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 June 3, 2011


	~~For the quarterly period ended September 3, 2010~~

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

For the transition period fromto

Commission File Number: 0-15175

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)

~~(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 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” 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 ~~October 1, 2010~~June 24, 2011 was ~~508,716,666.~~493,866,593.

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 ~~September~~June 3, 2011 and December 3, 2010 ~~and November 27, 2009~~	3
		Condensed Consolidated Statements of Income Three and ~~Nine~~Six Months Ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010	4
		Condensed Consolidated Statements of Cash Flows ~~Nine~~ Six Months Ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010	5
		Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33 30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49 42
Item 4.	Controls and Procedures	49 42

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	49 43
Item 1A.	Risk Factors	50 43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61 52
Item 6.	Exhibits	61 52
Signature		62 53
Summary of Trademarks		63 54
Index to Exhibits		64 55

Table of Contents

~~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)~~



	June 3, 2011			December 3, 2010
	(Unaudited)			(*)
ASSETS
Current assets:
Cash and cash equivalents	$	827,475		$	749,891
Short-term investments	1,798,045			1,718,124
Trade receivables, net of allowances for doubtful accounts of $14,603 and $15,233, respectively	568,570			554,328
Deferred income taxes	68,017			83,247
Prepaid expenses and other current assets	127,211			110,460
Total current assets	3,389,318			3,216,050
Property and equipment, net	463,415			448,881
Goodwill	3,693,505			3,641,844
Purchased and other intangibles, net	424,199			457,263
Investment in lease receivable	207,239			207,239
Other assets	162,040			169,871
Total assets	$	8,339,716		$	8,141,148

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	60,533		$	52,432
Accrued expenses	496,535			564,275
Capital lease obligations	9,003			8,799
Accrued restructuring	5,260			8,119
Income taxes payable	40,970			53,715
Deferred revenue	438,078			380,748
Total current liabilities	1,050,379			1,068,088
Long-term liabilities:
Debt and capital lease obligations	1,509,428			1,513,662
Deferred revenue	43,949			48,929
Accrued restructuring	7,203			8,254
Income taxes payable	173,023			164,713
Deferred income taxes	121,996			103,098
Other liabilities	44,323			42,017
Total liabilities	2,950,301			2,948,761
Stockholders’ equity:
Common stock, $0.0001 par value; 900,000 shares authorized; 600,834 shares issued; 493,763 and 501,897 shares outstanding, respectively	61			61
Additional paid-in-capital	2,611,997			2,458,278
Retained earnings	6,228,574			5,980,914
Accumulated other comprehensive income	54,342			17,428
Treasury stock, at cost (107,071 and 98,937 shares, respectively), net of reissuances	(3,505,559		)	(3,264,294		)
Total stockholders’ equity	5,389,415			5,192,387
Total liabilities and stockholders’ equity	$	8,339,716		$	8,141,148

^{_________________________________________}

September 3,
2010

November 27,
2009

ASSETS
Current assets:
Cash and cash equivalents
$ 814,149 $ 999,487
Short-term investments
1,764,125 904,986
Trade receivables, net of allowances for doubtful accounts of $13,701 and $15,225, respectively 484,550 410,879
Deferred income taxes
76,765 77,417
Prepaid expenses and other current assets
96,826 80,855
Total current assets
3,236,415 2,473,624
Property and equipment, net
422,920 388,132
Goodwill
3,489,938 3,494,589
Purchased and other intangibles, net
413,091 527,388
Investment in lease receivable
207,239 207,239
Other assets
177,426 191,265
Total assets
$ 7,947,029 $ 7,282,237

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables
$ 56,465 $ 58,904
Accrued expenses
468,477 419,646
Captial lease obligations, current
8,698 —
Accrued restructuring
9,222 37,793
Income taxes payable
48,413 46,634
Deferred revenue
375,927 281,576
Total current liabilities
967,202 844,553
Long-term liabilities:
Debt and captial lease obligations, non-current
1,515,752 1,000,000
Deferred revenue
44,988 36,717
Accrued restructuring
7,831 6,921
Income taxes payable
221,736 223,528
Deferred income taxes
73,108 252,486
Other liabilities
31,554 27,464
Total liabilities
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; 513,057 and 522,657 shares outstanding, respectively 61 61
Additional paid-in-capital
2,425,083 2,390,061
Retained earnings
5,738,864 5,299,914
Accumulated other comprehensive income
21,571 24,446
Treasury stock, at cost (87,777 and 78,177 shares, respectively), net of reissuances (3,100,721 ) (2,823,914 )
Total stockholders’ equity
5,084,858 4,890,568
Total liabilities and stockholders’ equity
$ 7,947,029 $ 7,282,237



(*)	The Condensed Consolidated Balance Sheet at December 3, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

~~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						Six Month Ended
		September 3, 2010			August 28, 2009			September 3, 2010			August 28, 2009		June 3, 2011			June 4, 2010			June 3, 2011			June 4, 2010
Revenue:
Products	$	829,096		$	636,546		$	2,328,294		$	2,014,392		$	830,281		$	795,260		$	1,672,970		$	1,499,198
Subscription		98,632			13,319			286,418			37,727		109,169			92,279			215,340			187,786
Services and support		62,591			47,642			177,342			136,451		83,729			55,496			162,575			114,751
Total revenue		990,319			697,507			2,792,054			2,188,570		1,023,179			943,035			2,050,885			1,801,735
Cost of revenue:
Products		29,147			40,754			92,302			139,867		34,666			39,645			65,383			63,155
Subscription		50,483			8,611			146,408			24,174		47,329			50,190			95,207			95,925
Services and support		19,454			15,682			57,575			50,367		27,206			17,998			56,250			38,121
Total cost of revenue		99,084			65,047			296,285			214,408		109,201			107,833			216,840			197,201
Gross profit		891,235			632,460			2,495,769			1,974,162		913,978			835,202			1,834,045			1,604,534
Operating expenses:
Research and development		168,296			138,902			509,954			427,289		183,211			167,318			361,611			341,658
Sales and marketing		303,219			231,320			921,489			724,020		348,690			320,976			676,768			618,270
General and administrative		102,177			79,593			283,176			224,462		95,547			89,953			196,526			180,999
Restructuring charges		(2,090	)		65			21,073			15,866		(586		)	11,541			(545		)	23,163
Amortization of purchased intangibles		17,620			14,978			53,946			45,654		10,392			18,129			20,627			36,326
Total operating expenses		589,222			464,858			1,789,638			1,437,291		637,254			607,917			1,254,987			1,200,416
Operating income		302,013			167,602			706,131			536,871		276,724			227,285			579,058			404,118
Non-operating income (expense):
Interest and other income (expense), net		7,607			6,667			1,905			24,753		(839		)	(6,313		)	(1,656		)	(5,702		)
Interest expense		(16,395	)		(460	)		(40,166	)		(1,872	)	(16,727		)	(16,076		)	(33,747		)	(23,771		)
Investment gains (losses), net		3,527			607			(10,730	)		(18,444	)	86			(10,723		)	1,676			(14,257		)
Total non-operating income (expense), net		(5,261	)		6,814			(48,991	)		4,437		(17,480		)	(33,112		)	(33,727		)	(43,730		)
Income before income taxes		296,752			174,416			657,140			541,308		259,244			194,173			545,331			360,388
Provision for income taxes		66,687			38,371			151,310			122,757		29,808			45,562			81,304			84,623
Net income	$	230,065		$	136,045		$	505,830		$	418,551		$	229,436		$	148,611		$	464,027		$	275,765
Basic net income per share	$	0.44		$	0.26		$	0.97		$	0.79		$	0.46		$	0.28		$	0.92		$	0.53
Shares used to compute basic net income per share		518,710			525,911			523,039			528,015		499,686			526,148			501,910			525,124
Diluted net income per share	$	0.44		$	0.26		$	0.95		$	0.79		$	0.45		$	0.28		$	0.91		$	0.52
Shares used to compute diluted net income per share		523,179			531,809			530,356			532,846		506,280			533,259			509,572			533,305

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

~~TABLE OF CONTENTS~~

ADOBE SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended					Six Months Ended
		September 3, 2010			August 28, 2009		June 3, 2011			June 4, 2010
Cash flows from operating activities:
Net income	$	505,830		$	418,551		$	464,027		$	275,765
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		216,641			197,386		132,906			143,487
Stock-based compensation		174,245			126,231		145,851			124,577
Deferred income taxes		(176,882	)		22,671		28,796			(178,038		)
Unrealized losses on investments		8,766			13,308
Unrealized (gains) losses on investments							(567		)	12,222
Tax benefit from employee stock option plans		37,987			2,711		7,322			38,743
Other non-cash items		2,054			8,948		3,392			1,182
Excess tax benefits from stock-based compensation		(10,172	)		(84	)	(8,778		)	(8,485		)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net		(74,722	)		182,377		(16,032		)	(27,999		)
Prepaid expenses and other current assets		(11,953	)		15,663		(15,580		)	(8,808		)
Trade payables		(2,439	)		(7,424	)	8,101			(8,631		)
Accrued expenses		52,100			(44,351	)	(72,145		)	53,132
Accrued restructuring		(26,294	)		(27,527	)	(4,206		)	(18,962		)
Income taxes payable		3,445			12,619		(4,004		)	25,580
Deferred revenue		103,758			(57,126	)	52,350			87,186
Net cash provided by operating activities		802,364			863,953		721,433			510,951
Cash flows from investing activities:
Purchases of short-term investments		(1,999,341	)		(1,142,015	)	(1,137,730		)	(1,202,326		)
Maturities of short-term investments		512,534			333,219		254,706			285,889
Proceeds from sales of short-term investments		629,673			504,958		798,484			318,092
Acquisitions, net of cash acquired							(36,572		)	—
Purchases of property and equipment		(114,215	)		(84,659	)	(69,922		)	(75,175		)
Proceeds from sale of property and equipment		32,151			—
Purchases of long-term investments and other assets		(22,876	)		(24,891	)	(10,672		)	(18,998		)
Proceeds from sale of long-term investments		3,586			4,909		4,230			719
Other		2,198			3,271		(124		)	2,177
Net cash used for investing activities		(956,290	)		(405,208	)	(197,600		)	(689,622		)
Cash flows from financing activities:
Purchases of treasury stock		(650,020	)		(350,013	)	(545,015		)	(250,020		)
Proceeds from issuance of treasury stock		129,640			122,219		87,383			84,060
Excess tax benefits from stock-based compensation		10,172			84		8,778			8,485
Proceeds from debt		1,493,439			—		—			1,493,439
Repayment of debt and captial lease obligations		(1,001,559	)		—
Repayment of debt and capital lease obligations							(3,624		)	(1,000,058		)
Debt issuance costs		(10,662	)		—		—			(10,662		)
Net cash used for financing activities		(28,990	)		(227,710	)
Net cash (used for) provided by financing activities							(452,478		)	325,244
Effect of foreign currency exchange rates on cash and cash equivalents		(2,422	)		14,659		6,229			(8,454		)
Net (decrease) increase in cash and cash equivalents		(185,338	)		245,694
Net increase in cash and cash equivalents							77,584			138,119
Cash and cash equivalents at beginning of period		999,487			886,450		749,891			999,487
Cash and cash equivalents at end of period	$	814,149		$	1,132,144		$	827,475		$	1,137,606
Supplemental disclosures:
Cash paid for income taxes, net of refunds	$	286,271		$	78,635		$	54,381		$	198,512
Cash paid for interest	$	34,135		$	1,941		$	31,972		$	2,742
Non-cash investing activities:
Property and equipment acquired under capital leases	$	32,151		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

~~TABLE OF CONTENTS~~

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 ~~int erim~~interim period or for the full fiscal year. Certain immaterial prior year amounts have been reclassified to conform to the current year presentation in the Condensed Consolidated Statements of Cash Flows. 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 27, 2009~~December 3, 2010 on file with the SEC. The ~~nine~~six months ended ~~September 3,~~June 4, 2010 financial results ~~benefitted~~benefited from an extra week in the first quarter of fiscal 2010 due to our 52/53 week financial calendar whereby fiscal 2010 iswas a 53-week year compared with fiscal ~~2009~~2011 which ~~was~~is a 52-week year.

