributable to the factors noted above.

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Included in the overall increase in revenue for the three and nine months ended September 3, 2010 as compared to the three and nine months ended August ~~29, 2008, primarily due to economic conditions resulting in weaker demand for our creative and knowledge worker products.~~

~~Revenue in EMEA decreased $99.8 million and $225.6 million during the three and nine months ended August~~ 28, 2009 ~~respectively, compared to the three and nine months ended August 29, 2008, primarily due to weaker demand with our creative and knowledge worker products.~~

Revenue in Asia decreased $15.0 million and $38.6 million during the three and nine months ended August 28, 2009, respectively, compared to the three and nine months ended August 29, 2008, primarily due to economic conditions resulting in weaker demand and normal seasonal declines.

~~Included in the overall decrease in revenue~~ were impacts associated with foreign currency. Revenue in EMEA measured in U.S. dollars decreased approximately $15.1 million and $63.1 million, due to the strength of the U.S. dollar against the Euro, during the three and nine months ended August 28, 2009, respectively, over the same reporting period last year. Our currency ~~hedging program is used to mitigate a portion of the foreign currency impact to revenue.~~ as shown below:

(in millions)		Three Months			Nine Months
Revenue impact:
EMEA:
Euro	$	(16.8	)	$	(1.9	)
British pound		(3.5	)		(1.7	)
Total EMEA		(20.3	)		(3.6	)
Japanese Yen		5.4			15.4
Australian dollar		1.9			9.9
Total revenue impact		(13.0	)		21.7
Hedging impact:
EMEA		13.0			18.7
Japanese Yen		0.2			0.6
Total hedging impact		13.2			19.3
Total impact	$	0.2		$	41.0

During the three and nine months ended ~~August 28, 2009,~~September 3, 2010, the U.S. dollar strengthened against both the Euro and British pound causing revenue in EMEA measured in U.S. dollars to decrease compared with the same reporting periods last year. Revenue measured in both the Japanese Yen and Australian dollar were favorably impacted as these currencies strengthened against the U.S. dollar. Both our EMEA and Yen currency hedging ~~program~~programs resulted in hedging gains ~~of $0.2 million and $25.8 million, respectively. Revenue~~as noted in ~~Asia measured in U.S. dollars was favorably impacted by approximately $8.0 million and $26.5 million due to~~ the ~~strength of the Yen against the U.S. dollar during the three and nine months ended August 28, 2009, respectively, over the same reporting period last year.~~table above.

Product Backlog

The actual amount of product backlog at any particular time may not be a meaningful indicator of future business prospects. ~~Backlog~~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. ~~As of August 28, 2009, our~~We had minimal shippable backlog ~~was approximately 2% of~~for the third quarter of fiscal ~~2009 revenue~~2010 as compared to shippable backlog for the second quarter of fiscal 2010 of approximately 4%7% of second quarter fiscal ~~2009~~2010 revenue.

Cost of Revenue for the Three and Nine Months Ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ (dollars in millions)

		Three Months					Percent			Nine Months					Percent
		2010			2009		Change			2010			2009		Change
Product	$	29.1		$	40.7		(29	)%	$	92.3		$	139.8		(34	)%
Percentage of total revenue		3	%		6	%				3	%		6	%
Subscription		50.5			8.6		*			146.4			24.2		*
Percentage of total revenue		5	%		1	%				5	%		1	%
Services and support		19.5			15.7		24	%		57.6			50.4		14	%
Percentage of total revenue		2	%		2	%				2	%		2	%
Total cost of revenue	$	99.1		$	65.0		52	%	$	296.3		$	214.4		38	%

Three Months Percent Nine Months Percent
2009 2008 Change 2009 2008 Change
Product
$ 49.3 $ 84.7 (42 )% $ 164.0 $ 202.7 (19 )%
Percentage of total revenue
7 % 10 % 7 % 8 %
Services and support
15.7 26.2 (40 )% 50.4 73.5 (31 )%
Percentage of total revenue
2 % 3 % 2 % 3 %
Total cost of revenue
$ 65.0 $ 110.9 (41 )% $ 214.4 $ 276.2 (22 )%

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*	Percentage is greater than 100%.

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.

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Cost of product revenue ~~increased (decreased)~~decreased due to the following:

	Percent Change 2008 to 2009 QTD			Percent Change 2008 to 2009 YTD			Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD
Hosted services		4	%		5	%
Amortization of purchased intangibles							(24	)%	(22	)%
Royalty cost		1			3		(6	)	(7	)
Localization costs related to our product launches							(5	)	(8	)
Cost of sales							3		4
Excess and obsolete inventory		(3	)		—		5		(1	)
Amortization of acquired rights to use technology		(31	)		(11	)
Localization costs related to our product launches		2			(1	)
Amortization of purchased intangibles		(10	)		(12	)
Various individually insignificant items		(5	)		(3	)	(2	)	—
Total change		(42	)%		(19	)%	(29	)%	(34	)%

The increase in hosted service costs was primarily related to the amortization of capitalized infrastructure costs for the three and nine months ended August 28, 2009 as compared to the three and nine months ended August 29, 2008.

The decrease in amortization of acquired rights to use technology primarily relates to a charge for historical use of licensing rights associated with certain technology licensing arrangements entered into in the third quarter of fiscal 2008 that did not recur in the third quarter of fiscal 2009.

Amortization of purchased intangibles decreased during the three and nine months ended ~~August 28, 2009~~September 3, 2010, as compared to the three and nine months ended August ~~29, 2008,~~28, 2009, primarily due to ~~a decrease in~~ amortization ~~expense~~of approximately $11.6 million and $34.8 million, respectively, associated with the intangible assets purchased through ~~the~~our Macromedia acquisition which ~~are expected to be~~were fully amortized at the end of fiscal 2009.

Royalty costs related to obligations to certain key vendors that were incurred during the three and nine months ended August 28, 2009 did not recur during the three and nine months ended September 3, 2010.

The decrease in localization costs was primarily due to CS4 products becoming fully amortized at the end of fiscal 2009, offset in part by the launch of CS5 products during the nine months ended September 3, 2010.

Cost of sales increased primarily due to the associated increase in shrink-wrap shipments as a result of the launch of our CS5 products in the second quarter of fiscal 2010.

Excess and obsolete inventory increased during the three months ended September 3, 2010 primarily due to disposal of obsolete CS4 products. The decrease in excess and obsolete inventory during the nine months ended September 3, 2010 was primarily related to certain localized languages of our CS3 products, which became obsolete and were disposed of during the first quarter of fiscal 2009.

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 during the three and nine months ended September 3, 2010, as compared to the three and six months ended August 28, 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 the three and nine months ended September 3, 2010 is $14.4 million and $45.0 million, respectively, of amortization expense related to intangible assets acquired in conjunction with this acquisition.

Services and Support

Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to provide consulting services, training and product support.

Cost of services and support revenue ~~decreased~~increased during the three and nine months ended ~~August 28, 2009~~September 3, 2010, as compared to the three and nine months ended August ~~29, 2008,~~28, 2009, primarily due to ~~decreases~~increases in compensation and related benefits driven by additional headcount ~~reductions.~~as a result of our acquisition of Omniture.

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Operating Expenses for the Three and Nine Months Ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ (dollars in millions)

Research and Development, Sales and Marketing, and General and Administrative Expenses

~~Compensation costs decreased for~~The increase in research and development, sales and marketing and general and administrative expenses during the three and nine months ended ~~August 28, 2009~~September 3, 2010 was primarily driven by increases in compensation expense due to ~~lower profit sharing~~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 the three and nine months ended August ~~29, 2008.~~28, 2009.

Research and Development

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Expenses	$	138.9		$	170.1			(18	)%	$	427.3		$	508.9			(16	)%	$	168.3		$	138.9		21	%	$	510.0		$	427.3		19	%
Percentage of total revenue		20	%		19	%					20	%		19	%					17	%		20	%				18	%		20	%

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.

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Research and development expenses ~~decreased~~increased due to the following:

	Percent Change 2008 to 2009 QTD			Percent Change 2008 to 2009 YTD			Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD
Compensation associated with incentive compensation and stock-based compensation		(16	)%		(13	)%	15	%	14	%
Compensation and related benefits associated with headcount growth							2		3
Various individually insignificant items		(2	)		(3	)	4		2
Total change		(18	)%		(16	)%	21	%	19	%

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 desktop application and server-based software products.

Sales and Marketing

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Expenses	$	231.3		$	271.4			(15	)%	$	724.0		$	813.4			(11	)%	$	303.2		$	231.3		31	%	$	921.5		$	724.0		27	%
Percentage of total revenue		33	%		31	%					33	%		31	%					31	%		33	%				33	%		33	%

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 during the second quarter which is reflected in the table below under marketing spending related to product launches and marketing efforts.

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Sales and marketing expenses ~~decreased~~increased due to the following:

	Percent Change 2008 to 2009 QTD			Percent Change 2008 to 2009 YTD			Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD
Compensation associated with incentive compensation and stock-based compensation							15	%	14	%
Compensation and related benefits associated with headcount growth							4		4
Marketing spending to support overall marketing efforts							4		3
Marketing spending related to product launches and overall marketing efforts to further increase revenue		(3	)%		—	%	3		1
Compensation associated with incentive compensation and stock-based compensation		(8	)		(7	)
Various individually insignificant items		(4	)		(4	)	5		5
Total change		(15	)%		(11	)%	31	%	27	%

General and Administrative

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Expenses	$	79.6		$	97.2			(18	)%	$	224.5		$	257.2			(13	)%	$	102.2		$	79.6		28	%	$	283.2		$	224.5		26	%
Percentage of total revenue		11	%		11	%					10	%		10	%					10	%		11	%				10	%		10	%

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.