~~Significant Accounting Policies~~

~~With the exception of the adoption of an accounting pronouncement related to revenue recognition, discussed below, there~~There have been no material changes to 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 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~~December 3, 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.

~~TABLE OF CONTENTS~~.

~~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.

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.

Recent Accounting Pronouncements

There have ~~also~~ been no new accounting pronouncements during the ~~nine~~six months ended ~~September~~June 3, ~~2010, with the exception of those discussed below,~~2011, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended ~~November 27, 2009,~~December 3, 2010, that are of significance, or potential significance, to us.

~~Fair Value Measurements~~

In January 2010, the FASB issued new accounting guidance expanding disclosures about fair value measurements by adding disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements and the transfers between Levels 1, 2 and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to the activity in Level 3 fair value measurements. Those disclosure requirements are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. We adopted the new disclosures in the second quarter of fiscal 2010, which included changing t he description of certain asset classes in the tables in Notes 3 and 4 to conform with the requirements of the new guidance. We will adopt the Level 3 requirements in the first quarter of fiscal 2012. Since the adoption of the new standards only required additional disclosure, the adoption did not have an impact on our consolidated financial position, results of operations and cash flows.

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~

~~Variable Interest Entities~~

In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These new standards amend the evaluation criteria to identify the primary beneficiary of a variable interest entity and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the variable interest entity. The provisions of the new standards are effective for annual reporting periods beginning after November 15, 2009 and interim periods within those fiscal years. These standards were effective for us beginning in the first quarter of fiscal 2010. The adoption of the new standards did not have an impact on our consolidated financial position, results of operations and cash flows.

~~Intangible Assets Useful Lives~~

In April 2008, the FASB issued new standards which provided guidance on how to determine the useful life of intangible assets by amending the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. These standards are effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and was effective for us beginning in the first quarter of fiscal 2010. There was no impact to our current consolidated financial statements as we did not purchase any intangible assets during the three and nine months end ed September 3, 2010.

~~Business Combinations and Non-Controlling Interests~~

In December 2007, the FASB revised their guidance for business combinations and non-controlling interests. The new standards change how business acquisitions are accounted for and impact financial statements both on the acquisition date and in subsequent periods. The changes also impact the accounting and reporting for minority interests, which are recharacterized as non-controlling interests and classified as a component of equity. The new standards were effective for us beginning in the first quarter of fiscal 2010. We currently believe that depending on the size and frequency of acquisitions, the adoption of these standards may have a material effect on our future consolidated financial statements. There was no material impact to our current consolidated financial statements as we did not have any business combinations close during the three and nine months ended September 3, 2010.

NOTE 2. ACQUISITIONS

Demdex

~~Omniture, Inc.~~

On ~~October 23, 2009, we completed the acquisition of Omniture, Inc. (“Omniture”)~~January 18, 2011, ~~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~~acquisition of privately held Demdex, a data management platform company. The impact of this acquisition was not material to ~~acquire all~~our consolidated balance sheets or results of ~~the outstanding shares~~operations.

Day Software Holding AG

On October 28, 2010, we completed our acquisition of ~~Omniture common stock at~~Day Software Holding AG(“Day”), a ~~price~~provider of ~~$21.50 per share, net to the seller in cash, without interest. Acquiring Omniture accelerates our strategy of delivering more effective solutions for creating, delivering, measuring and optimizing~~ Web content management solutions that many leading global enterprises rely on for Web 2.0 content application and ~~applications. The transaction was accounted~~content infrastructure. Day is based in Basel, Switzerland and Boston, Massachusetts. We believe that our acquisition of Day has enabled us to provide comprehensive solutions to create, manage, deliver and optimize Web content. Following the closing, we integrated Day as a product line within our Enterprise segment for ~~using the purchase method of accounting.~~financial reporting purposes. We have included the financial results of ~~Omniture~~Day in our Condensed Consolidated Financial Statements beginning on the acquisition date. ~~Following~~

Under the ~~closing, we integrated Omniture a s a new segment for financial reporting purposes.~~

~~The~~acquisition method of accounting,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 allocated to Day’s net tangible and intangible assets based upon ~~a preliminary valuation and our estimates and assumptions.~~their estimated fair values as of October 28, 2010. During the first ~~half~~six months of fiscal ~~2010,~~2011, 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 theallocation. The total final purchase price ~~$1.34 billion has been~~for Day was approximately $248.3 million of which approximately $157.0 million was allocated to goodwill, $ ~~436.1~~79.2 million to substantially all of the identifiable intangible assets ~~$33.4~~and $9.0 million to net tangible ~~assets and $11.3 million~~assets. The impact of this acquisition was not material to ~~restructuring liabilities. We also expensed $4.6 million for in-process research and development charges.~~

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~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~

~~The following table presents the~~our condensed consolidated balance sheets or 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.operations.

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 3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. We classify all of our cash equivalents and short-term investments as “available-for-sale.” In general, these investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information. Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in our Condensed Consolidated Balance Sheets. Gains and losses are recognized when realized in our Condensed Consolidated Statements of Income. When we have determined that an other-than-temporary decline in fair value has occurred, the amount of the decline that is ~~relat ed~~related to a credit loss is recognized in ~~earnings.~~income. Gains and losses are determined using the specific identification method.

Table of Contents

~~TABLE OF CONTENTS~~

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Cash, cash equivalents and short-term investments consisted of the following as of ~~September~~June 3, ~~2010~~2011 (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Current assets:
Cash	$	181,036	$	—	$	—		$	181,036
Cash equivalents:
Commercial paper	28,044		—		—			28,044
Money market mutual funds and repurchase agreements	576,878		—		—			576,878
Municipal securities	601		—		—			601
Time deposits	40,916		—		—			40,916
Total cash equivalents	646,439		—		—			646,439
Total cash and cash equivalents	827,475		—		—			827,475
Short-term fixed income securities:
Corporate bonds and commercial paper	1,038,924		9,263		(269		)	1,047,918
Foreign government securities	16,443		137		—			16,580
Municipal securities	118,453		198		(18		)	118,633
U.S. agency securities	214,279		1,424		—			215,703
U.S. Treasury securities	383,913		2,189		(1		)	386,101
Subtotal	1,772,012		13,211		(288		)	1,784,935
Marketable equity securities	10,778		2,332		—			13,110
Total short-term investments	1,782,790		15,543		(288		)	1,798,045
Total cash, cash equivalents and short-term investments	$	2,610,265	$	15,543	$	(288	)	$	2,625,520

Table of Contents

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value

Current assets:
Cash $ 93,170 $ — $ — $ 93,170
Cash equivalents:
Money market mutual funds 597,801 — — 597,801
Time deposits 57,238 — — 57,238
U.S. agency securities 19,599 1 — 19,600
Corporate bonds 46,340 — — 46,340
Total cash equivalents 720,978 1 — 720,979
Total cash and cash equivalents 814,148 1 — 814,149
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 808,745 8,720 (252 ) 817,213
Foreign government securities 65,475 633 (2 ) 66,106
Subtotal 1,735,773 13,642 (326 ) 1,749,089
Marketable equity securities 10,950 4,086 — 15,036
Total short-term investments 1,746,723 17,728 (326 ) 1,764,125
Total cash, cash equivalents and short-term investments $ 2,560,871 $ 17,729 $ (326 ) $ 2,578,274
ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Cash, cash equivalents and short-term investments consisted of the following as of ~~November 27, 2009~~December 3, 2010 (in thousands):


		Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Current assets:
Cash	$	75,110	$	—	$	—		$	75,110	$	98,691	$	—	$	—		$	98,691
Cash equivalents:
Money market mutual funds		884,240		—		—			884,240
Commercial paper										41,389		—		—			41,389
Money market mutual funds and repurchase agreements										477,259		—		—			477,259
Municipal securities										350		—		—			350
Time deposits		40,137		—		—			40,137	64,006		—		—			64,006
U.S. Treasury securities										68,195		1		—			68,196
Total cash equivalents		924,377		—		—			924,377	651,199		1		—			651,200
Total cash and cash equivalents		999,487		—		—			999,487	749,890		1		—			749,891
Short-term fixed income securities:
Corporate bonds and commercial paper										977,889		8,079		(1,450		)	984,518
Foreign government securities										33,079		309		(2		)	33,386
Municipal securities										119,608		29		(32		)	119,605
U.S. agency securities										229,772		778		(179		)	230,371
U.S. Treasury securities		373,180		3,199		(1	)		376,378	336,441		2,828		(209		)	339,060
U.S. agency securities		59,447		273		—			59,720
Corporate bonds		407,465		8,111		(1	)		415,575
Foreign government securities		47,620		666		—			48,286
Subtotal		887,712		12,249		(2	)		899,959	1,696,789		12,023		(1,872		)	1,706,940
Marketable equity securities		2,527		2,500		—			5,027	11,196		1,122		(1,134		)	11,184
Total short-term investments		890,239		14,749		(2	)		904,986	1,707,985		13,145		(3,006		)	1,718,124
Total cash, cash equivalents and short-term investments	$	1,889,726	$	14,749	$	(2	)	$	1,904,473	$	2,457,875	$	13,146	$	(3,006	)	$	2,468,015

See Note 4 for further information regarding the fair value of our financial instruments.

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

~~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, that have been in a continuous unrealized loss position for less than twelve months, as of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009~~December 3, 2010 (in thousands):



	2011					2010
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Corporate bonds and commercial paper	$	96,582	$	(269	)	$	257,615	$	(1,450	)
Foreign government securities	—		—			4,531		(2		)
Marketable equity securities	—		—			9,380		(1,134		)
Municipal securities	20,172		(18		)	43,028		(32		)
U.S. Treasury and agency securities	6,533		(1		)	192,702		(388		)
Total	$	123,287	$	(288	)	$	507,256	$	(3,006	)

2010 2009

Fair
Value

Gross Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

U.S. Treasury and agency securities
$ 89,272 $ (43 ) $ 11,179 $ (1 )
Corporate bonds
117,257 (252 ) 5,041 (1 )
Foreign government securities
4,335 (2 ) — —
Municipal securities
31,092 (29 ) — —
Total
$ 241,956 $ (326 ) $ 16,220 $ (2 )

As of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009,~~December 3, 2010, there were no securities in a continuous unrealized loss position for more than twelve months. There were 7663 securities and 4168 securities that were in an unrealized loss position at ~~September~~June 3, ~~2010~~2011 and at ~~November 27, 2009,~~December 3, 2010, respectively.

Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table summarizes the cost and estimated fair value of short-term fixed income securities classified as short-term investments based on stated effective maturities as of ~~September~~June 3, ~~2010~~2011 (in thousands):


		Amortized Cost		Estimated Fair Value	Amortized Cost		Estimated Fair Value
Due within one year	$	854,720	$	856,275	$	776,046	$	778,874
Due within two years		472,194		477,545	558,841		563,185
Due within three years		336,531		340,439	376,128		381,038
Due after three years		72,328		74,830	60,997		61,838
Total	$	1,735,773	$	1,749,089	$	1,772,012	$	1,784,935

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. For debt securities, the portion of the write-down related to credit loss would be recorded to interest and other income, net in our Condensed Consolidated Statements of Income. Any portion not related to credit loss would be recorded to accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in our Condensed Consolidated Balance Sheets. For equity securities, the write-down would be recorded to investment gains (losses), net in our Condensed Consolidated Statements of Income. As of ~~September~~June 3, ~~2010,~~2011, we did not ~~consider~~record any other-than-temporary impairment losses associated with our debt and marketable equity securities.

Table of ~~our investments to be other-than-temporarily impaired.~~Contents

~~TABLE OF CONTENTS~~

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 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~~six months ended ~~September~~June 3, ~~2010.~~2011.

The fair value of our financial assets and liabilities at ~~September~~June 3, ~~2010~~2011 was determined using the following inputs (in thousands):



	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	28,044	$	—	$	28,044	$	—
Foreign government securities	—		—		—		—
Money market mutual funds and repurchase agreements	576,878		576,878		—		—
Municipal securities	601		—		601		—
Time deposits	40,916		40,916		—		—
U.S. agency securities	—		—		—		—
U.S. Treasury securities	—		—		—		—
Short-term investments:
Corporate bonds and commercial paper	1,047,918		—		1,047,918		—
Foreign government securities	16,580		—		16,580		—
Marketable equity securities	13,110		13,110		—		—
Municipal securities	118,633		—		118,633		—
U.S. agency securities	215,703		—		215,703		—
U.S. Treasury securities	386,101		—		386,101		—
Prepaid expenses and other current assets:
Foreign currency derivatives	10,026		—		10,026		—
Other assets:
Deferred compensation plan assets	12,822		522		12,300		—
Total assets	$	2,467,332	$	631,426	$	1,835,906	$	—



Liabilities:
Accrued expenses:
Foreign currency derivatives	$	8,723	$	—	$	8,723	$	—
Total liabilities	$	8,723	$	—	$	8,723	$	—

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 $ —

Table of Contents

~~TABLE OF CONTENTS~~

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value of our financial assets and liabilities at ~~November 27, 2009~~December 3, 2010 was determined using the following inputs (in thousands):



	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	41,389	$	—	$	41,389	$	—
Money market mutual funds and repurchase agreements	477,259		477,259		—		—
Municipal securities	350		—		350		—
Time deposits	64,006		64,006		—		—
U.S. Treasury securities	68,196		—		68,196		—
Short-term investments:
Corporate bonds and commercial paper	984,518		—		984,518		—
Foreign government securities	33,386		—		33,386		—
Marketable equity securities	11,184		11,184		—		—
Municipal securities	119,605		—		119,605		—
U.S. agency securities	230,371		—		230,371		—
U.S. Treasury securities	339,060		—		339,060		—
Prepaid expenses and other current assets:
Foreign currency derivatives	18,821		—		18,821		—
Other assets:
Deferred compensation plan assets	11,071		617		10,454		—
Total assets	$	2,399,216	$	553,066	$	1,846,150	$	—

Fair Value Measurements at Reporting Date Using

Quoted Prices
in Active
Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Total (Level 1) (Level 2) (Level 3)
Assets:
Cash equivalents:
Money market mutual funds
$ 884,240 $ 884,240 $ — $ —
Time deposits
40,137 40,137 — —
Short-term investments:
U.S. Treasury securities 376,378 — 376,378 —
U.S. agency securities
59,720 — 59,720 —
Municipal securities
— — — —
Corporate bonds 415,575 — 415,575 —
Foreign government securities
48,286 — 48,286 —
Marketable equity securities
5,027 5,027 — —
Prepaid expenses and other current assets:
Foreign currency derivatives
4,307 — 4,307 —
Other assets:
Investments of limited partnership
37,121 — — 37,121
Deferred compensation plan assets
9,045 717 8,328 —
Total assets
$ 1,879,836 $ 930,121 $ 912,594 $ 37,121
Liabilities:
Accrued expenses:
Foreign currency derivatives
$ 1,589 $ — $ 1,589 $ —
Total liabilities
$ 1,589 $ — $ 1,589 $ —



Liabilities:
Accrued expenses:
Foreign currency derivatives	$	1,945	$	—	$	1,945	$	—
Total liabilities	$	1,945	$	—	$	1,945	$	—

See Note 3 for further information regarding the fair value of our financial instruments.

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

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 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.

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~

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

Balance as of November 28, 2008
$ 38,753
Purchases and sales of investments, net
1,921
Unrealized net investment losses included in earnings
(3,553 )
Balance as of November 27, 2009
37,121
Purchases and sales of investments, net
(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~~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 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

Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

performance and any other readily available market data. ~~During~~For the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011, we determined ~~that certain of~~there were no other-than-temporary impairments on our ~~direct~~ cost method investments were other-than-temporarily impaired which resulted in charges of $1.9 million and $2.3 million, respectively, which were included in investment gains (losses), net in ou r Condensed Consolidated Statements of Income.

investments. See Note 7 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~~Dollars and in various other currencies. Therefore, we are subject to exposure from movements in foreign currency rates. We may use foreign exchange option contracts or forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, may have maturities between one and twelve months. The maximum original duration of any contract is twelve months. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course of business and accordingly, they are not speculative in nature.

We recognize derivative instruments from hedging activities as either assets or liabilities on the balance sheet and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income onin 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 onin 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 onin 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.

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 to 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

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

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

~~(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 ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009~~December 3, 2010 was ~~$18.3~~$10.0 million and ~~$4.3~~$18.8 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 ~~$1.7~~$8.7 million and ~~$1.6~~$1.9 million, respectively, of liabilities included in master netting arrangements with those same counterparties.

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ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value of derivative instruments on our Condensed Consolidated Balance Sheets as of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009~~December 3, 2010 were as follows (in thousands):


		2010				2009			2011				2010
		Fair Value Asset Derivatives(1)		Fair Value Liability Derivatives(2)		Fair Value Asset Derivatives(1)		Fair Value Liability Derivatives(2)	Fair Value Asset Derivatives⁽¹⁾		Fair Value Liability Derivatives⁽²⁾		Fair Value Asset Derivatives⁽¹⁾		Fair Value Liability Derivatives⁽²⁾
Derivatives designated as hedging instruments:
Foreign exchange option contracts(3)	$	9,439	$	—	$	4,175	$	—	$	4,849	$	—	$	6,092	$	—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		8,851		1,680		132		1,589	5,177		8,723		12,729		1,945
Total derivatives	$	18,290	$	1,680	$	4,307	$	1,589	$	10,026	$	8,723	$	18,821	$	1,945

^{_________________________________________}


⁽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 in our Condensed Consolidated Statements of Income for three and ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 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

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~



	Three Months						Six 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⁾	$	100		$	—		$	33		$	—
Net gain (loss) reclassified from accumulated OCI into income, net of tax⁽²⁾	$	184		$	—		$	184		$	—
Net gain (loss) recognized in income⁽³⁾	$	(6,717	)	$	—		$	(15,023	)	$	—
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income⁽⁴⁾	$	—		$	(8,366	)	$	—		$	(18,516	)

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~~six months ended ~~August 28, 2009~~June 4, 2010 was as follows (in thousands):


		Three Months						Nine Months					Three Months					Six 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, net of tax(1)	$	(329	)	$	—		$	(14,516	)	$	—		$	28,425		$	—	$	38,789		$	—
Net gain (loss) reclassified from accumulated OCI into income, net of tax(2)	$	749		$	—		$	27,138		$	—		$	6,206		$	—	$	6,206		$	—
Net gain (loss) recognized in income(3)	$	(3,734	)	$	—		$	(12,782	)	$	—		$	(5,845	)	$	—	$	(9,766	)	$	—
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in income(4)	$	—		$	(1,650	)	$	—		$	(10,200	)	$	—		$	10,761	$	—		$	21,801

^{_________________________________________}


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


⁽²⁾	Effective portion classified as revenue.

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ADOBE SYSTEMS INCORPORATED

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 6. GOODWILL AND PURCHASED AND OTHER INTANGIBLES

Goodwill as of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009~~December 3, 2010 was ~~$3.490~~$3.694 billion and ~~$3.495~~$3.642 billion, respectively. The ~~change includes adjustments~~increase was due to our ~~Omniture purchase price allocation through the second quarter~~acquisition of ~~fiscal 2010~~Demdex and foreign currency translation ~~adjustments. We also recorded~~ adjustments ~~for restructuring~~offset in part by insignificant adjustments to our Day purchase price allocation and tax deductions from acquired stock ~~options associated with~~options. During the second quarter of fiscal 2011, we completed our ~~Omniture~~annual goodwill impairment test and ~~Macromedia acquisitions.~~

determined there was no impairment of goodwill.

Purchased and other intangible assets subject to amortization as of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009 were~~December 3, 2010 was as follows (in thousands):



	2011							2010
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Purchased technology	$	270,026	$	(79,459	)	$	190,567	$	260,198	$	(61,987	)	$	198,211
Customer contracts and relationships	$	402,054	$	(214,394	)	$	187,660	$	398,421	$	(197,459	)	$	200,962
Trademarks	41,357		(8,394		)	32,963		172,019		(136,480		)	35,539
Localization	13,215		(9,982		)	3,233		14,768		(9,355		)	5,413
Other intangibles	52,572		(42,796		)	9,776		51,265		(34,127		)	17,138
Total other intangible assets	$	509,198	$	(275,566	)	$	233,632	$	636,473	$	(377,421	)	$	259,052
Purchased and other intangible assets, net	$	779,224	$	(355,025	)	$	424,199	$	896,671	$	(439,408	)	$	457,263

2010 2009
Cost Accumulated Amortization Net Cost Accumulated Amortization Net
Purchased technology
$ 219,843 $ (51,709 ) $ 168,134 $ 586,952 $ (387,731 ) $ 199,221
Localization
$ 16,090 $ (10,343 ) $ 5,747 $ 20,284 $ (15,222 ) $ 5,062
Trademarks
172,015 (128,599 ) 43,416 172,030 (104,953 ) 67,077
Customer contracts and relationships 364,231 (187,457 ) 176,774 363,922 (159,450 ) 204,472
Other intangibles
46,421 (27,401 ) 19,020 54,535 (2,979 ) 51,556
Total other intangible assets
$ 598,757 $ (353,800 ) $ 244,957 $ 610,771 $ (282,604 ) $ 328,167
Purchased and other intangible assets $ 818,600 $ (405,509 ) $ 413,091 $ 1,197,723 $ (670,335 ) $ 527,388

~~During the first half of fiscal 2010, purchased~~Purchased and other intangible assets from prior acquisitions, primarily Macromedia, ~~became fully amortized and~~ were removed from the balance ~~sheet.~~sheet as they were fully amortized at the end of fiscal 2010. Amortization expense related to purchased and other intangible assets was ~~$38.5~~$30.4 million and ~~$117.6~~$60.4 million for the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011, respectively. Comparatively, amortization expense was ~~$34.4~~$42.2 million and ~~$109.7~~$79.1 million for the three and ~~nine~~six months ended ~~August 28, 2009,~~June 4, 2010, respectively. Of these amounts, ~~$21.0~~$20.2 million and ~~$63.6~~$39.9 million were included in cost of sales for the three and six months ended June 3, 2011, respectively, and $24.0 million and $42.7 million were included in cost of sales for the three and ~~nine~~six months ended ~~September 3,~~June 4, 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.

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~

As of ~~September~~June 3, ~~2010,~~2011, we expect amortization expense in future periods to be as follows (in thousands):


Fiscal Year			Purchased Technology		Other Intangible Assets		Purchased Technology		Other Intangible Assets
Remainder of 2010		$	8,813	$	24,624
2011			31,870		50,740
Remainder of 2011						Remainder of 2011	$	22,436	$	28,501
2012	2012		30,263		22,385		44,816		30,923
2013	2013		26,403		21,686		40,752		27,693
2014	2014		24,983		21,286		37,599		26,668
2015							34,881		26,241
Thereafter	Thereafter		45,802		104,236	Thereafter	10,083		93,606
Total expected amortization expense	Total expected amortization expense	$	168,134	$	244,957	Total expected amortization expense	$	190,567	$	233,632

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ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 7. OTHER ASSETS

Other assets as of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009~~December 3, 2010 consisted of the following (in thousands):


		2010		2009	2011		2010
Acquired rights to use technology	$	74,719	$	84,313	$	65,044	$	71,521
Investments		42,831		63,526	23,971		25,018
Deferred compensation plan assets					12,822		11,071
Prepaid land lease					13,136		13,215
Security and other deposits		10,760		11,692	10,909		11,266
Debt issuance costs					8,987		9,574
Prepaid royalties		9,359		12,059	6,375		7,726
Debt issuance costs		9,901		—
Deferred compensation plan assets		9,873		9,045
Restricted cash		2,452		4,650	2,627		2,499
Prepaid land lease		13,254		3,209
Prepaid rent		934		1,377	492		787
Other		3,343		1,394
Other^(*)					17,677		17,194
Other assets	$	177,426	$	191,265	$	162,040	$	169,871

~~Included in investments are our indirect investments through our limited partnership interest in Adobe Ventures~~^{_________________________________________}

^(*)Fiscal 2011 and 2010 includes a tax asset of approximately ~~$26.8~~$11.0 million and $37.1 million as of September 3, 2010 and November 27, 2009, respectively. We consolidate Adobe Ventures in accordance with the provisions for consolidating variable interest entities as we have determined we have the power to 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 consolidated financial position, results of operations or cash flows.~~an acquired entity.