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General and administrative expenses increased ~~(decreased)~~ due to the following:

Percent Change
2008 to 2009
QTD

Percent Change
2008 to 2009
YTD

Provision for bad debts
(5 )% — %
Facilities and telecommunication
(2 ) (2 )
Professional and consulting fees
(18 ) (6 )
Compensation associated with incentive compensation and stock-based compensation (8 ) (8 )
Charitable contributions
10 —
Various individually insignificant items
5 3
Total change
(18 )% (13 )%

The decrease in professional and consulting fees during the three and nine months ended August 28, 2009 as compared to the three and nine months ended August 29, 2008 was primarily due to additional fees incurred in the third quarter of fiscal 2008 to avoid litigation costs in connection with intellectual property arrangements that did not recur during fiscal 2009.

~~The increase in charitable contributions during the three months ended August 28, 2009 reflects a change in the timing of contributions to the Adobe Foundation.~~

	Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD
Compensation associated with incentive compensation and stock-based compensation	13	%	12	%
Compensation and related benefits associated with headcount growth	6		6
Professional and consulting fees	4		4
Depreciation and amortization	3		2
Various individually insignificant items	2		2
Total change	28	%	26	%

Restructuring Charges

	Three Months				Percent		Nine Months					Percent			Three Months				Percent		Nine Months					Percent
	2009		2008		Change		2009			2008		Change			2010			2009	Change		2010			2009		Change
Expenses	$	—	$	1.2		*	$	15.9		$	2.6		*	$	(2.1	)	$	—	*	$	21.1		$	15.9		33	%
Percentage of total revenue		*		*				1	%		*				*			*			1	%		1	%

*	Percentage is not meaningful.

Fiscal 2009 Restructuring Plan

In the first half of fiscal 2010, we continued to implement restructuring activities under this plan. We vacated approximately 48,000 square feet of sales and or research and development facilities in Australia, Canada, Denmark and the U.S. We accrued $6.5 million for the fair value of our future contractual obligations under these operating leases. We also recorded charges of $17.6 million in termination benefits for the elimination of approximately 245 full-time positions which represents substantially all of the remaining full-time positions expected to be terminated worldwide. We also recorded minor adjustments to reflect reductions in previously recorded estimates and fluctuations related to foreign currency translation.

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In the third quarter of fiscal 2010, we recorded net adjustments of approximately $2.2 million to reflect net decreases in previously recorded estimates for termination benefits and facilities-related liabilities.

Fiscal 2008 Restructuring 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 termination benefits for the elimination of approximately 460 of the 560 full-time positions globally. As of November 28, 2008, $0.4 million was paid.

~~In the first quarter of~~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. ~~In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146”), we~~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 ~~$3.4~~$6.7 million ~~for~~in termination benefits for the elimination of ~~approximately 43~~substantially all of the remaining 100 full-time positions expected to be terminated.

~~In the second quarter~~See Note 11 of ~~fiscal 2009, we accrued an additional $3.0 million under this program~~our Notes to Condensed Consolidated Financial Statements for ~~termination benefits related to the elimination of approximately 48 of the remaining 57 full-time positions expected to be terminated.~~

~~As of August 28, 2009, accrued~~further information regarding our restructuring charges related to the 2008 restructuring program and the Macromedia acquisition totaled approximately $6.3 million and $6.9 million, respectively. We expect to pay these liabilities through fiscal 2013 and fiscal 2012, respectively.plans.

Amortization of Purchased Intangibles

Three Months Percent Nine Months Percent
2009 2008 Change 2009 2008 Change
Expenses
$ 15.0 $ 17.0 (12 )% $ 45.7 $ 51.2 (11 )%
Percentage of total revenue
2 % 2 % 2 % 2 %

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		Three Months					Percent			Nine Months					Percent
		2010			2009		Change			2010			2009		Change
Expenses	$	17.6		$	15.0		17	%	$	53.9		$	45.7		18	%
Percentage of total revenue		2	%		2	%				2	%		2	%

Amortization expense ~~decreased~~increased during the three and nine months ended September 3, 2010, as compared to the three and nine months ended August 28, 2009 as ~~compared to~~a result of intangible assets purchased through our acquisition of Omniture in the ~~three and nine months ended August 29, 2008, due to~~fourth quarter of fiscal 2009 offset by a decrease in amortization ~~expense~~ associated with the intangible assets purchased through our Macromedia acquisition which were fully amortized at the ~~Macromedia acquisition.~~end of fiscal 2009.

Non-Operating Income (Expense), Net for the Three and Nine Months Ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ (dollars in millions)

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Interest and other income, net	$	6.7		$	9.3			(28	)%	$	24.8		$	34.8			(29	)%
Interest and other income (expense), net																			$	7.6		$	6.7		13	%	$	1.9		$	24.8		(92	)%
Percentage of total revenue		1	%		1	%					1	%		1	%					1	%		1	%				*			1	%
Interest expense		(0.5	)		(2.4	)		(79	)%		(1.9	)		(8.0	)		(76	)%		(16.4	)		(0.5	)	*			(40.2	)		(1.9	)	*
Percentage of total revenue		*			*						*			*						(2	)%		*					(1	)%		*
Investment gains (losses), net		0.6			2.1			(71	)%		(18.5	)		20.3			(191	)%		3.5			0.6		483	%		(10.7	)		(18.5	)	(42	)%
Percentage of total revenue		*			*						(1	)%		1	%					*			*					*			(1	)%
Total non-operating income, net	$	6.8		$	9.0			(24	)%	$	4.4		$	47.1			(91	)%
Total non-operating income (expense), net																			$	(5.3	)	$	6.8		(178	)%	$	(49.0	)	$	4.4		*

*	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 Japanese Yen and Euro currencies.

Interest and other income (expense), net ~~decreased~~remained relatively unchanged during the three ~~and nine~~ months ended ~~August 28, 2009~~September 3, 2010 as compared to the three ~~and~~months ended August 28, 2009. Included in the three months ended September 3, 2010 was $8.1 million in gains associated with a forward contract purchased to hedge our economic exposure related to our acquisition of Day Software Holding AG (“Day”). For the nine months ended September 3, 2010 as compared to the nine months ended

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August ~~29, 2008~~28, 2009, interest and other income (expense), net decreased primarily due to lower average interest rates ~~partially offset by realized gains~~ on ~~sales~~our investments of ~~fixed income securities~~$16.5 million and ~~lower~~increased foreign ~~exchange losses.~~currency losses of $6.8 million.

Interest Expense

~~Interest~~In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $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, which we repaid on February 1, 2010 with a portion of the proceeds from our Notes. The increase in interest expense ~~for the three and nine months ended August 28, 2009,~~is primarily ~~represents~~due to interest associated with ~~our credit facility. The outstanding balance as of August 28, 2009 was $350.0 million. Interest due under~~higher borrowings resulting from the ~~credit facility is paid upon expiration~~issuance of the ~~LIBOR contract or at a minimum, quarterly. The decline~~Notes as well as an increase in ~~interest expense was primarily~~our average borrowing rate due to ~~lower interest rates.~~the Notes.

Investment Gains (Losses), Net

Investment gains (losses), net ~~consist~~consists principally of realized gains or losses from the sale of marketable equity investments, other-than-temporary declines in the value of marketable and non-marketable equity securities, unrealized holding gains and losses associated with our deferred compensation plan assets (classified as trading securities), and gains and losses of Adobe Ventures. ~~Net~~Our net investment gains for the three months ended ~~August 28, 2009 were primarily~~September 3, 2010 increased due to unrealized gains related to our Adobe ~~Ventures. Net~~Ventures and direct investments as compared to the three months ended August 28, 2009. Our net investment losses for the nine months ended ~~August 28, 2009 were~~September 3, 2010 decreased primarily due to ~~unrealized losses related to~~other-than-temporary impairment charges incurred on certain of our ~~Adobe Ventures and~~ direct ~~investments. Investment gains for the three and nine months ended August 29, 2008 were principally due to gains from a direct investment. Additionally,~~investments during the nine months ended August 29, 2008, we received cash and recognized a gain resulting from the expiration of the escrow period related to the sale of our investment in Atom Entertainment, Inc. that occurred during the fourth quarter of fiscal 2006.28, 2009.

Provision for Income Taxes for the Three and Nine Months Ended September 3, 2010 and August 28, 2009 ~~and August 29, 2008~~ (dollars in millions)

	Three Months						Percent			Nine Months						Percent				Three Months					Percent			Nine Months					Percent
	2009			2008			Change			2009			2008			Change				2010			2009		Change			2010			2009		Change
Provision	$	38.4		$	36.9			4	%	$	122.8		$	176.3			(30	)%	$	66.7		$	38.4		74	%	$	151.3		$	122.8		23	%
Percentage of total revenue		6	%		4	%					6	%		7	%					7	%		6	%				5	%		6	%
Effective tax rate		22	%		16	%					23	%		22	%					23	%		22	%				23	%		23	%

Our effective tax ~~rates~~rate increased ~~approximately 6% and 1% during~~by one percentage point for the three ~~and nine~~ months ended ~~August 28, 2009, respectively, as compared~~September 3, 2010. The increase was primarily due to the ~~three and nine months ended August 29, 2008. These increases were primarily related~~

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~~to the completion during the third quarter of fiscal 2008 of a U.S. income tax examination covering our fiscal years 2001 through 2004, partially offset by the availability~~expiration of the U.S. research and development credit ~~during fiscal 2009,~~on December 31, 2009. For the nine months ended September 3, 2010, our effective tax rate remained unchanged at 23%. An approximately one percentage point increase was primarily due to the expiration of the U.S. research and development credit on December 31, 2009. This increase was offset by a one percentage point decrease, which ~~was not in effect during fiscal 2008 until our fourth quarter.~~is comprised of individually immaterial items.