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.

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 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 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.

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~

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

NOTE 8. ACCRUED EXPENSES

Accrued expenses as of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009~~December 3, 2010 consisted of the following (in thousands):


		2010		2009	2011		2010
Accrued compensation and benefits	$	213,630	$	164,352	$	198,720	$	290,366
Sales and marketing allowances		29,587		32,774	39,940		38,706
Accrued marketing		31,130		28,233	41,581		26,404
Taxes payable		17,664		11,879	23,088		21,800
Accrued interest expense		5,642		1,355	21,136		21,203
Other		170,824		181,053	172,070		165,796
Accrued expenses	$	468,477	$	419,646	$	496,535	$	564,275

Other primarily includes general corporate accruals for local and regional expenses and technical support. Other is also comprised of deferred rent related to office locations with rent escalations, accrued royalties and foreign currency liability derivatives.

NOTE 9. INCOME TAXES

The gross liability for unrecognized tax benefits at ~~September~~June 3, ~~2010~~2011 was ~~$212.7~~$163.2 million, exclusive of interest and penalties. If the total unrecognized tax benefits at ~~September~~June 3, ~~2010~~2011 were recognized in the future, ~~$195.2~~$147.9 million of unrecognized tax benefits would decrease the effective tax rate, which is net of an estimated ~~$17.4~~$15.3 million federal benefit related to deducting certain payments on future state tax returns.

As of ~~September~~June 3, ~~2010,~~2011, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns was approximately ~~$18.5 million.~~$16.2 million. This amount is included in non-current income taxes payable.

Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0$0 to approximately ~~$100 million.~~$5 million. These amounts ~~could~~would decrease income tax ~~expense~~.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 10. STOCK-BASED COMPENSATION

The assumptions used to value option grants during the three and ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 were as follows:

Three Months Nine Months
2010 2009 2010 2009
Expected life (in years)
3.8 – 4.1 3.7 – 3.8 3.8 – 5.1 3.0 – 3.8
Volatility
35 % 37 – 43 % 29 – 36 % 37 – 57 %
Risk free interest rate
1.04 – 1.30 % 1.93 – 2.24 % 1.04 – 2.66 % 1.16 – 2.24 %

~~TABLE OF CONTENTS~~

~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~



	Three Months		Six Months
	2011	2010	2011	2010
Expected life (in years)	3.9 - 4.2	3.9 - 5.1	3.8 - 4.2	3.8 - 5.1
Volatility	30 - 31%	29 - 30%	30 - 35%	29 - 36%
Risk free interest rate	1.34 - 1.74%	2.06 - 2.66%	1.34 - 1.74%	1.76 - 2.66%

The expected ~~term~~life 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~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 were as follows:



	Three Months		Six Months
	2011	2010	2011	2010
Expected life (in years)	0.5 - 2.0	0.5 - 2.0	0.5 - 2.0	0.5 - 2.0
Volatility	32 - 34%	32%	32 - 34%	32%
Risk free interest rate	0.19 - 0.61%	0.18 - 1.09%	0.19 - 0.61%	0.18 - 1.09%

Three Months Nine Months
2010 2009 2010 2009
Expected life (in years)
0.5 – 2.0 0.5 – 2.0 0.5 – 2.0 0.5 – 2.0
Volatility
37 – 40 % 40 % 32 – 40 % 40 – 57 %
Risk free interest rate
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~~six months ended ~~September~~June 3, ~~2010~~2011 and the fiscal year ended ~~November 27, 2009~~December 3, 2010 was as follows (in thousands):



	2011		2010
Beginning outstanding balance	37,075		41,251
Granted	4,252		3,198
Exercised	(4,469	)	(5,196	)
Cancelled	(878	)	(2,908	)
Increase due to acquisition	130		730
Ending outstanding balance	36,110		37,075

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

Table of Contents

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Information regarding stock options outstanding at ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 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

2009
Options outstanding
38,549 $ 29.75 3.92 $ 176.9
Options vested and expected to vest
36,986 $ 29.78 3.84 $ 168.5
Options exercisable
26,573 $ 29.21 3.23 $ 127.8

~~(*)~~

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 $31.73, respectively.



	Number of Shares (thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value^(*) (millions)
2011
Options outstanding	36,110	$	31.67	3.70	$	131.1
Options vested and expected to vest	34,746	$	31.72	3.61	$	126.4
Options exercisable	25,790	$	32.55	2.92	$	83.9
2010
Options outstanding	39,288	$	30.52	4.15	$	153.5
Options vested and expected to vest	37,542	$	30.58	4.05	$	145.5
Options exercisable	26,486	$	30.88	3.38	$	96.6

^{_________________________________________}

^(*)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 June 3, 2011 and June 4, 2010 were $33.27 and $31.59, respectively.

Summary of Employee Stock Purchase Plan Shares

Employees purchased ~~3.3~~1.4 million shares at an average price of ~~$20.19~~$20.61 and ~~3.2~~1.3 million shares at an average price of ~~$19.04~~$20.20 for the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009,~~June 4, 2010, respectively. The intrinsic value of shares purchased during the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 was ~~$33.9~~$15.3 million and ~~$21.7~~$21.4 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

Summary of Restricted Stock Units

Restricted stock unit activity for the six months ended June 3, 2011 and the fiscal year ended December 3, 2010 was as follows (in thousands):



	2011		2010
Beginning outstanding balance	13,890		10,433
Awarded	7,319		7,340
Released	(2,919	)	(2,589	)
Forfeited	(648	)	(1,294	)
Increase due to acquisition	59		—
Ending outstanding balance	17,701		13,890

19Table of Contents

~~TABLE OF CONTENTS~~

ADOBE SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~Summary of Restricted Stock Units~~

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

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~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 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

2009
Restricted stock units outstanding
6,319 1.70 $ 200.5
Restricted stock units vested and expected to vest
4,978 1.52 $ 157.8

~~(*)~~

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 $31.73, respectively.



	Number of Shares (thousands)	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value^(*) (millions)
2011
Restricted stock units outstanding	17,701	1.73	$	588.9
Restricted stock units vested and expected to vest	15,128	1.62	$	502.7
2010
Restricted stock units outstanding	14,364	1.88	$	453.8
Restricted stock units vested and expected to vest	11,016	1.71	$	347.8

^{_________________________________________}

^(*)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 June 3, 2011 and June 4, 2010 were $33.27 and $31.59, respectively.

Summary of Performance Shares

Effective January ~~25, 2010,~~24, 2011, the Executive Compensation Committee adopted the ~~2010~~2011 Performance Share Program (the ~~“2010 Program”~~"2011 Program"). The purpose of the ~~2010~~2011 Program is to align key management and senior leadership with stockholders’ interests and to retain key employees. The measurement period for the ~~2010~~2011 Program is our fiscal ~~2010~~2011 year. All members of our executive management and other key senior ~~leaders~~management are participating in the ~~2010~~2011 Program. Awards granted under the ~~2010~~2011 Program ~~were~~are 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 one third vesting on the later of the date of certification of achievement or the first anniversary date of the grant, and the ~~rem aining~~remaining two thirds vesting evenly on the following two annual anniversary dates of the grant, contingent upon the recipient’s continued service to Adobe. Participants in the ~~2010~~2011 Program have the ability to receive up to 150% of the target number of shares originally granted.

The following table sets forth the summary of performance share activity under our ~~2010~~2011 Program for the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 (in thousands):

Shares
Granted

Maximum
Shares Eligible
to Receive

Beginning outstanding balance
— —
Awarded
263 394
Forfeited
(13 ) (19 )
Ending outstanding balance
250 375

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~~(Unaudited)~~



	Shares Granted	Maximum Shares Eligible to Receive
Beginning outstanding balance	—	—
Awarded	425	638
Forfeited	—	—
Ending outstanding balance	425	638

In the first quarter of fiscal 2011, the Executive Compensation Committee certified the actual performance achievement of participants in the 2010 Performance Share Program (the "2010 Program"). Based upon the achievement of goals outlined in the 2010 Program, participants had the ability to receive up to 150% of the target number of shares originally granted. Actual performance resulted in participants achieving 135% of target or approximately 0.3 million shares for the 2010 Program. One third of the shares under the 2010 Program vested in the first quarter of fiscal 2011 and the remaining two thirds vest evenly on the following two annual anniversary dates of the grant, contingent upon the recipient's continued service to Adobe.

The performance metrics under the 2009 Performance Share Program were not achieved and therefore no shares were awarded.

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The following table sets forth the summary of performance share activity under our 2007, 2008 and ~~2008~~2010 programs, based upon share awards actually achieved, for the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 and the fiscal year ended ~~November 27, 2009~~December 3, 2010 (in thousands):


	2010		2009		2011		2010
Beginning outstanding balance	950		383		557		950
Achieved	—		1,022		337		—
Released	(350	)	(382	)	(427	)	(350	)
Forfeited	(28	)	(73	)	(10	)	(43	)
Ending outstanding balance	572		950		457		557

Information regarding performance shares outstanding at ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 is summarized below:

	Number of Shares (thousands)	Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value(*) (millions)
2010

					Number of Shares (thousands)	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value^(*) (millions)
2011
Performance shares outstanding	572	0.84	$	16.9	457	0.89	$	15.2
Performance shares vested and expected to vest	508	0.79	$	14.8	421	0.87	$	13.8

2009
2010
Performance shares units outstanding	964	1.30	$	30.6	593	1.06	$	18.7
Performance shares vested and expected to vest	801	1.21	$	25.3	509	1.01	$	15.9

~~(*)~~

^{_________________________________________}

Compensation Costs

As of ~~September~~June 3, ~~2010,~~2011, there was ~~$365.0~~$530.3 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards which will be recognized over a weighted average period of ~~2.6~~2.7 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Total stock-based compensation costs that have been included in our Condensed Consolidated Statements of Income for the three months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 were as follows (in thousands):

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



	2011				2010
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	$	232	$	367	$	341	$	324
Cost of revenue—services and support	1,264		2,299		268		67
Research and development	7,024		19,444		10,871		11,990
Sales and marketing	8,334		20,616		11,773		13,001
General and administrative	5,255		10,024		5,636		5,826
Total	$	22,109	$	52,750	$	28,889	$	31,208

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Total stock-based compensation costs that have been included in our Condensed Consolidated Statements of Income for the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 were as follows (in thousands):


			2010				2009				2011				2010
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		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	Cost of revenue—subscription	$	944	$	988	$	—	$	—	Cost of revenue—subscription	$	424	$	688	$	680	$	604
Cost of revenue—services and support	Cost of revenue—services and support		832		876		1,595		527	Cost of revenue—services and support	2,359		4,374		685		598
Research and development	Research and development		29,717		38,574		35,317		21,271	Research and development	13,778		40,022		22,925		27,350
Sales and marketing	Sales and marketing		31,340		38,346		27,681		14,565	Sales and marketing	15,884		37,032		23,520		25,157
General and administrative	General and administrative		15,380		17,248		19,220		6,962	General and administrative	11,205		20,085		11,246		11,812
Total	Total	$	78,213	$	96,032	$	83,813	$	43,325	Total	$	43,650	$	102,201	$	59,056	$	65,521

NOTE 11. RESTRUCTURING CHARGES

Fiscal 2009 Restructuring Plan

~~On November 10,~~In the fourth quarter of fiscal 2009, in order to appropriately align our costs in connection with our fiscal 2010 operating plan, we initiated a restructuring plan consisting of reductions ~~of up to approximately 630 full-time positions worldwide~~in workforce 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 and facilities that were associated with Adobe prior to the acquisition of Omniture on October 23, ~~2009.~~2009.

InDuring the ~~first half~~second quarter of fiscal ~~2010,~~2011, we continued to implement restructuring activities under this ~~program.~~plan. We vacated approximately ~~48,000~~16,000 square feet of sales ~~and or research and development~~ facilities in ~~Australia, Canada, Denmark~~Sweden and ~~the U.S. We~~ accrued ~~$6.5~~$0.5 million for the fair value of our future contractual obligations under ~~these~~those 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 inleases. Total costs incurred for termination benefits ~~for~~through 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~~second quarter of fiscal ~~2010, we recorded net adjustments of approximately $2.1~~2011 was $40.1 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~~$8.3 million and ~~$13.3~~$11.0 million, respectively.

Omniture Restructuring Plan

We completed our acquisition of Omniture on October 23, ~~2009.~~2009. In the fourth quarter of fiscal 2009, we initiated a plan to restructure the pre-merger operations of Omniture to eliminate certain duplicative activities, focus our resources on future growth opportunities and reduce our cost structure. In connection with this restructuring plan, we accrued a total of approximately ~~$10.6~~$12.2 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~~facilities and cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by ~~Omniture. These~~Omniture through the second quarter of fiscal 2011. Substantially all of these costs were recorded as a part of the purchase price ~~allocation, as discussed in~~ ~~Note 2~~allocation. .

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~~the restructuring ~~program,~~plan, we ~~recorded restructuring~~

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~~(Unaudited)~~

~~charges in~~recognized costs related to termination benefits for employee positions that were eliminated and for the ~~fourth~~closure of duplicative facilities. Total costs incurred to date for termination benefits was $35.2 million and was completed during the first 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. 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.2011. Total costs incurred to date and expected to be incurred for closing redundant facilities are ~~$8.7~~$8.3 million and ~~$8.9~~$8.6 million, respectively. ~~We also recorded additional charges of $6.7 million in termination benefits for the elimination of substantially all of the remai ning 100 full-time positions expected to be terminated.~~

Macromedia Restructuring Plan

We completed our acquisition of Macromedia on December 3, ~~2005.~~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

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facilities. We also recognized costs related to the cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by Macromedia. Total costs incurred for termination benefits and contract terminations were ~~$27.0~~$27.0 million and ~~$3.2~~$3.2 million, respectively, and ~~all~~those actions were completed during ~~fisc al~~fiscal 2007.

Summary of Restructuring Plans

The following table sets forth a summary of restructuring activities related to all of our restructuring plans described above during the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 (in thousands):


		November 27, 2009		Costs Incurred		Cash Payments			Other Adjustments			September 3, 2010	December 3, 2010		Costs Incurred		Cash Payments			Other Adjustments			June 3, 2011
Fiscal 2009 Plan:
Termination benefits	$	22,984	$	17,683	$	(35,416	)	$	(3,813	)	$	1,438	$	1,573	$	—	$	(357	)	$	3		$	1,219
Cost of closing redundant facilities		—		6,586		(446	)		145			6,285	7,302		543		(1,241		)	(962		)	5,642
Omniture Plan:
Termination benefits		6,712		—		(5,654	)		(609	)		449	486		—		(4		)	44			526
Cost of closing redundant facilities		5,324		—		(1,863	)		187			3,648	2,720		—		(715		)	373			2,378
Contract termination		242		—		(184	)		102			160	179		—		—			—			179
Fiscal 2008 Plan:
Termination benefits		1,057		—		(212	)		(279	)		566	300		—		(164		)	(136		)	—
Cost of closing redundant facilities		3,382		—		(836	)		(72	)		2,474	2,149		—		(300		)	(114		)	1,735
Macromedia Plan:
Cost of closing redundant facilities		5,006		—		(2,569	)		(410	)		2,027	1,658		—		(874		)	—			784
Other		8		—		(2	)		—			6	6		—		(6		)	—			—
Total restructuring plans	$	44,715	$	24,269	$	(47,182	)	$	(4,749	)	$	17,053	$	16,373	$	543	$	(3,661	)	$	(792	)	$	12,463

Accrued restructuring charges of approximately ~~$17.0~~$12.5 million at ~~September~~June 3, ~~2010~~2011 includes ~~$9.2~~$5.3 million recorded in accrued restructuring, current and ~~$7.8~~$7.2 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~~2011 and facilities-related liabilities ~~per~~under contract through fiscal ~~2021 of which over 80% will be paid through 2013.~~2021.

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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~~(Unaudited)~~

NOTE 12. STOCKHOLDERS’ EQUITY

Retained Earnings

The changes in retained earnings for the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 were as follows (in thousands):

Balance as of November 27, 2009	$	5,299,914

Balance as of December 3, 2010				$	5,980,914
Net income		505,830		464,027
Re-issuance of treasury stock		(66,880	)	(216,367		)
Balance as of September 3, 2010	$	5,738,864
Balance as of June 3, 2011				$	6,228,574

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.

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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~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 (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



	Three Months						Six Months
	2011			2010			2011			2010
	Increase/(Decrease)						Increase/(Decrease)
Net income	$	229,436		$	148,611		$	464,027		$	275,765
Other comprehensive income:
Available-for-sale securities:
Unrealized gains (losses) on available-for-sale securities	5,898			212			5,845			(546		)
Reclassification adjustment for gains on available-for-sale securities recognized during the period	(630		)	(359		)	(1,174		)	(703		)
Subtotal available-for-sale securities	5,268			(147		)	4,671			(1,249		)
Derivatives designated as hedging instruments:
Unrealized gains on derivative instruments	100			28,425			33			38,789
Reclassification adjustment for gains on derivative instruments recognized during the period	(184		)	(6,206		)	(184		)	(6,206		)
Subtotal derivatives designated as hedging instruments	(84		)	22,219			(151		)	32,583
Foreign currency translation adjustments	20,463			(11,187		)	32,394			(15,786		)
Other comprehensive income	25,647			10,885			36,914			15,548
Total comprehensive income, net of taxes	$	255,083		$	159,496		$	500,941		$	291,313

The following table sets forth the components of accumulated other comprehensive income, net of related taxes, as of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009~~December 3, 2010 (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



	2011			2010
Net unrealized gains on available-for-sale securities:
Unrealized gains on available-for-sale securities	$	14,596		$	12,138
Unrealized losses on available-for-sale securities	(280		)	(2,493		)
Total net unrealized gains on available-for-sale securities	14,316			9,645
Net unrealized gains on derivative instruments designated as hedging instruments	—			151
Cumulative foreign currency translation adjustments	40,026			7,632
Total accumulated other comprehensive income, net of taxes	$	54,342		$	17,428

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~~(Unaudited)~~

Stock Repurchase Program

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~~$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.~~

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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 ~~repur chases.~~repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.

The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount. During the ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011, we repurchased approximately ~~19.0~~16.3 million shares at an average price of ~~$30.32~~$33.53 through structured repurchase agreements entered into during the six months ended June 3, 2011. During the six months ended June 4, 2010, we repurchased approximately 4.2 million shares at an average price of $34.72 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 fiscal 2009.

As of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009,~~December 3, 2010, 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~~were excluded from the ~~shares used to compute basic and diluted net income~~computation of earnings per share. As of ~~September~~June 3, 2011, no prepayments remained under these agreements. As of June 4, 2010 ~~and August 28, 2009,~~, approximately ~~$132.9~~$165.3 million ~~and $233.9 million, respectively,~~ of up-front payments remained under these agreements.

Subsequent to ~~September~~June 3, ~~2010,~~2011, as part of our ~~$1.6~~$1.6 billion stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of ~~$200.0 million.~~$150.0 million. This amount will be classified as treasury stock on our Condensed Consolidated Balance Sheets. Upon completion of the ~~$200.0~~$150.0 million stock repurchase agreement, ~~$1.0 billion now~~$305.0 million remains under our time-constrained dollar-based authority. See Note 18 for further discussion of our stock repurchase program.

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~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 (in thousands, except per share data):

Three Months Nine Months
2010 2009 2010 2009
Net income
$ 230,065 $ 136,045 $ 505,830 $ 418,551
Shares used to compute basic net income per share
518,710 525,911 523,039 528,015
Dilutive potential common shares:
Unvested restricted stock and performance share awards 2,022 1,940 3,037 1,696
Stock options
2,447 3,958 4,280 3,135
Shares used to compute diluted net income per share 523,179 531,809 530,356 532,846
Basic net income per share
$ 0.44 $ 0.26 $ 0.97 $ 0.79
Diluted net income per share
$ 0.44 $ 0.26 $ 0.95 $ 0.79

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	Three Months				Six Months
	2011		2010		2011		2010
Net income	$	229,436	$	148,611	$	464,027	$	275,765
Shares used to compute basic net income per share	499,686		526,148		501,910		525,124
Dilutive potential common shares:
Unvested restricted stock and performance share awards	2,989		2,374		3,999		3,099
Stock options	3,605		4,737		3,663		5,082
Shares used to compute diluted net income per share	506,280		533,259		509,572		533,305
Basic net income per share	$	0.46	$	0.28	$	0.92	$	0.53
Diluted net income per share	$	0.45	$	0.28	$	0.91	$	0.52

For the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011, options to purchase approximately ~~28.1~~20.3 million and ~~18.8~~$19.8 million shares, respectively of common stock with exercise prices greater than the average fair market value of our stock of ~~$28.97~~$33.88 and ~~$32.82,~~$33.12, respectively, were not included in the calculation because the effect would have been anti-dilutive. Comparatively, for the three and ~~nine~~six months ended ~~August 28, 2009,~~June 4, 2010, options to purchase approximately ~~24.5~~$18.5 million and ~~30.6~~$17.7 million shares, respectively, of common stock with exercise prices greater than the average fair market value of our stock of ~~$30.40~~$34.32 and ~~$24.99,~~$34.73, 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.

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(Unaudited)

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 exerciseour option to renew this agreement for an additional five yearseffective 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~~$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 ~~repr esents~~represents the lease investment equity balance which is callable in the event of default. In March 2007, the Almaden Tower lease was extended for five years, 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~~$126.8 million and a portion of the lease receivable from the lessor of the Almaden Tower for ~~$80.4~~$80.4 million, both of which are recorded as investments in lease receivables on our Condensed Consolidated Balance Sheets. As of June 3, 2011, the carrying value of the lease receivables related to all three towers approximated fair value. This purchase may be credited against the residual value guarantee if we purchase the properties or will be repaid from the sale proceeds if the properties are sold to third-parties. Under the agreement for the East and West Towers and the agreement for the Almaden Tower, we have the option to purchase the buildings at anytime during the lease term for approximately ~~$143.2~~$143.2 million and ~~$103.6~~$103.6 million, respectively. The residual value guarantees under ~~th e~~the East and West Towers and the Almaden Tower obligations are ~~$126.8~~$126.8 million and ~~$89.4~~$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 ~~September~~June 3, ~~2010,~~2011, we were in compliance with all of the covenants. In the case of a default, the lessor may demand we purchase the buildings for an amount equal to the lease balance, or require that we remarket or relinquish the buildings. Both leases qualify for operating lease accounting treatment and, as such, the buildings and the related obligations are not included on our 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 ~~th e~~the buildings for the lease balance, remarket or relinquish the buildings. If we choose to remarket or are required to do so upon relinquishing the buildings, we are bound to arrange the sale of the buildings to an unrelated party and will be required to pay the lessor any shortfall between the net remarketing proceeds and the lease balance, up to the residual value guarantee amount.

In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling ~~$32.2~~$32.2 million and leaseback the same equipment over a period of 43 months. This transaction was classified as a capital lease obligation and 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. 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~~$5.2 million and ~~$3.0~~$3.0 million in liabilities, related to the extended East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As of ~~September~~June 3, ~~2010~~2011 and ~~November 27, 2009,~~December 3, 2010, 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 ~~$0.9~~$0.4 million and ~~$1.3~~$0.7 million, respectively.