~~Summary of FIN 48~~

~~Under FIN No. 48, “Accounting~~Accounting for Uncertainty in Income Taxes ~~an interpretation of SFAS No. 109” (“FIN 48”), the~~

The gross liability for unrecognized tax benefits at ~~August 28, 2009 were $137.3~~September 3, 2010 was $212.7 million, exclusive of interest and penalties. If the total unrecognized tax benefits at ~~August 28, 2009~~September 3, 2010 were recognized in the future, ~~the following amounts, net of an estimated $10.1 million federal benefit related to deducting certain payments on future tax returns, would result: $53.7~~$195.2 million of unrecognized tax benefits would decrease the effective tax rate, ~~and $73.5~~which is net of an estimated $17.4 million ~~would decrease goodwill.~~federal benefit related to deducting certain payments on future state tax returns.

As of ~~August 28, 2009,~~September 3, 2010, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns ~~and~~was approximately $18.5 million. This amount is included in non-current income taxes ~~payable was approximately $15.7 million.~~payable.

The accounting treatment related to certain unrecognized tax benefits from acquired companies, including Macromedia, will change when SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) becomes effective. SFAS 141R will be effective in the first quarter of our fiscal 2010. At such time, any changes to the recognition or measurement of these unrecognized tax benefits will be recorded through income tax expense, where currently the accounting treatment would require any adjustment to be recognized through the purchase price as an adjustment to goodwill.

The timing of the resolution of income tax examinations is highly uncertain ~~and~~as are the amounts ~~ultimately paid, if~~and timing of tax payments that are part of any ~~upon resolution~~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 within the ~~issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While~~next 12 months, it is reasonably possible that ~~some issues in~~either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the ~~IRS and other examinations could be resolved within the next twelve months, based upon the current facts and circumstances,~~uncertainties described, we ~~cannot estimate the timing of such resolution or~~can only determine a range of estimated potential ~~changes as it relates to the~~decreases in underlying unrecognized tax benefits ~~that are recorded as part of our financial statements. We do not expect any material settlements in the next twelve months but it is inherently uncertain~~ranging from $0 to ~~determine.~~approximately $100 million. These amounts could decrease income tax expense.

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LIQUIDITY AND CAPITAL RESOURCES

This data should be read in conjunction with our Condensed Consolidated Statements of Cash Flows.

(in millions)	August 28, 2009		November 28, 2008			September 3, 2010		November 27, 2009
Cash, cash equivalents and short-term investments	$	2,556.5	$	2,019.2	$	2,578.3	$	1,904.5
Working capital	$	2,376.6	$	1,972.5	$	2,269.2	$	1,629.1
Stockholders’ equity	$	4,694.6	$	4,410.4	$	5,084.9	$	4,890.6

~~Summary~~A summary of our cash flows ~~(in millions):~~is as follows:

		Nine Months Ended
(in millions)		September 3, 2010			August 28, 2009
Net cash provided by operating activities	$	802.4		$	863.9
Net cash used for investing activities		(956.3	)		(405.2	)
Net cash used for financing activities		(29.0	)		(227.7	)
Effect of foreign currency exchange rates on cash and cash equivalents		(2.4	)		14.7
Net (decrease) increase in cash and cash equivalents	$	(185.3	)	$	245.7

August 28,
2009

August 29,
2008

Net cash provided by operating activities
$ 863.9 $ 942.4
Net cash used for investing activities
(405.2 ) (5.1 )
Net cash used for financing activities
(227.7 ) (747.6 )
Effect of foreign currency exchange rates on cash and cash equivalents
14.7 (1.9 )
Net increase in cash and cash equivalents
$ 245.7 $ 187.8

Our primary source of cash is receipts from revenue. The primary uses of cash are payroll related expenses; general operating expenses including marketing, travel and office rent; and cost of product revenue. ~~Another source~~Other sources of cash isare proceeds from the exercise of employee options and participation in the employee stock purchase plan (“ESPP”). Another use of cash is our stock repurchase program, which is described below.

Cash Flows from Operating Activities

Net cash provided by operating activities of ~~$863.9~~$802.4 million for the nine months ended ~~August 28, 2009,~~September 3, 2010, was primarily comprised of net income plus the net effect of non-cash ~~expenses.~~items. The primary working capital sources of cash were net income coupled with ~~decreases~~increases in ~~trade receivables, prepaid~~deferred revenue, accrued expenses and ~~other current assets. Trade receivables~~

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~~decreased~~taxes payable. Increases in deferred revenue related primarily to activity from ~~CS4~~our acquisition of Omniture, the related renewal of calendar-year based contracts in addition to increases in maintenance and support orders and royalty revenue ~~that was shipped~~deferrals related to changes in customer billing terms. Accrued expenses increased primarily due an increase in compensation related accruals based on company performance to date offset in part by a decrease in accrued benefits. During the ~~latter half of the fourth quarter of fiscal 2008 and collected during~~nine months ended September 3, 2010, we also made our firs t semi-annual interest payment associated with our Notes totaling $31.1 million. Income taxes payable increased primarily due to tax liabilities accrued in the first quarter of fiscal ~~2009,~~2010 associated with the repatriation of undistributed foreign earnings offset by approximately $150 million in ~~addition to lower overall gross revenue~~payments against these liabilities during the second and ~~improved collections.~~third quarters of fiscal 2010.

The primary working capital uses of cash were increases in trade receivables and prepaid expenses and other current assets as well as decreases in ~~deferred revenue, accrued expenses,~~ accrued restructuring and trade payables. ~~Decreases~~Trade receivables increased from revenue related to products that were shipped during the latter half of the second quarter of fiscal 2010 as a result of the launch of CS5 and the increase in ~~deferred revenue~~business activity from our Omniture business unit. Increases in prepaid expenses and other current assets related primarily to ~~deferred revenue that was recognized~~our cash flow and balance sheet hedges due to the strengthening of the U.S. dollar in addition to new contracts entered into during the ~~first~~third quarter of fiscal 2009 associated with our free of charge upgrades for CS4 and Adobe Photoshop Lightroom products, as well as declines in maintenance and support orders. Accrued expenses decreased primarily due to payments for employee bonuses and commissions related to fiscal 2008.2010. Accrued restructuring decreased primarily due to payments made related to the ~~2008~~fiscal 2009 restructuring ~~program~~plan that was initiated in the fourth quarter of fiscal ~~2008,~~2009 in addi tion to adjustments made to previously recorded estimates, offset in part by new charges.

Cash Flows from Investing Activities

Net cash used for investing activities of ~~$405.2~~$956.3 million for the nine months ended ~~August 28, 2009~~September 3, 2010, was primarily due to purchases of short-term investments, ~~and property and equipment,~~ offset in part by maturities and sales of short-term investments. ~~Purchases~~

Other uses of cash during the nine months ended September 3, 2010 represented purchases of property and equipment and long-term investments and other assets. These uses of cash were offset in part by a decrease in our restricted cash balance (in “Other” on our Condensed Consolidated Statements of Cash Flows), proceeds from the sale of equipment under our sale lease-back transaction and the sale of long-term investments and other assets during the nine months ended August 28, 2009 were less than those in the corresponding period of 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.assets.

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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 which is 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 September 3, 2010, the amount outstanding under the Notes was $1.5 billion, which is included in l ong-term liabilities on our Condensed Consolidated Balance Sheets. See Note 15 of our Notes to Condensed 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 September 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 under this facility remains available for borrowing.

Net cash used for financing activities ~~decreased $519.9 million for a total~~ of ~~$227.7~~$29.0 million for the nine months ended ~~August 29, 2009 as compared to cash used for the same period last year. The decrease during the nine months ended August 28, 2009 as compared to the corresponding period in fiscal 2008~~September 3, 2010, was primarily due to ~~lower purchases~~payment of the outstanding balance on our credit facility and treasury stock repurchases offset in part by proceeds ~~related to the issuance of~~from our Notes and treasury ~~stock.~~stock issuances. (See the ~~sections~~section titled “Stock Repurchase ~~Program I” and “Stock Repurchase Program II”~~Program” discussed ~~below).~~ below.~~The nine months ended August 29, 2008 also included net borrowings under our credit facility that did not recur during the nine months ended August 28, 2009.~~

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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 ~~programs~~program and to strategically acquire ~~software~~ companies, products or technologies that are complementary to our business.