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 ordinary 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the ~~officer’s~~officer's or ~~director’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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~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~

Legal Proceedings

Between September 23, 2009 and September 25, 2009, three putative class action lawsuits were filed in the Fourth Judicial District Court for Utah County, Provo Department, State of Utah, seeking to enjoin Adobe’s acquisition of Omniture, Inc. and to recover damages in the event the transaction were to close. The cases were captioned Miner v. Omniture, Inc., et. al., (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 court consolidated the Miner, Barrell, and Lodhia cases into a single case under the Lodhia caption and denied the plaintiffs’ motion to preliminarily enjoin the closing of the transaction. On December 30, 2009, the plaintiffs served the defendants with a consolidated 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. The plaintiffs also 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 March 8, 2010, Adobe and the other defendants moved to dismiss the complaint for failure to state a claim. ~~A hearing on this motion has been scheduled for November 2010.~~ ~~Adobe intends 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 the 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~~attorneys' fees. We ~~disput e~~dispute these claims and intend to vigorously defend ourselves in this matter. As of ~~September~~June 3, ~~2010, no amounts~~2011, we have ~~been accrued~~not made any provisions on our financial statements related to this lawsuit, as we do not believe a loss ~~is not~~to be probable or ~~estimable.~~

estimable at this time. The trial is currently scheduled to be held in October 2011.

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 respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any particular period by the resolution of one or more of these counter-claims.

~~From time to time, Adobe is~~We are subject to legal proceedings, claims and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, indemnification claims, and claims relating to commercial, employment and other matters. ~~Adobe makes~~We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against ~~Adobe.~~us. It is possible, nevertheless, that our consolidated financial ~~pos ition,~~position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

NOTE 15. DEBT

Our debt as of June 3, 2011 and December 3, 2010 consisted of the following (in thousands):



	2011		2010
Notes	$	1,494,295	$	1,493,969
Credit facility	—		—
Capital lease obligations	24,136		28,492
Total debt and capital lease obligations	1,518,431		1,522,461
Less: current portion	9,003		8,799
Debt and capital lease obligations	$	1,509,428	$	1,513,662

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Notes

~~NOTE 15. 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~~$600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and ~~$900.0~~$900.0 million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). Our proceeds were approximately ~~$1.5~~$1.5 billion ~~which is~~ and were net of an issuance discount of ~~$6.6 million.~~$6.6 million. The Notes rank equally with our other unsecured and unsubordinated indebtedness. In addition, we incurred issuance costs of approximately ~~$10.7 million.~~$10.7 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the Notes using the effective interest method. The effective interest rate including the discount and issuance costs is 3.45% for the 2015 Notes and 4.92% for the 2020 Notes. Interest is payable semi-annually, in arrears, on February 1 and August 1, commencing on August 1, ~~2010.~~2010. In ~~August 2010,~~February 2011, we made ~~our first~~a semi-annual interest payment of ~~$31. 1 million.~~$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~~$1.6 billion as of ~~September~~June 3, ~~2010.~~2011.

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~~June 3, ~~2010,~~2011, 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~~$500.0 million to ~~$1.0 billion.~~$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~~$500.0 million in commitments, for a maximum aggregate facility of ~~$1.5 billion.~~$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.~~2013. The facility would terminate at this date if no additional extensions have been requested and granted. All other terms and conditions remain the same.

The facility contains a financial covenant requiring us not to exceed a certain maximum leverage ratio. At our option, borrowings under the facility accrue interest based on either the London interbank offered rate (“LIBOR”) 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. ~~At November 27, 2009, the amount outstanding under the credit facility was $1.0 billion, which approximated fair value.~~ On February 1, 2010, we paid the ~~outs tanding~~outstanding balance on our credit facility and the entire ~~$1.0~~$1.0 billion credit line under this facility remains available for borrowing.

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~~ADOBE SYSTEMS INCORPORATED~~

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

~~(Unaudited)~~

Capital Lease Obligation

In June 2010, weentered into a sale-leaseback agreement to sell equipment totaling ~~$32.2~~$32.2 million and leaseback the same equipment over a period of 43 months. This transaction was classified as a capital lease obligation and recorded at fair value. As of ~~September~~June 3, ~~2010,~~2011, our ~~captial~~capital lease obligations of ~~$30.6~~$24.1 million includes ~~$8.7~~$9.0 million of current debt.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 16. NON-OPERATING INCOME (EXPENSE)

Non-operating income (expense) for the three and ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 included the following (in thousands):

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).



	Three Months						Six Months
	2011			2010			2011			2010
Interest and other income (expense), net:
Interest income	$	5,865		$	4,986		$	11,964		$	10,091
Foreign exchange gains (losses)	(7,629		)	(12,190		)	(15,403		)	(17,275		)
Realized gains on fixed income investment	633			355			1,238			698
Realized losses on fixed income investment	(4		)	—			(65		)	—
Other	296			536			610			784
Interest and other income (expense), net	$	(839	)	$	(6,313	)	$	(1,656	)	$	(5,702	)
Interest expense	$	(16,727	)	$	(16,076	)	$	(33,747	)	$	(23,771	)
Investment gains (losses), net:
Realized investment gains	$	195		$	3		$	1,997		$	187
Unrealized investment gains	—			—			329			—
Realized investment losses	—			(358		)	(650		)	(764		)
Unrealized investment losses	(109		)	(10,368		)	—			(13,680		)
Investment gains (losses), net	$	86		$	(10,723	)	$	1,676		$	(14,257	)
Non-operating income (expense), net	$	(17,480	)	$	(33,112	)	$	(33,727	)	$	(43,730	)

NOTE 17. SEGMENTS

We have the following reportable segments:

~~Creative Solutions- Our Creative Solutions segment focuses on delivering a complete professional line of integrated tools for a full range of creative~~Creative and Interactive Solutions—Our Creative and Interactive Solutions segment focuses on delivering a complete professional line of integrated tools for a full range of design and publishing and developer tasks to an extended set of customers.

~~Knowledge Worker-~~ Our Knowledge Worker segment focuses on the needs of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains our Acrobat family of products.

~~Enterprise-~~ Our Enterprise segment provides server-based Customer Experience Management Solutions to enterprise and government customers to optimize their information intensive customer-facing processes and improve the overall customer experience of their constituents. This segment contains our LiveCycle and Adobe Connect lines of products.

~~Omniture- Our Omniture segment provides web analytics and online business optimization products and services to manage and enhance online, offline and multi-channel business initiatives.~~

Digital Media Solutions—Our Digital Media Solutions segments contains our professional imaging and video products and focuses on many of the same creative professional customers as our Creative and Interactive Solutions business.

Knowledge Worker—Our Knowledge Worker segment focuses on the needs of knowledge worker customers, providing essential applications and services to help them share information and collaborate. This segment contains our Acrobat family of products.

~~TABLE OF CONTENTS~~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 Adobe Connect, Day and LiveCycle 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 marketing initiatives.

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.

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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 ~~2010,~~2011, we modified our segments due to changes in how we operate our business. We split our prior Creative Solutions segment into two new segments: Creative and Interactive Solutions and Digital Media Solutions. Creative and Interactive Solutions contains our Creative Suite family of products including our professional page layout and Web layout products, whereas Digital Media Solutions contains our imaging and video products for professionals and hobbyists. We also merged our former Platform segment into the new Creative and Interactive Solutions segment to better align our ~~marketing efforts~~focus with market trends and ~~go-to-market strategies,~~our opportunities. In addition to our business unit reorganization, we moved ~~management responsibility for the Connect Solutions product line~~several products to different businesses. Our Scene7 products were moved from our ~~Knowledge Worker segment~~Creative Solutions business to our Omniture business; our ColdFusion products were moved from our Platform business to our Print and Publishing business; and our Adobe Presenter product that was part of our Adobe Connect offering was moved from our Enterprise ~~segment.~~business to our Print and Publishing business. Prior year information in the table below has been reclassified to reflect ~~this change.~~

these changes.

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.



(in thousands)	Creative and Interactive Solutions			Digital Media Solutions			Knowledge Worker			Enterprise			Omniture			Print and Publishing			Total
Three months ended June 3, 2011
Revenue	$	433,098		$	136,652		$	182,043		$	101,517		$	115,892		$	53,977		$	1,023,179
Cost of revenue	21,559			9,766			4,994			25,309			47,344			229			109,201
Gross profit	$	411,539		$	126,886		$	177,049		$	76,208		$	68,548		$	53,748		$	913,978
Gross profit as a percentage of revenue	95		%	93		%	97		%	75		%	59		%	100		%	89		%
Three months ended June 4, 2010
Revenue	$	423,311		$	139,261		$	156,012		$	75,859		$	91,886		$	56,706		$	943,035
Cost of revenue	24,328			11,723			5,094			14,222			49,191			3,275			107,833
Gross profit	$	398,983		$	127,538		$	150,918		$	61,637		$	42,695		$	53,431		$	835,202
Gross profit as a percentage of revenue	94		%	92		%	97		%	81		%	46		%	94		%	89		%



(in thousands)	Creative and Interactive Solutions			Digital Media Solutions			Knowledge Worker			Enterprise			Omniture			Print and Publishing			Total
Six months ended June 3, 2011
Revenue	$	857,926		$	288,306		$	363,886		$	206,338		$	226,756		$	107,673		$	2,050,885
Cost of revenue	36,650			19,532			10,808			51,796			95,163			2,891			216,840
Gross profit	$	821,276		$	268,774		$	353,078		$	154,542		$	131,593		$	104,782		$	1,834,045
Gross profit as a percentage of revenue	96		%	93		%	97		%	75		%	58		%	97		%	89		%
Six months ended June 4, 2010
Revenue	$	755,869		$	269,879		$	321,874		$	154,745		$	187,876		$	111,492		$	1,801,735
Cost of revenue	36,755			20,660			9,735			29,705			94,272			6,074			197,201
Gross profit	$	719,114		$	249,219		$	312,139		$	125,040		$	93,604		$	105,418		$	1,604,534
Gross profit as a percentage of revenue	95		%	92		%	97		%	81		%	50		%	95		%	89		%

~~TABLE OF CONTENTS~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(in thousands)
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 $ 425,867 $ 220,842 $ — $ 134,053 $ 134,971 $ 2,188,570
Cost of revenue
117,225 22,595 43,668 — 16,420 14,500 214,408
Gross profit
$ 1,155,612 $ 403,272 $ 177,174 $ — $ 117,633 $ 120,471 $ 1,974,162
Gross profit as a percentage of revenue 91 % 95 % 80 % — 88 % 89 % 90 %

~~(*)~~

The nine months ended September 3, 2010 includes Omniture as a new reportable segment following our acquisition of 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 the remaining amount represents professional services and support.

NOTE 18. SUBSEQUENT EVENTS

Subsequent to ~~September~~June 3, ~~2010,~~2011, as part of our ~~$1.6~~$1.6 billion stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of ~~$200.0 million.~~$150.0 million. This amount will be classified as treasury stock on our Condensed Consolidated Balance Sheets. Upon completion of the ~~$200.0~~$150.0 million stock repurchase agreement, ~~$1.0 billion now~~$305.0 million remains under our time-constrained dollar-based authority. See Note 12 for further discussion of our stock repurchase program.

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~~TABLE OF CONTENTS~~

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

The following discussion 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 our Annual Report on Form 10-K for fiscal ~~2009.~~2010. 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, knowledge workers, ~~consumers, original equipment manufacturers (“OEMs”),~~ developers, marketers, enterprises and ~~enterprises~~consumers 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, value-added resellers (“VARs”), systems integrators, independent software vendors (“ISVs”) and ~~OEMs, direct~~original equipment manufacturers (“OEMs”). We also market and license our software directly to enterprise customers through our sales force and to end users and through our own Website at www.adobe.com. ~~We also~~In addition, we license our technology to hardware manufacturers, software developers and service providers, and provide some of our solutions via Software as a Service (“SaaS”), also known as hosted or “cloud-based” offerings. Our software runs on personal computers (“PC”) and ~~we offer integrated software solutions to businesses of all sizes.~~server-based computers, as well as various non-PC and mobile devices, depending on the product. We have operations in the Americas, Europe, 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 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 Website at www.sec.gov.