In ~~September 2009,~~July 2010, we entered into a definitive agreement with ~~Omniture under which we expect to acquire Omniture for approximately $1.8 billion.~~Day. Under the terms of the agreement, we have commenced a public tender offer to acquire all of the ~~outstanding common stock~~publicly held registered shares of ~~Omniture~~Day for ~~$21.50~~139 Swiss Francs per share in ~~cash.~~cash in a transaction valued at approximately 254.7 million Swiss Francs 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. The market value of this forward contract was $8.1 million U.S. dollars as of September 3, 2010 and is included in other assets on our Condensed Consolidated Balance Sheets, with changes in the market value of the $8.1 million recorded to interest and other inco me (expense), net on our Condensed Consolidated Statements of Income. Upon maturity of the forward contract, any remaining changes in the market value will be recorded to interest and other income (expense), net. This forward contract is accounted for as a separate transaction apart from the acquisition. We expect to finance the acquisition using existing cash, cash equivalents and ~~short term~~short-term investment ~~balances,~~balances.

Restructuring

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

·	Fiscal 2009 Restructuring Plan

·	Fiscal 2008 Restructuring Plan

·	Omniture Restructuring Plan

·	Macromedia Restructuring Plan

During the third quarter of fiscal 2010, we have accrued total restructuring charges of approximately $17.0 million of which approximately $2.6 million relates to ongoing termination benefits and ~~current availability under our credit facility.~~ contract terminations and are expected to be paid during fiscal 2010. The remaining $14.4 million relates to the cost of closing redundant facilities and are expected to be paid per contract through fiscal 2021 of which over 80% will be paid through 2013.

During the nine months ended September 3, 2010, we made payments related to the above restructuring plans totaling approximately $47.2 million which consisted of approximately $41.5 million related to termination benefits and contract terminations and approximately $5.7 million related to the cost of closing redundant facilities.

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We believe that ~~these resources in addition to~~our existing cash and cash equivalents, short-term investments and cash generated from operations will be sufficient to ~~fund~~meet the ~~acquisition as well as to continue to provide a supplemental source of near term liquidity. Also, we believe that our banking relationships and good credit should afford us~~cash outlays for the ~~opportunity to raise additional capital in the private or public markets, if required.~~restructuring actions described above.

~~In addition,~~See Note 11 of our Notes to Condensed Consolidated Financial Statements for more detailed information regarding our restructuring plans.

Other Liquidity and Capital Resources Considerations

Our existing cash, cash equivalents and investment balances may ~~further decline~~fluctuate during the remainder of fiscal ~~2009 in the event of a further weakening of the economy or significant~~2010 due to changes in our planned cash outlay, including changes in incremental costs such as direct and integration costs related to ~~the acquisition.~~our acquisitions. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part II, Item 1A titled “Risk ~~Factors.”~~Factors”. However, based on our current business plan and revenue prospects, we believe that our existing balances, ~~and~~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. ~~At August 28, 2009, our existing credit facility is currently~~

As of September 3, 2010, the amount outstanding under the Notes was $1.494 billion. On February 1, 2010, we used $1.0 billion of ~~which we had borrowed $350.0 million. Subsequent~~the proceeds from this offering to ~~August 28, 2009, we borrowed an additional $650.0 million under~~pay the outstanding balance on our credit facility. ~~See Note 15~~The remainder of the proceeds from the Notes are available for general corporate purposes. There is no outstanding balance under our ~~Notes to Condensed Consolidated Financial Statements~~credit facility and the entire $1.0 billion credit line under this facility remains available for ~~more detailed information.~~borrowing.

We use professional investment management firms to manage a large portion of our invested cash. External investment firms managed, on average, ~~58%~~73% of our consolidated invested balances during the third quarter of fiscal ~~2009.~~2010. Within the U.S., the portfolio is invested ~~primarily~~ in money market funds for working capital ~~purposes.~~purposes and a fixed income portfolio which includes municipal securities, U.S. agency securities and corporate bonds. Outside of the U.S., our fixed income portfolio is primarily invested in U.S. Treasury securities.

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Stock Repurchase Program

~~Stock Repurchase Program I~~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 billion in common stock through the end of fiscal 2012. This amended program did not affect the $250.0 million structured stock repurchase agreement entered into during March 2010. As of September 3, 2010, no prepayments remain under that agreement.

During the nine months ended September 3, 2010 and August 28, 2009, we entered into several structured stock repurchase agreements with large financial institutions, whereupon we provided the financial institutions with prepayments of $650.0 million and $350.0 ~~million.~~million, respectively. Of the $650.0 million of prepayments in the nine months ended September 3, 2010, $250.0 million was under the stock repurchase program prior to the program amendment and the remaining $400.0 million was under the amended $1.6 billion time-constrained dollar-based authority. We entered 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 cash prepayments to the financial institutions.~~ There were no explicit commissions or fees on these structured ~~repurchases.~~repur chases. 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 the nine months ended September 3, 2010, we repurchased approximately 19.0 million shares at an average price of $30.32 through structured repurchase agreements entered into during fiscal 2009 and fiscal 2010. During the nine months ended August 28, 2009, we repurchased approximately 9.9 million shares at an average price ~~per share~~ of $25.31 through structured repurchase agreements, ~~entered into during~~which included prepayments from fiscal 2008 and fiscal 2009.

~~Stock Repurchase Program II~~

~~Under this~~Subsequent to September 3, 2010, as part of our $1.6 billion stock repurchase program, we ~~had authorization to~~entered into a structured stock repurchase ~~50.0~~agreement with a large financial institution whereupon we provided them with a prepayment of $200.0 million. This amount will be classified as treasury stock on our Condensed Consolidated Balance Sheets. Upon completion of the $200.0 million ~~shares~~stock repurchase agreement, $1.0 billion now remains under our time-constrained dollar-based authority. See Notes 12 and 18 for further discussion 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~~stock repurchase ~~agreements to large financial institutions. During the third quarter of fiscal 2008, the remaining authorized number of shares were repurchased.~~program.

Refer to Part II, Item 2 in this report for share repurchases during the quarter ended ~~August 28, 2009.~~September 3, 2010.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

We presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year ended November 27, 2009. Our principal commitments as of ~~August 28, 2009~~September 3, 2010 consist of obligations under operating leases, capital leases, royalty agreements and various service agreements. Except as discussed below, there have been no significant changes in those obligations during the nine months ended September 3, 2010. See ~~Note~~Notes 14 and 15 of our Notes to Condensed Consolidated Financial Statements for more detailed information.

Notes

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. 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.

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 made our first semi-annual interest of $31.1 million. At September 3, 2010, our maximum commitment for interest payments under the Notes was $493.9 million.

Capital Lease Obligation

The following table summarizes our capital lease obligations as of September 3, 2010 (in millions):

		Payment Due by Period
		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Capital lease obligations	$	33.1	$	1.7	$	19.9	$	11.5	$	—

Financial 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 including certain financial ratios as defined in the lease agreements that are reported to the lessors quarterly. As of ~~August 28, 2009,~~September 3, 2010, 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.

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.

Guarantees

The lease agreements for our corporate headquarters provide for residual value guarantees. Under FIN No. 45, “Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of SFAS No. 5, 57, and 107 and rescission of FIN No. 34,” theThe fair value of a residual value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our Condensed 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 are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to ~~the income statement~~our Condensed Consolidated Statements of Income over the life of the leases. As of ~~August 28,~~September 3, 2010 and Nove mber 27, 2009, the unamortized portion of the fair value of the residual value guarantees, for both leases, remaining in other long-term liabilities and prepaid rent was ~~$1.5 million.~~$0.9 million and $1.3 million, respectively.

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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~~third parties arising from the use of our products. 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 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’s or officer’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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We believe that there have been no significant changes in our market risk exposures for the three and nine months ended ~~August 28, 2009.~~September 3, 2010.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of ~~August 28, 2009,~~September 3, 2010, 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 quarterly report on Form 10-Q 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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

In October 2009, we acquired Omniture, Inc. We do not expect this acquisition to materially affect our internal controls over financial reporting. We have expanded the scope of a number of our internal processes to include the former operations of Omniture that have not been fully integrated and tested into our existing internal control processes at September 3, 2010. There were no other changes in our internal ~~control~~controls over financial reporting that occurred during the ~~quarter ended August 28, 2009~~period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal ~~control~~controls over financial reporting.

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.~~detected .

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 14 “Commitments and Contingencies” of our Notes to Condensed Consolidated Financial Statements regarding our legal proceedings.

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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.

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~~Adverse changes in general economic or 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. For example, the direction and relative strength of the global economy has recently been increasingly uncertain due to softness in the real estate and mortgage markets, volatility in fuel and other energy costs, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors affecting spending behavior. If economic growth in the U.S. and other countries’ economies is slowed, many customers may delay or reduce technology purchases, advertising spending or marketing spending. This could result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price competition.

The current global financial crisis affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out of business have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency and equity markets. There could be a number of follow-on effects from the credit crisis on our business, including insolvency of certain of our key distributors, resellers, OEMs, retailers and systems integrators, ISVs and VARs (collectively referred to as “distributors”), which could impair our distribution channels, inability of customers, including our distributors, to obtain credit to finance purchases of our products, and failure of derivative counterparties and other financial institutions, which could negatively impact our treasury operations. Other income and expense could also vary from expectations depending on gains or losses realized on the sale or exchange of financial instruments, impairment charges related to investment securities as well as equity and other investments, interest rates, cash balances, and changes in fair value of derivative instruments. 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.~~

If we cannot continue to develop, market and distribute 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 us to anticipate customers’ changing needs and emerging technological trends accurately could significantly harm our market share and results of operations. 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.~~products and services. Our inability to extend our core technologies into new applications and new platforms, including the mobile and embedded devices market, and to anticipate or respond to technological changes could affect continued market acceptance of our ~~products~~produ cts and services and our ability to develop new products and services. Additionally, any delay in the development, production, marketing or distribution of a new product or service or upgrade or enhancement to an existing product or service could cause a decline in our revenue, earnings or stock price and could harm our competitive position. We maintain strategic relationships with third parties with respect to the distribution of certain of our technologies. 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 desktop 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 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. Additionally, to the extent ~~that we have difficulty transitioning product or version releases to new Windows and Macintosh operating systems, or to the extent~~ new releases of operating systems or other third-party ~~products~~produc ts, platforms or devices, such as the Apple iPhone or iPad, make it more difficult for our products to perform, and our customers 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 and business models, disruptive software and hardware technology developments, frequent new product and service introductions, short product and service 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 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. For ~~example,~~

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exa mple, certain versions of Microsoft Windows ~~Vista~~ operating ~~system which contains~~systems contain a fixed document format, XPS, which competes with Adobe PDF. Additionally, certain versions of Microsoft Office ~~2007, which offers~~offer a feature to save Microsoft Office documents as PDF files, which competes with Adobe PDF creation. Microsoft Expression Studio competes with our Adobe Creative Suite family of products and Microsoft Silverlight and Visual Studio, Web development tools for RIAs, compete with Adobe Flash, Adobe Flex and Adobe AIR. ~~Google Gears and Sun’s~~Oracle’s (formerly Sun’s) JavaFX, alternative approaches to deploying RIAs, compete with Adobe Flash and Adobe AIR. Additionally, ~~HTML 5~~HTML5 specifies scripting ~~applications~~application programming interfaces which if broadly implemented in browsers could compete with the scripting capabilities found in Adobe ~~Flash.~~Flash technologies. Companies, such as Google, ~~Sun,~~Oracle (formerly Sun), Apple and Microsoft, may introduce competing software offerings for free or open source vendors may introduce competitive products. In addition, ~~recent~~r ecent advances in computing and communications technologies have made the ~~software as a service (“SaaS”)~~SaaS, or on-demand, business model viable. The SaaS model allows companies to provide hosted applications, data and related services over the Internet. ~~Providers~~SaaS providers primarily use ~~primarily~~ advertising or subscription-based revenue models. We are ~~exploring the deployment of~~further developing and deploying our own SaaS strategies through various business units, including our Omniture business unit, but ~~may not be able~~there are significant competitors in this area as well. For instance, our Adobe Online Marketing Suite competes with Google Analytics, which Google offers free of charge, and other competitive SaaS offerings from companies such as IBM (which acquired Coremetrics and has agreed to ~~develop the infrastructure~~acquire Unica and ~~business models as quickly as our competitors.~~Netezza), Yahoo! and WebTrends. If any ~~of these~~ competing products or services in these areas achieve widespread acceptance, our operating results could suffer. In addition, consolidation has occurred among some of the

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competitors in our markets. Any further consolidations among our competitors may result in stronger competitors and may therefore harm our results of operations. For additional 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 our Annual Report on Form 10-K for fiscal ~~2008.~~year 2009.

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 ~~transition to~~diversification into new business models. It is uncertain whether these strategies will prove successful or that we will be able to develop the infrastructure and business models as quickly as our competitors. Market acceptance of these new product and service offerings will be dependent on our ability to include functionality and usability in such releases that address certain customer requirements with which we have limited prior experience and operating history. 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~~signific ant technical, legal or other costs. For example, with our introduction of on-demand services, we are entering a market that is at an early stage of development. Market acceptance of such services is affected by a variety of factors, including security, reliability, 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 ~~strict~~stringent data protection laws, our liability exposure, compliance requirements and costs may increase. In addition, laws in the areas of privacy and ~~behavioral tracking~~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, use, store or transmit the ~~personal~~ information of ~~our~~ customers or employees, communicate with ~~our~~ 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. 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 source products could impact adoption or use ~~with respect to~~of some of our ~~products.~~products or services. To the extent we incorrectly estimate 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 ~~certain of~~ our technology, such as opening access to certain of our technologies as part of our Open Screen Project (“OSP”) initiative, 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 limited operating history, including the enterprise, government and mobile and non-pc device markets. In the enterprise and government markets, we intend to increase our focus on vertical markets such as education, financial services, manufacturing, ~~and the architecture, engineering and construction markets~~ and horizontal markets such as training and marketing. These new offerings and markets require a considerable investment of technical, financial 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, government and mobile and device markets, and greater ~~sales~~s ales, consulting and marketing resources. In the mobile and device markets, our intent is to partner with device makers, manufacturers 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 and our results of operations could be negatively impacted.

The continued uncertainty in economic conditions and the financial markets 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.

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countries continues to be slow and 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.

Revenue from our new businesses may be difficult to predict.

As previously discussed, we are devoting significant resources to the development of product and service offerings where we have a limited operating history. This makes it difficult to predict revenue and revenue may decline ~~quicker~~more quickly than anticipated. Additionally, we have a limited history of licensing products and offering services in certain markets such as the government and enterprise market and may experience a number of factors that will make our revenue less predictable, including longer than expected sales and implementation cycles, ~~decision~~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~~fro m our new businesses prove incorrect, our actual results may vary materially from those anticipated, estimated or projected.

For instance, the SaaS business model we utilize in our Omniture business unit typically involves selling services on a subscription basis pursuant to service agreements that are generally one to three years in length. Although many of our service 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 we cannot provide assurance that these subscriptions will be renewed at the same or higher level of service, if at all. Moreover, under some 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 be able to accurately predict future customer renewal rates. Our customers’ renewal rates may ~~incur substantial costs enforcing~~decline or ~~acquiring intellectual property rights and defending against third-party claims~~fluctuate as a result of ~~litigation~~a number of factors, including their satisfaction or ~~other proceedings.~~

~~In connection~~dissatisfaction with our services, the ~~enforcement~~prices of our ~~own intellectual property rights,~~services, the ~~acquisition~~prices of ~~third-party intellectual property rights,~~services offered by our competitors, mergers and acquisitions affecting our customer base, reductions in our customers’ spending levels, or ~~disputes relating to the validity~~declines in consumer Internet activity as a result of economic downturns or ~~alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may~~uncertainty 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 could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from manufacturing or licensing certain of our products, subject us to injunctions restricting our sale of products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments withfinancial markets. If our customers ~~including contractual provisions under various license arrangements. In addition, we~~do not renew their subscriptions for our services or if they renew on less favorable terms to us, our revenues may ~~incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these could seriously harm our business.~~decline.

~~We may not be able to protect our intellectual property rights, including our source code, from third-party infringers, or unauthorized copying, use, disclosure or malicious attack.~~

Although we defend our intellectual property rights and combat unlicensed copying 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 pursue software pirates 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, 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-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 situations it may be difficult and or costly for us to enforce our rights.

We also devote significant resources to maintaining the security of our products from malicious hackers who develop and deploy viruses, worms, and other malicious software programs that attack our products. Nevertheless, actual or perceived security vulnerabilities in our products could harm our reputation and lead some customers to seek to return products, to reduce or delay future purchases, to use competitive products or to make claims against us. Also, with the introduction of hosted services with some of our product offerings, our customers may use such services to share confidential and sensitive information. If a breach of security occurs on these hosted systems, we could be held liable to our customers or be subject to governmental complaints. Additionally, such breaches could lead to interruptions, delays and data loss and protection concerns as well as harm to our reputation.

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. Most recently, we completed the acquisition of Omniture in October 2009 and we announced ~~an agreement~~in July 2010 our intent to acquire ~~Omniture in September 2009.~~Day. We may not realize the anticipated benefits of an

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acquisition and each acquisition has numerous risks. These risks include:

difficulty in ~~assimilating~~integrating the operations and personnel of the acquired company;

difficulty in effectively integrating the acquired technologies, products or ~~products~~services with our current technologies, products ~~and technologies;~~or services;

difficulty in maintaining controls, procedures and policies during the transition and integration;

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 integrating the acquired company’s accounting, management information, human resources and other administrative systems;

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inability to retain key technical and managerial personnel of the acquired business;

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;

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;

potential additional exposure to fluctuations in currency exchange rates;

potential impairment of our relationships with employees, customers, partners, distributors or third-party providers of ~~technology~~our technologies, products or ~~products;~~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, 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;~~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; ~~and~~

potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product ~~offerings.~~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 prope rty 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, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these could seriously harm our business.

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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.

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-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 secret s may be disclosed or published without our authorization, and in these situations it may be difficult and/or costly for us to enforce our rights.

Security vulnerabilities in our products and systems could lead to reduced revenues or to liability claims.

Maintaining the security of computers and computer networks is a critical issue for us and our customers. Hackers may develop and deploy viruses, worms, and other malicious software programs that are designed to attack our products and systems, including our internal network. Although this is an industry-wide problem that affects computers and products across all platforms, it affects 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 been identified in certain of our products. These vulnerabilities could cause the application to crash and could potentially allow an attacker to take control of the affected system.

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, 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 protecting the ir existing computer systems from attack, which could delay adoption of new technologies. Any of these actions by customers could adversely affect our revenue.

Some of our businesses rely on us or third-party service providers to host and deliver services, and any interruptions or delays in our service or service from these third parties, security or privacy breaches, or failures in data collection could expose us to liability and harm our business and reputation.