~~ACQUISITION OF OMNITURE~~OPERATIONS OVERVIEW

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. 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 increaseEffective in the ~~future, but~~first quarter of fiscal 2011, we modified our segments due to changes in how we operate our business. We split our prior Creative Solutions segment into two new segments: Creative and Interactive Solutions and Digital Media Solutions. Creative and Interactive Solutions contains our Creative Suite family of products including our professional page layout and Web layout products, whereas Digital Media Solutions contains our imaging and video products for professionals and hobbyists. We also merged our former Platform segment into the new Creative and Interactive Solutions segment to better align our focus with market trends and our opportunities. As part of our business unit reorganization, 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, as well as the financial statements contained herein, reflect the impact of the acquisition. moved several products to different businesses. See Note 217 of ~~o ur~~our Notes to Condensed Consolidated Financial Statements for further information. Prior year information ~~regarding this acquisition~~.has been updated to reflect these changes.

~~OPERATIONS OVERVIEW~~

For our ~~third~~second quarter of fiscal ~~2010,~~2011, we reported ~~record revenue with~~ strong financial ~~results. Our performance was~~results driven by continued adoption of ~~Adobe Creative Suite 5~~our solutions across three strategic growth initiatives we are focused on: Content Authoring, Digital Marketing Optimization and Customer Experience Management (“~~CS5”~~CEM”)~~, which is our flagship product family that began shipping in~~.

For comparative purposes, financial results for 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 ninesix months ended ~~September 3,~~June 4, 2010 ~~financial results also benefitted~~ benefited from an extra week in the first quarter of fiscal 2010 due to our 52/53 week financial ~~calendar whereby fiscal~~calendar. This extra week had a favorable impact on our revenue in the three months ended March 5, 2010 isby approximately $35 million and related impact to expenses of approximately $20 million. Fiscal 2010 was a 53-week year, ~~compared with~~whereas fiscal ~~2009 which was~~2011 is a 52-week ~~year.~~

~~TABLE OF CONTENTS~~year and our first quarter of fiscal 2011 contained one less week.

In our Creative and Interactive Solutions segment, ~~broad~~ adoption of ~~CS5~~Adobe Creative Suite 5 ("CS5") family of products continued to drive the overall performance of our creative business. ~~Since its release, CS5~~The launch of Creative Suite 5.5 ("CS5.5") in May 2011 helped to maintain the current revenue ~~has grown approximately 15% when compared~~run-rate achieved by CS5. Overall, this resulted in 2% and 13% year-over-year growth during the three and six months ended June 3, 2011, respectively, in the segment.

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Our Digital Media Solutions segment decreased 2% year-over-year during the three months ended June 3, 2011, primarily due to a ~~comparable period~~decline in revenue from our image editing products which were not updated as part of ~~time for~~ the ~~Adobe Creative Suite 4 (“CS4”)~~CS5.5 launch. Our Digital Media Solutions segment increased 7% year-over-year during the six months ended June 3, 2011, primarily due to an overall increase in licensing of our image editing and video authoring products. ~~The successful launch of Adobe Lightroom version 3 also contributed to our success in our creative business. Combined, these factors contributed to strong year-over-year growth of 37% in this segment.~~

Our Knowledge Worker segment achieved ~~18%~~17% and 13% year-over-year growth during the three and six months ended June 3, 2011, respectively, due to continued ~~solid~~strong demand for our Acrobat X product ~~family. We attribute this performance to strength~~which was released in ~~enterprise licensing~~the fourth quarter of ~~Acrobat as well as the improved economic conditions in certain markets and geographies where we focus on Acrobat adoption.~~fiscal 2010.

WeOur Enterprise segment also achieved strong year-over-year growth inof 34% and 33% during the ~~third quarter with our Enterprise segment, which grew 31% on a year-over-year basis.~~three and six months ended June 3, 2011, respectively. We believe our increased investment in this business over the past several years, including our acquisition of Day Software Holding AG ("Day") in the fourth quarter of fiscal 2010, is ~~beginning to result~~resulting in ~~improved~~strong financial performance in ~~the~~this segment. Further, we believe the value proposition of our enterprise products is resonating with industry analysts and customers, including Adobe Connect for efficient web-conferencing, and Adobe LiveCycle which makes it easier for people to interact with information through intuitive user experiences, improve efficiencies through business process automation, and enhance customer service through personalized communications management.

In our Omniture business, we ~~maintained~~continued to achieve strong momentum induring the ~~third~~second quarter of fiscal ~~2010.~~2011 and achieved year-over-year growth of 26% and 21% during the three and six months ended June 3, 2011, respectively. Driving this success was increased awareness of our Adobe Online Marketing Suite ~~value proposition~~ in the marketplace as well as maintaining 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 business declined sequentially and year-over-year due to lower revenue from OEM relationships.~~

Our Print and Publishing business segment ~~grew~~decreased 5% and 3% year-over-year during the three and six months ended June 3, 2011, respectively, primarily due to ~~a non-recurring~~lower Shockwave revenue ~~deal as well as~~and the ~~launch~~timing of ~~new products, including Adobe eLearning Suite version 2 and Adobe Captivate version 5.~~Coldfusion product releases.

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 ~~Bo ard~~Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, stock-based compensation, business combinations, goodwill impairment and income taxes have the greatest potential impact on our 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.

~~With the exception of the discussion below, there~~There have been no significant changes in our critical accounting policies and estimates during the ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011, 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 27, 2009.~~December 3, 2010.

Goodwill Impairment

During the second quarter of fiscal 2011, we completed our annual goodwill impairment test and determined there was no impairment of goodwill. There is no significant risk of material goodwill impairment in any of our reporting units, based upon the results of our annual goodwill impairment test.

~~Revenue Recognition~~Recent Accounting Pronouncements Not Yet Effective

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,~~June 2011, the Financial Accounting Standards Board (“FASB”) ~~amended~~issued updated guidance that allows companies the ~~accounting standards~~option of how to present the components of, and a total, for ~~certain multiple deliverable revenue arrangements to:~~

~~provide~~net income, the components of, and a total, for other comprehensive income, and a total for comprehensive income as either one continuous statement of comprehensive income or in two separate but consecutive statements. There will no longer be the option to present items of other comprehensive income in the statement of stockholders' equity. The 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 atis effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011 on a retrospective basis. Early application is permitted. We will adopt the ~~beginning of our fiscal~~updated guidance in the first quarter of fiscal ~~2010~~2013. Since the updated guidance only requires a change in the placement of information already disclosed in our consolidated financial statements we do not expect the adoption to have an impact on our consolidated financial statements.

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In May 2011, the FASB issued updated fair value accounting guidance that clarifies how a principal market is determined, addresses the fair value measurement of instruments with offsetting market or counterparty credit risks and the concept of valuation premise and highest and best use, extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and requires additional disclosures. The updated accounting guidance is effective for public entities for interim and annual periods beginning after December 15, 2011 on a prospective ~~basis for applicable transactions originating or materially modified after November 27, 2009.~~

~~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~~basis. Early application is not permitted. We will adopt the ~~relative selling price of each and if software and software-related elements are also included~~updated guidance in the ~~arrangement,~~second quarter of fiscal 2012. We are currently evaluating the impact of adopting the updated fair value guidance, but we do not expect the adoption 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.

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.

~~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.

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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.~~ our consolidated financial statements.

In ~~terms~~December 2010, the FASB issued updated accounting guidance related to the calculation of the ~~timing~~carrying amount of a reporting unit when performing the first step of a goodwill impairment test. More specifically, this update will require an entity to use an equity premise when performing the first step of a goodwill impairment test and ~~pattern of revenue recognition,~~if a reporting unit has a zero or negative carrying amount, the entity must assess and consider qualitative factors and whether it is more likely than not that a goodwill impairment exists. The new accounting guidance is effective for ~~revenue recognition~~public entities, for impairment tests performed during entities' fiscal years (and interim periods within those years) that begin after December 15, 2010. Early application is not ~~expected~~permitted. We will adopt the new disclosures in the first quarter of fiscal 2012, however as we currently do not have any reporting units with a zero or negative carrying amount, we do not expect the adoption of this guidance to have 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 ourconsolidated financial ~~position and results of operations.~~statements.

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~~Six Months Ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 (dollars in millions)

Three Months Percent Nine Months Percent
2010 2009 Change 2010 2009 Change
Product
$ 829.1 $ 636.6 30 % $ 2,328.3 $ 2,014.4 16 %
Percentage of total revenue
84 % 91 % 84 % 92 %
Subscription
98.6 13.3 * 286.4 37.7 *
Percentage of total revenue
10 % 2 % 10 % 2 %
Services and support
62.6 47.6 32 % 177.3 136.5 30 %
Percentage of total revenue
6 % 7 % 6 % 6 %
Total revenue
$ 990.3 $ 697.5 42 % $ 2,792.0 $ 2,188.6 28 %

*	~~Percentage is greater than 100%.~~



	Three Months								Six Months
	2011			2010			% Change		2011			2010			% Change
Product	$	830.3		$	795.3		4	%	$	1,673.0		$	1,499.2		12	%
Percentage of total revenue	81		%	84		%			82		%	84		%
Subscription	109.2			92.3			18	%	215.3			187.8			15	%
Percentage of total revenue	11		%	10		%			10		%	10		%
Services and support	83.7			55.4			51	%	162.6			114.7			42	%
Percentage of total revenue	8		%	6		%			8		%	6		%
Total revenue	$	1,023.2		$	943.0		9	%	$	2,050.9		$	1,801.7		14	%

As described in Note 17 of our Notes to Condensed Consolidated Financial Statements, we have the following segments: Creative and Interactive Solutions, Digital Media 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~~$109.2 million and ~~$286.4~~$215.3 million in subscription revenue for the three and ~~nine~~six months ended ~~September~~June 3, ~~2010, respectively,~~2011, approximately ~~$74.9~~$95.0 million and ~~$225.7~~$187.5 million, respectively, is from our Omniture segment with the remaining amounts representing our other business offerings.

Of the $92.3 million and $187.8 million in subscription revenue for the three and six months ended June 4, 2010, approximately $81.5 million and $165.4 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 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.

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Segment Information (dollars in millions)

Three Months Percent Nine Months Percent
2010 2009 Change 2010 2009 Change
Creative Solutions
$ 549.7 $ 400.4 37 % $ 1,514.4 $ 1,272.8 19 %
Percentage of total revenue
56 % 57 % 54 % 58 %
Knowledge Worker
162.6 138.1 18 % 484.5 425.9 14 %
Percentage of total revenue
16 % 20 % 17 % 20 %
Enterprise
94.2 71.9 31 % 250.8 220.8 14 %
Percentage of total revenue
10 % 10 % 9 % 10 %
Omniture
91.0 — * 262.2 — *
Percentage of total revenue
9 % — % 9 % — %
Platform
40.7 44.9 (9 )% 132.7 134.1 (1 )%
Percentage of total revenue
4 % 7 % 5 % 6 %
Print and Publishing
52.1 42.2 23 % 147.4 135.0 9 %
Percentage of total revenue
5 % 6 % 6 % 6 %
Total revenue
$ 990.3 $ 697.5 42 % $ 2,792.0 $ 2,188.6 28 %

*	~~Percentage is not meaningful.~~



	Three Months								Six Months
	2011			2010			% Change		2011			2010			% Change
Creative and Interactive Solutions	$	433.1		$	423.3		2	%	$	857.9		$	755.9		13	%
Percentage of total revenue	42		%	45		%			42		%	42		%
Digital Media Solutions	136.7			139.3			(2	)%	288.3			269.9			7	%
Percentage of total revenue	13		%	15		%			14		%	15		%
Knowledge Worker	182.0			156.0			17	%	363.9			321.9			13	%
Percentage of total revenue	18		%	17		%			18		%	18		%
Enterprise	101.5			75.9			34	%	206.3			154.7			33	%
Percentage of total revenue	10		%	8		%			10		%	9		%
Omniture	115.9			91.9			26	%	226.8			187.9			21	%
Percentage of total revenue	11		%	10		%			11		%	10		%
Print and Publishing	54.0			56.6			(5	)%	107.7			111.4			(3	)%
Percentage of total revenue	6		%	5		%			5		%	6		%
Total revenue	$	1,023.2		$	943.0		9	%	$	2,050.9		$	1,801.7		14	%

Revenue from Creative and Interactive Solutions increased ~~$149.3~~$9.8 million and ~~$241.6~~$102.0 million during the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011, respectively, as compared to the three and ~~nine~~six months ended ~~August 28, 2009. This~~June 4, 2010. The year-over-year increase in revenue for the six months ended June 3, 2011 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.~~product line. For the three ~~and nine~~ months ended ~~September~~June 3, ~~2010,~~2011, our Creative ~~Suites~~Suite products related revenue ~~increased 39% and 21%, respectively, and our Photoshop point product revenue increased 37% and 22%, respectively,~~remained relatively stable as compared to the same ~~periods~~period in the prior year. For the six months ended June 3, 2011, our Creative Suite products related revenue increased 15% as compared to the same period in the prior year. The overall number of units licensed for Creative and Interactive Solutions remained relatively stable when compared to the three months ended June 4, 2010. The overall number of units licensed for Creative and Interactive Solutions increased when compared to the ~~three and nine~~six months ended ~~August 28, 2009.~~June 4, 2010. Unit average selling prices ~~decreased during th e~~ remained relatively stable for both the three and six months ended ~~September~~June 3, 2011 as compared to the same periods in the prior year.