Some of our businesses, including our Omniture business unit, rely on services hosted and controlled directly by us or by third parties. Because we hold large amounts of customer data and host certain of such data in third-party facilities, a security incident may compromise the integrity or availability of customer data, or customer data may be exposed to unauthorized access. 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 strong password controls, IP restriction and account controls are provided and supported, their use is contr olled 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 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 failures or errors in our systems 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

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may be delayed or interrupted by a number of factors, including access to the Internet, the failure of our network or software systems, security breaches or significant variability in visitor traffic on customer 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 near real time because of a number of factors, including significant spikes in consumer activity on their Websites 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, including those using services offered by our Omniture business unit, we collect 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 depen d 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 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 ~~two~~three distributors, Ingram Micro, Inc. ~~and~~, Tech Data Corporation and the Douglas Stewart Company, which represented ~~16%~~13%, 6% and 7%6% of our net revenue for the third quarter of fiscal ~~2009,~~2010, respectively. We have multiple non-exclusive, independently negotiated distribution agreements with Ingram Micro, ~~and~~ Tech Data and the Douglas Stewart Company and their 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 the third quarter of fiscal ~~2009,~~2010, no single ~~agreement~~a greement with these distributors was responsible for over 10% of our total net revenue. If any one of our agreements with these distributors were terminated, we believe we could make arrangements with new or existing distributors to distribute our

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products 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. Our distributors 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, 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 are 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 ~~OEM partners~~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 unable to withstand adverse changes in current economic conditions, which could result in insolvency of certain of our distributors and/or the inability of our distributors to obtain credit to finance purchases of our products. In addition, weakness in the end-user market could further negatively affect the cash flow of our distributors who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure. Our business could be

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harmed if the financial condition of some of these distributors substantially weakens 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 cycle associated with direct sales efforts, difficulty in hiring, retaining and motivating our direct sales force, and substantial amounts of training for sales representatives, including regular updates to cover new and upgraded ~~products.~~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.

We also provide products and services, directly and indirectly, to a variety of governmental entities, both domestically and internationally. The licensing and sale of products and services to governmental entities may require adherence to complex specific procurement regulations and other requirements. While we believe we have adequate controls in this area, failure to effectively manage this complexity and satisfy these requirements could result in the potential assessment of penalties and fines, harm to our reputation and lost sales opportunities to such governmental entities.

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 impact 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 support providers, our reputation may be harmed and our revenue may be adversely affected.

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 ~~Web site~~Website for our development, marketing, operational, support, hosted services and sales activities. In addition, some of our businesses rely on third-party hosted services and we do not control the operation of third-party data center 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, power loss, telecommunications failure, ~~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 development, lengthy interruptions in our services, breaches of data security and loss of critical data and could prevent us from fulfilling our 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 ~~Jose, California,~~Francisco Bay Area, which is 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. The market price for our common stock may be affected by a number of factors, including shortfalls in our net revenue, margins, earnings or key performance metrics, changes in estimates or recommendations by securities ~~analysts,~~analysts; the announcement of new products, or product enhancements or service introductions by us or our competitors, seasonal variations in the demand for our products and services and the implementation cycles for our new customers, the loss of a large customer or our inability to increase sales to existing customers and attract new customers, quarterly variations in our or our competitors’ results of operations, developments in our industry; unusual events such as significant acquisitions, divestitures and litigation, general socio-economic, regulatory, political or market conditions and other factors, including factors unrelated to our operating performance.

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We are subject to risks associated with ~~international~~global operations which may harm our business.

We ~~generate~~are a global business that generates almost 50% of our total revenue from sales to customers outside of the Americas. ~~Sales to these customers subject~~This subjects us to a number of risks, including:

foreign currency fluctuations;

changes in government preferences for software procurement;

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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, ~~international~~ legislative or regulatory requirements;

failure of ~~foreign~~ laws to protect our intellectual property rights adequately;

inadequate local ~~infrastructure;~~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;

~~the burdens of complying~~operating in locations with a ~~variety~~higher incidence of ~~foreign laws, including consumer~~corruption and ~~data protection laws;~~fraudulent business practices; and

other factors beyond our control, including terrorism, war, natural disasters and diseases.

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 ~~46%~~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 increases in costs and operating expenses, which would cause our results to suffer.

Moreover, ~~local~~as a global company, we are subject to varied and complex laws, regulations and customs domestically and internationally. These laws and ~~customs~~regulations relate to a number of aspects of our business, including trade protection, import and export control, data and transaction processing security, records management, gift policies, 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 ~~many countries differ significantly from those~~our business practices that result in reduced revenue and profitability. Non-compliance could al so result in fines, damages, criminal sanctions against us, our officers, or our employees, prohibitions on the ~~U.S.~~conduct of our business, and damage to our reputation. We incur additional legal compliance costs associated with our ~~international~~global operations and could become subject to legal penalties in foreign countries if we do not comply with local laws and regulations, which 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 which 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.

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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 ~~primarily~~ for ~~the Japanese Yen and the Euro.~~various currencies. 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 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 billion in senior unsecured notes. We also have a $1.0 billion revolving credit facility. 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

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 downgrades in our credit ratings may affect our ability to obtain additional financing in the future and may affect the terms of any such financing.

Changes in, or interpretations of, accounting principles could result in unfavorable accounting charges.

We prepare our Condensed Consolidated Financial Statements in accordance with 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 the accounting principles are as follows:

software and subscription revenue recognition;

~~accounting for stock-based compensation;~~

~~accounting for income taxes;~~ and

accounting for business combinations and related goodwill.

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In December 2007, the FASB issued ~~SFAS 141R~~revised standards for business combinations, which changes the accounting for business combinations including timing of the measurement of acquirer shares issued in consideration for a business combination, the timing of recognition and amount of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for ~~acquisition related~~acquisition-related restructuring liabilities, the treatment of ~~acquisition related~~acquisition-related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance. ~~SFAS 141R is~~The revised standards for business combinations were effective for ~~financial statements issued for~~us beginning the first quarter of fiscal ~~years beginning after December 15, 2008.~~2010. We ~~are in the process of evaluating the impact of the pending adoption of Statement 141R. We currently~~currentl y believe that the adoption of ~~Statement 141R~~the revised standards for business combinations will result in the recognition of certain types of expenses in our results of operations that we ~~currently capitalize~~previously capitalized pursuant to ~~existing~~prior accounting standards.

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In October 2009, the FASB amended the accounting standards for 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 BESP of deliverables if a vendor does not have VSOE of selling price or 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 prospective basis for applicable transactions originating or materially modified after November 27, 2009. The new accounting standards for rev enue 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 ~~also~~ 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 th at the newly adopted accounting principles could have on our ~~financial statements in other ways.~~revenue as these go-to-market strategies evolve.

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 required to be tested for 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. For example, our Mobile and Device Solutions business, which is now reported as part of our Platform segment in fiscal 2009, is in an emerging market with high growth potential. We recently announced the Open Screen Project. As part of the project, we will be removing the license fees on the next major releases of Adobe Flash Player and Adobe AIR for devices. Revenue from this segment has begun to decrease. Although we would expect this decrease to be offset in time by an increased demand for tooling products, server technologies, hosted services and applications, if future revenue or revenue forecasts for our Platform segment do not meet our expectations, we may be required to record a charge to earnings reflecting an impairment of recorded goodwill or intangible assets.operati ons.

Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.

We are a ~~U.S. based~~U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. 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, or 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 IRS and other domestic and foreign tax authorities, including a current examination by the IRS ~~for~~of our fiscal 2005, 2006 and 2007 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. 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~~a nd 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. 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, 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. ~~Recently enacted accounting~~Accounting regulations requiring the expensing of equity ~~compensation~~compen sation may impair our ability to provide these incentives without incurring significant compensation costs. Additionally, the recent significant adverse volatility in our stock price has resulted in many employees’ stock option exercise prices exceeding the underlying stock’s market value as well as deterioration in the value of employees’ restricted stock units granted, thus lessening the effectiveness of retaining employees through stock-based awards. 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.

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We believe that a critical contributor to our success to date has been our corporate culture, which we believe fosters innovation and teamwork. As we grow, including from the integration of employees and businesses acquired in connection with our 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 ~~August 28, 2009~~September 3, 2010 consisted of ~~US treasury~~money market mutual funds, U.S. Treasury securities, ~~bonds of government agencies, obligations of foreign governments,~~U.S. agency securities, municipal securities, corporate bonds and ~~taxable money market mutual funds.~~foreign government 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.

~~As a result of current adverse~~ Should uncertain financial market conditions continue, investments in some financial instruments may pose risks arising from ~~recent~~ market liquidity and credit concerns. In addition, any deterioration of the capital markets could cause other income and expense to vary from expectations. As of ~~August 28, 2009,~~September 3, 2010, we had no material impairment charges associated with our short-term investment portfolio, ~~relating to such adverse financial market conditions. Although~~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~~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.

~~We rely on turnkey assemblers and any adverse change in our relationship with our turnkey assemblers could result in a loss of revenue and harm our business.~~

We currently rely on six turnkey assemblers of our products, with at least two turnkeys located in each major region we serve. If any significant turnkey assembler terminates its relationship with us, or if our supply from any significant turnkey assembler is interrupted or terminated for any other reason, we may not have enough time or be able to replace the supply of products replicated by that turnkey assembler to avoid serious harm to our business.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Below is a summary of stock repurchases for the three months ended ~~August 28, 2009.~~September 3, 2010. See Note 1112 of our Notes to Condensed Consolidated Financial Statements for information regarding our stock repurchase ~~programs.~~program.

Plan/Period (1)

Shares
Repurchased (2)

Average
Price Per
Share

Maximum Number
of Shares that May
Yet be Purchased
Under the Plan

Stock Repurchase Program I
Beginning shares available to be repurchased as of May 29, 2009 129,677,547 (3)
May 30—June 26, 2009
From employees (4)
7 $ 30.15
Structured repurchases
— $ —
June 27—July 24, 2009
From employees (4)
— $ —
Structured repurchases
2,127,383 $ 27.42
July 25—August 28, 2009
From employees (4)
— $ —
Structured repurchases
1,850,895 $ 31.23
Adjustments to repurchase authority for net dilution
— $ — 6,155,922 (5)
Total shares repurchased
3,978,285 (3,978,285 )
Ending shares available to be repurchased under Program I as of August 28, 2009 131,855,184 (6)

Period(1)	Shares Repurchased(2)		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
	(in thousands, except average price per share)
June 5— July 2, 2010
Shares repurchased	5,195	$	31.82	5,195		—		(3)
Amended repurchase authority	—		—	—	$	1,600,000		(1)
July 3— July 30, 2010
Shares repurchased	8,450	$	27.61	8,450	$	(233,333	)	(4)
August 1— September 3, 2010
Shares repurchased	1,225	$	27.60	1,225	$	(33,798	)	(4)
Total	14,870			14,870	$	1,332,869

(1)

In December 1997, our Board of Directors authorized ~~Stock Repurchase Program I~~our stock repurchase program which iswas not subject to expiration. ~~However, this~~This repurchase program iswas limited to covering net dilution from stock issuances and iswas subject to business conditions and cash flow requirements as determined by our Board of Directors from time to time. In June 2010, our Board of Directors approved an amendment to change our 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 granted authority to repurchase up to $1.6 billion in common stock through the end of fiscal 2012.

(2)	~~All~~During the three months ended September 3, 2010, there were no shares that were ~~purchased as part of publicly announced plans.~~

~~(3)~~

~~Additional 109.0 million shares were issued for the acquisition of Macromedia which accounted for the majority of the repurchase authorization.~~

~~(4)~~

~~The repurchases from employees represent shares~~ cancelled when employees surrendered them in lieu of cash payments for withholding taxes due. These shares were not part of the publicly announced repurchase program.

~~(5)~~(3)

~~Adjustment~~In March 2010, we entered into a structured stock repurchase agreement with a large financial institution, whereupon we provided them with a prepayment of ~~authority to reflect changes~~$250.0 million. This agreement was part of our program that was authorized in December 1997 and is not part of the ~~dilution from outstanding shares and options.~~amended share repurchase program approved by our Board of Directors in June 2010.

~~(6)~~(4)

~~The remaining authorization for~~In June 2010, as part of the ~~ongoing~~amended program, we entered into structured stock repurchase ~~program is determined by combining all stock issuances, net~~agreements with large financial institutions whereupon we provided them with prepayments of ~~any cancelled, surrendered or exchanged shares less all stock repurchases~~$400.0 million. As of September 3, 2010, approximately $132.9 million of up-front payments remained under ~~the ongoing plan, beginning in the first quarter of fiscal 1998.~~these agreements.

ITEM 6. EXHIBITS

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~~

The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-Q.

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SIGNATURE

Pursuant to the requirements 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.

~~Exhibit~~	ADOBE SYSTEMS INCORPORATED


	By	/s/ Mark Garrett
		Mark Garrett
Incorporated by Reference**		~~Filed~~Executive Vice President and
~~Number~~		~~Exhibit Description~~Chief Financial Officer
		~~Form~~	~~Date~~	~~Number~~	~~Herewith~~(Principal Financial Officer)

3.3 Certificate of Designation of Series A Preferred Stock of Adobe Systems Incorporated 10-Q 7/08/03 3.3

4.1 Fourth Amended and Restated Rights Agreement between Adobe Systems Incorporated and Computershare Investor Services, LLC 8-K 7/03/00 1

4.1.1 Amendment No. 1 to Fourth Amended and Restated Rights Agreement between Adobe Systems Incorporated and Computershare Investor Services, LLC 8-A/2G/A 5/23/03 7

10.1 1984 Stock Option Plan, as amended* 10-Q 7/02/93 10.1.6

10.2 Amended 1994 Performance and Restricted Stock Plan* 10-Q 4/4/08 10.2

10.3 Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 10-K 1/23/09 10.3

10.4 1994 Stock Option Plan, as amended* S-8 5/30/97 10.40

10.5 1997 Employee Stock Purchase Plan, as amended* 10-K 1/24/08 10.5

10.6 1996 Outside Directors Stock Option Plan, as amended* 10-Q 4/12/06 10.6

10.7 Forms of Stock Option Agreements used in connection with the 1996 Outside Directors Stock Option Plan* S-8 6/16/00 4.8

10.8 1999 Nonstatutory Stock Option Plan, as amended* S-8 10/29/01 4.6

10.9 1999 Equity Incentive Plan, as amended* 10-K 2/26/03 10.37

10.10 2003 Equity Incentive Plan, as amended and restated* DEF 14A 2/20/09 Appendix A
Date: October 8, 2010

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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-Q:

Adobe

Adobe AIR

Acrobat

Adobe Connect

AIR

Captivate

ColdFusion

Creative Suite

Flash

Flash Builder

Flash Lite

Flex

Lightroom

LiveCycle

Omniture

Open Screen Project

Photoshop

PostScript

Reader

Shockwave

All other trademarks are the property of their respective owners.

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INDEX TO EXHIBITS

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*				X

10.4	1996 Outside Directors Stock Option Plan, as amended*	10-Q	4/12/06	10.6

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Exhibit		Incorporated by Reference**			Filed
Number	Exhibit Description	Form	Date	Number	Herewith

10.11 Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* 10-Q 4/4/08 10.11

10.12 Form of Indemnity Agreement* 10-Q 6/26/09 10.12

10.13 Forms of Retention Agreement* 10-K 11/28/97 10.44

10.14 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

10.15 Lease between Adobe Systems Incorporated and Selco Service Corporation, dated March 26, 2007 8-K 3/28/07 10.1

10.16 Participation Agreement among Adobe Systems Incorporated, Selco Service Corporation, et al. dated March 26, 2007 8-K 3/28/07 10.2

10.17 Lease Agreement by and between Allaire Corporation and EOP Riverside Project LLC dated November 23, 1999 10-K 3/30/00 10.23

10.18 First Amendment to Lease Agreement by and between Allaire Corporation and EOP Riverside Project LLC dated May 31, 2000 10-Q 8/14/00 10.3

10.19 Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan* 10-K 1/23/09 10.19

10.20 Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan* 10-K 1/23/09 10.20

10.21 Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan* 10-Q 10/07/04 10.11

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*	10-Q	4/04/08	10.11

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*	10-K	1/23/09	10.19

10.15	Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan*	10-K	1/23/09	10.20

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Exhibit		Incorporated by Reference**			Filed
Number	Exhibit Description	Form	Date	Number	Herewith

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

Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan*

10-Q

4/04/08

10.24

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

2008 Executive Officer Annual Incentive Plan*

8-K

1/30/08

10.4

Allaire Corporation 2000 Stock Incentive Plan*

S-8

3/27/01

4.08

10.23

2005 Equity Incentive Assumption Plan, as amended*

10-Q

4/4/08

10.23

Andromedia, Inc. 1999 Stock Plan*

S-8

12/07/99

4.09

10.24

Form of Stock Option Agreement used in connection with the 2005 Equity Incentive Assumption Plan*

10-Q

4/4/08

10.24

Blue Sky Software Corporation 1996 Stock Option Plan*

S-8

12/29/03

4.07

10.25

Allaire Corporation 1997 Stock Incentive Plan*

S-8

03/27/01

4.06

Macromedia, Inc. 1999 Stock Option Plan*

S-8

8/17/00

4.07

10.26

Allaire Corporation 1998 Stock Incentive Plan*

S-8

03/27/01

4.07

Macromedia, Inc. 1992 Equity Incentive Plan*

10-Q

8/03/01

10.01

10.27

Allaire Corporation 2000 Stock Incentive Plan*

S-8

03/27/01

4.08

Macromedia, Inc. 2002 Equity Incentive Plan*

S-8

8/10/05

4.08

10.28

Andromedia, Inc. 1996 Stock Option Plan*

S-8

12/07/99

4.07

Form of Macromedia, Inc. Stock Option Agreement*

S-8

8/10/05

4.09

10.29

Andromedia, Inc. 1997 Stock Option Plan*

S-8

12/07/99

4.08

Form of Macromedia, Inc. Revised Non-Plan Stock Option Agreement*

S-8

11/23/04

4.10

10.30

Andromedia, Inc. 1999 Stock Plan*

S-8

12/07/99

4.09

Form of Macromedia, Inc. Restricted Stock Purchase Agreement*

10-Q

2/08/05

10.01

10.31

ESI Software, Inc. 1996 Equity Incentive Plan*

S-8

10/18/99

4.08

10.32

eHelp Corporation 1999 Equity Incentive Plan*

S-8

12/29/03

4.08

10.33

Blue Sky Software Corporation 1996 Stock Option Plan*

S-8

12/29/03

4.07

10.34

Bright Tiger Technologies, Inc. 1996 Stock Option Plan*

S-8

03/27/01

4.11

10.35

Live Software, Inc. 1999 Stock Option/Stock Issuance Plan*

S-8

03/27/01

4.10

10.36

Macromedia, Inc. 1999 Stock Option Plan*

S-8

08/17/00

4.07

10.37

Macromedia, Inc. 1992 Equity Incentive Plan*

10-Q

08/03/01

10.01

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Exhibit		Incorporated by Reference**			Filed
Number	Exhibit Description	Form	Date	Number	Herewith

10.38 Macromedia, Inc. 2002 Equity Incentive Plan* S-8 08/10/05 4.08

10.39 Form of Macromedia, Inc. Stock Option Agreement* S-8 08/10/05 4.09

10.40 Middlesoft, Inc. 1999 Stock Option Plan* S-8 08/17/00 4.09

10.41 Form of Macromedia, Inc. Revised Non-Plan Stock Option Agreement* S-8 11/23/04 4.10

10.42 Form of Macromedia, Inc. Restricted Stock Purchase Agreement* 10-Q 2/08/05 10.01

10.43 Adobe Systems Incorporated Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/30/08 10.1

10.44 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

10.45 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

10.46 Adobe Systems Incorporated Deferred Compensation Plan* 10-K 1/24/08 10.52

10.47 Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan* 8-K 1/30/07 10.1

10.48 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

10.31	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

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

5367

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Exhibit		Incorporated by Reference**			Filed
Number	Exhibit Description	Form	Date	Number	Herewith

10.49 Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan* 8-K 1/30/07 10.3

10.50 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

10.51 Adobe Systems Incorporated Executive Cash Bonus Plan* DEF 14A 2/24/06 Appendix B

10.52 First Amendment to Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective as of February 11, 2008* 8-K 2/13/08 10.1

10.53 Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control* 8-K 2/13/08 10.2

10.54 Employment offer letter between Adobe Systems Incorporated and Richard Rowley, dated October 30, 2006* 8-K 11/16/06 10.1

10.55 Employment offer letter between Adobe Systems Incorporated and Mark Garrett dated January 5, 2007* 8-K 1/26/07 10.1

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	First Amendment to Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective as of February 11, 2008*	8-K	2/13/08	10.1

10.41	Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control*	8-K	2/13/08	10.2

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

5468

TABLE OF CONTENTS

Exhibit		Incorporated by Reference**			Filed
Number	Exhibit Description	Form	Date	Number	Herewith

10.56 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

10.57 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

10.58 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

10.59 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

10.60 Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan* 10-K 1/23/09 10.60

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

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

5569

TABLE OF CONTENTS

Exhibit		Incorporated by Reference**			Filed
Number	Exhibit Description	Form	Date	Number	Herewith

10.61 Form of Director Initial Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* 10-K 1/23/09 10.61

10.62 Form of Director Annual Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan* 10-K 1/23/09 10.62

10.63 Description of 2009 Director Compensation* 10-K 1/23/09 10.63

10.64 2009 Performance Share Program Award Calculation Methodology* 8-K 1/29/09 10.3

10.65 2009 Executive Annual Incentive Plan* 8-K 1/29/09 10.4

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

101.LAB XBRL Taxonomy Extension Labels†† X

10.48	Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan*	10-K	1/23/09	10.60

10.49	Form of Director Initial Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan*	10-K	1/23/09	10.61

10.50	Form of Director Annual Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan*	10-K	1/23/09	10.62

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

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

5670

TABLE OF CONTENTS

Exhibit				Incorporated by Reference**						Filed
Number		Exhibit Description		Form		Date		Number		Herewith

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

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

TABLE OF CONTENTS

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation††~~Exhibit

Incorporated by Reference**

Filed

Number

XExhibit Description

Form

Date

Number

Herewith

10.67	Form of Performance Share Program Award Grant Notice and Performance Share Award Agreement pursuant to the 2003 Equity Incentive Plan*	8-K	1/29/10	10.2

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

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

101.LAB	XBRL Taxonomy Extension Labels††				X

101.PRE	XBRL Taxonomy Extension Presentation††				X

TABLE OF CONTENTS

Exhibit		Incorporated by Reference**			Filed
Number	Exhibit Description	Form	Date	Number	Herewith

101.DEF

XBRL Taxonomy Extension Definition††

*	Compensatory plan or arrangement.

**	References to Exhibits ~~10.17 and 10.18~~10.20 through 10.30 are to filings made by ~~the Allaire Corporation.~~Macromedia, Inc. References to Exhibits ~~10.25~~10.53 through ~~10.42~~10.65 are to filings made by ~~Macromedia,~~Omniture, Inc.

†

The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, 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-Q, irrespective of any general incorporation language contained in such filing.

††

~~Furnished,~~In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not ~~filed.~~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.

~~TABLE OF CONTENTS~~

~~SIGNATURE~~

~~Pursuant to the requirements 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.~~

	~~ADOBE SYSTEMS INCORPORATED~~


	By	~~/s/~~ ~~Mark Garrett~~
		~~Mark Garrett~~
		~~Executive Vice President and~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer)~~

~~Date: October 1, 2009~~

~~TABLE OF CONTENTS~~

~~SUMMARY OF TRADEMARKS~~

~~The following trademarks of Adobe Systems Incorporated or its subsidiaries, which may be registered in the U.S. and/or other countries, are referenced in this Form 10-Q:~~

~~Adobe~~

~~Adobe AIR~~

~~Acrobat~~

~~Acrobat Connect~~

~~Creative Suite~~

~~Flash~~

~~Flash Lite~~

~~Flex~~

~~Flex Builder~~

~~Lightroom~~

~~LiveCycle~~

~~Macromedia~~

~~Photoshop~~

~~PostScript~~

~~Reader~~

~~Shockwave~~

~~All other trademarks are the property of their respective owners.~~

5973

	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)
Current assets:
Money market funds and overnight deposits(1)	$	1,093,201	$	1,093,201	$	—	$	—
Fixed income available-for-sale securities(2)		1,424,393		—		1,424,393		—
Available-for-sale equity securities(3)		4,944		4,944		—		—
Total current assets		2,522,538		1,098,145		1,424,393		—
Non-current assets:
Investments of limited partnership(4)		34,705		—		—		34,705
Foreign currency derivatives(5)		4,688		—		4,688		—
Deferred compensation plan assets(4):
Money market funds		770		770		—		—
Equity and fixed income mutual funds		7,754		—		7,754		—
Subtotal for deferred compensation plan assets		8,524		770		7,754		—
Total non-current assets		47,917		770		12,442		34,705
Total assets	$	2,570,455	$	1,098,915	$	1,436,835	$	34,705
Liabilities:
Foreign currency derivatives(6)	$	729	$	—	$	729	$	—
Total liabilities	$	729	$	—	$	729	$	—

	November 28, 2008		Costs Incurred		Cash Payments			Other Adjustments		August 28, 2009		Total Costs Incurred to Date		Total Costs Expected to be Incurred
Termination benefits	$	28,759	$	6,722	$	(34,042	)	$	174	$	1,613	$	36,102	$	36,121
Cost of closing redundant facilities		—		8,514		(4,488	)		613		4,639		9,127		9,601
Total	$	28,759	$	15,236	$	(38,530	)	$	787	$	6,252	$	45,229	$	45,722

	Percent Change 2008 to 2009 QTD			Percent Change 2008 to 2009 YTD
Provision for bad debts		(5	)%		—	%
Facilities and telecommunication		(2	)		(2	)
Professional and consulting fees		(18	)		(6	)
Compensation associated with incentive compensation and stock-based compensation		(8	)		(8	)
Charitable contributions		10			—
Various individually insignificant items		5			3
Total change		(18	)%		(13	)%

Plan/Period (1)	Shares Repurchased (2)		Average Price Per Share		Maximum Number of Shares that May Yet be Purchased Under the Plan
Stock Repurchase Program I
Beginning shares available to be repurchased as of May 29, 2009					129,677,547		(3)
May 30—June 26, 2009
From employees (4)		7	$	30.15
Structured repurchases		—	$	—
June 27—July 24, 2009
From employees (4)		—	$	—
Structured repurchases		2,127,383	$	27.42
July 25—August 28, 2009
From employees (4)		—	$	—
Structured repurchases		1,850,895	$	31.23
Adjustments to repurchase authority for net dilution		—	$	—	6,155,922		(5)
Total shares repurchased		3,978,285			(3,978,285	)
Ending shares available to be repurchased under Program I as of August 28, 2009					131,855,184		(6)


10.38	Macromedia, Inc. 2002 Equity Incentive Plan*	S-8	08/10/05	4.08

10.39	Form of Macromedia, Inc. Stock Option Agreement*	S-8	08/10/05	4.09

10.40	Middlesoft, Inc. 1999 Stock Option Plan*	S-8	08/17/00	4.09

10.41	Form of Macromedia, Inc. Revised Non-Plan Stock Option Agreement*	S-8	11/23/04	4.10

10.42	Form of Macromedia, Inc. Restricted Stock Purchase Agreement*	10-Q	2/08/05	10.01

10.43	Adobe Systems Incorporated Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan*	8-K	1/30/08	10.1

10.44	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

10.45	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

10.46	Adobe Systems Incorporated Deferred Compensation Plan*	10-K	1/24/08	10.52

10.47	Adobe Systems Incorporated 2007 Performance Share Program pursuant to the 2003 Equity Incentive Plan*	8-K	1/30/07	10.1

10.48	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