Revenue from Digital Media Solutions decreased $2.6 million during the three months ended June 3, 2011 as compared to the three months ended June 4, 2010. The decrease during the three months ended June 3, 2011was due to lower revenue with our digital imaging products. Contributing to the decrease in revenue was a 12% decrease in our Photoshop point product revenue as well as a decrease in unit average selling prices when compared to the same period in the prior year. The overall number of units licensed for Digital Media Solutions remained relatively stable for the three months ended June 3, 2011 when compared to the same period in the prior year. Revenue from Digital Media Solutions increased $18.4 million during the six months ended June 3, 2011 as compared to the six months ended June 4, 2010. The increase during the six months ended June 3, 2011was due to increased licensing of our image editing and video authoring products. Our Photoshop point product revenue for the six months ended June 3, 2011 remained relatively stable when compared to the same period in the prior year. The overall number of units licensed for Digital Media Solutions increased when compared to six months ended June 4, 2010. Unit average selling prices remained relatively stable during the six months ended June 3, 2011 as compared to the same period in the prior year. ~~Unit average~~

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~~selling prices, excluding large enterprise license agreement (“ELA”) deals, remained relatively stable~~Revenue from Knowledge Worker increased $26.0 million and $42.0 million during the ~~nine~~three and six months endedJune 3, 2011, respectively, as compared to the three and six months ended June 4, 2010. We attribute this success to increased awareness and strong adoption of our new Acrobat X product, which shipped in the second half of fiscal 2010. The number of units licensed decreased during the three and six months ended June 3, 2011 as compared to the same ~~period~~periods in the prior year. ~~Although our overall Creative business was strong~~Unit average selling prices increased during the ~~third quarter of fiscal 2010, we experienced weakness relative~~three and six months ended June 3, 2011 as compared to ~~our expectations in Japan as well as our education business~~the same periods in the ~~U.S.~~prior year.

Revenue from ~~Knowledge Worker~~Enterprise increased ~~$24.5~~$25.6 million and ~~$58.6~~$51.6 million during the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011, respectively, as compared to the three and ~~nine~~six months ended August 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 number of units licensed, excluding large ELA deals during the three and nine months ended September 3,June 4, 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 28, 2009.

Revenue from Enterprise increased $22.3 million and $30.0 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 due to 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 for three and nine months ended September 3, 2010.

Revenue from Platform decreased $4.2 million and $1.4 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 decrease was due to lower developer tool revenue based on the new inclusion of developer tools within some CS5 suites and lower distribution revenue from OEM relationships with companies such as Google, where we offer their technologies as part of the download of Flash Player, Shockwave Player and Reader and generate revenue through successful installations of these technologies.

Revenue from Print and Publishing increased $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 our addition of products from the acquisition of Day to our Enterprise offering and success in customer adoption.

Revenue from Omniture increased $24.0 million and $38.9 million during the three and six months ended June 3, 2011, respectively, as compared to the three and six months ended June 4, 2010. This increase was due to continued adoption of our Online Marketing Suite offering.

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Revenue from Print and Publishing decreased $2.6 million and $3.7 million during the three and six months ended June 3, 2011, respectively, as compared to the three and six months ended June 4, 2010. The decrease was primarily due to lower Shockwave revenue and the release of Coldfusion 9 at the end of fiscal 2009 for which a comparable release did not occur in the current periods offset in part by an ~~improved economic environment~~increase in ~~certain markets and geographies, the launch of new products, fees received for engineering service and royalties related to PostScript products.~~

Captivate revenue.

Geographical Information (dollars in millions)


		Three Months					Percent			Nine Months					Percent		Three Months								Six Months
		2010			2009		Change			2010			2009		Change		2011			2010			% Change		2011			2010			% Change
Americas	$	502.5		$	354.6		42	%	$	1,366.1		$	998.5		37	%	$	492.5		$	455.2		8	%	$	982.1		$	863.6		14	%
Percentage of total revenue		51	%		51	%				49	%		46	%			48		%	48		%			48		%	48		%
EMEA		290.9			196.2		48	%		843.7			688.9		22	%	311.7			277.4			12	%	643.5			552.8			16	%
Percentage of total revenue		29	%		28	%				30	%		31	%			30		%	29		%			31		%	31		%
Asia		196.9			146.7		34	%		582.2			501.2		16	%	219.0			210.4			4	%	425.3			385.3			10	%
Percentage of total revenue		20	%		21	%				21	%		23	%			22		%	23		%			21		%	21		%
Total revenue	$	990.3		$	697.5		42	%	$	2,792.0		$	2,188.6		28	%	$	1,023.2		$	943.0		9	%	$	2,050.9		$	1,801.7		14	%

Overall revenue for the three and ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 increased when compared to the three and ~~nine~~six months ended ~~August 28, 2009,~~June 4, 2010, primarily due to increased Omniture and Enterprise segment revenue, and including product revenue from the ~~addition of Omniture revenue based on our~~Day acquisition ~~of Omniture~~which was completed in the fourth ~~quarter of fiscal 2009, as well as the launch of CS5 in the second~~ quarter of fiscal 2010. Increased revenue in our Creative and Interactive Solutions, Digital Media Solutions and Knowledge Worker ~~and Enterprise~~ business segments also contributed to the year-over-year growth.

The increase in revenue during the three and ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 as compared to the three and ~~nine~~six months ended ~~August 28, 2009~~June 4, 2010 in the Americas, EMEA and Asia was attributable to the factors noted above.

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As a result of the earthquakes and related events in Japan during the six months ended June 3, 2011, we believe that our operating results in Japan could be impacted in the near term.

Included in the overall increase in revenue for the three and ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 as compared to the three and ~~nine~~six months ended ~~August 28, 2009~~June 4, 2010 were impacts associated with foreign currency as shown below:


(in millions)		Three Months			Nine Months		Three Months		Six Months
Revenue impact:							Increase/(Decrease)
EMEA:
Euro	$	(16.8	)	$	(1.9	)	$	13.1	$	(2.9	)
British pound		(3.5	)		(1.7	)
British Pound							3.9		3.0
Other currencies							0.8		1.0
Total EMEA		(20.3	)		(3.6	)	17.8		1.1
Japanese Yen		5.4			15.4		13.5		21.9
Australian dollar		1.9			9.9
Other currencies							3.7		6.1
Total revenue impact		(13.0	)		21.7		35.0		29.1
Hedging impact:
EMEA		13.0			18.7		—		—
Japanese Yen		0.2			0.6		0.2		0.2
Total hedging impact		13.2			19.3		0.2		0.2
Total impact	$	0.2		$	41.0		$	35.2	$	29.3

During the three ~~and nine~~ months ended ~~September~~June 3, ~~2010, the U.S. dollar strengthened against~~2011, both the Euro and British ~~pound~~Pound were favorably impacted as the U.S. Dollar weakened against these currencies causing revenue in EMEA measured in average U.S. ~~dollars~~Dollar equivalents to ~~decrease~~increase compared with the same reporting ~~periods~~period last year. During the six months ended June 3, 2011, the U.S. Dollar strengthened against the Euro and weakened against the British Pound causing a net impact to revenue in EMEA measured in average U.S. Dollar equivalents to increase slightly compared with the same reporting period last year. Revenue measured in both the Japanese Yen and ~~Australian dollar~~other currencies were favorably impacted as ~~these currencies strengthened against~~ the U.S. ~~dollar. Both our EMEA and~~Dollar weakened against these currencies. Our Yen currency hedging ~~programs~~program resulted in hedging gains as noted in the table above. There were no hedging gains in our EMEA hedging program.

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Product Backlog

The actual amount of product backlog at any particular time may not be a meaningful indicator of future business prospects. Shippable backlog is comprised of unfulfilled orders, excluding those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy. We had ~~minimal~~no shippable backlog ~~for~~at the ~~third quarter~~end of the first and second quarters of fiscal ~~2010 as compared to shippable backlog for the second quarter of fiscal 2010 of approximately 7% of second quarter fiscal 2010 revenue.~~2011.

Cost of Revenue for the Three and ~~Nine~~Six Months Ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 (dollars in millions)



	Three Months								Six Months
	2011			2010			% Change		2011			2010			% Change
Product	$	34.7		$	39.6		(12	)%	$	65.4		$	63.2		3	%
Percentage of total revenue	3		%	4		%			3		%	4		%
Subscription	47.3			50.2			(6	)%	95.2			95.9			(1	)%
Percentage of total revenue	5		%	5		%			5		%	5		%
Services and support	27.2			18.0			51	%	56.2			38.1			47	%
Percentage of total revenue	3		%	2		%			3		%	2		%
Total cost of revenue	$	109.2		$	107.8		1	%	$	216.8		$	197.2		10	%

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 %

*	~~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.

~~TABLE OF CONTENTS~~

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

	Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD

					% Change 2011-2010 QTD		% Change 2011-2010 YTD
Royalty cost					(8	)%	(4	)%
Amortization of purchased intangibles	(24	)%	(22	)%	6		7
Royalty cost	(6	)	(7	)
Excess and obsolete inventory					(4	)	(1	)
Localization costs related to our product launches	(5	)	(8	)	(2	)	3
Cost of sales	3		4		(1	)	1
Excess and obsolete inventory	5		(1	)
Amortization of acquired rights to use technology					(1	)	(1	)
Various individually insignificant items	(2	)	—		(2	)	(2	)
Total change	(29	)%	(34	)%	(12	)%	3	%

Royalty costs decreased during the three and six months ended June 3, 2011 as compared to the three and six months ended June 4, 2010, primarily due to a decrease in obligations to certain key vendors.

Amortization of purchased intangibles ~~decreased~~increased during the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011 as compared to the three and ~~nine~~six months ended ~~August 28, 2009,~~June 4, 2010, primarily due to amortization ~~of approximately $11.6 million and $34.8 million, respectively,~~expense associated with ~~the~~ intangible assets purchased through ~~our Macromedia acquisition which were fully amortized at~~recent acquisitions.

Excess and obsolete inventory decreased during the ~~end~~three and six months ended June 3, 2011 as compared to the three and six months ended June 4, 2010 due to increased reserve requirements for CS4 and Photoshop point products for the launch of CS5 in the second quarter 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,~~2010 offset in part by current year reserve requirements for CS5 products for the launch of CS5.5 in the second quarter of fiscal 2011.

Localization costs decreased during the three months ended June 3, 2011 as compared to the three months June 4, 2010 primarily due to the launch of CS5 products during the ~~nine~~second quarter of fiscal 2010. Localization costs increased during the six months ended ~~September~~June 3, ~~2010.~~

~~Cost of sales increased~~2011 as compared to the six months June 4, 2010 primarily due to the ~~associated increase in shrink-wrap shipments as a result of the~~ launch of ~~our CS5~~CS5.5 products induring the second quarter of fiscal ~~2010.~~

~~Excess~~2011 and ~~obsolete inventory increased~~the launch of Acrobat X products 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 firstfourth quarter of fiscal ~~2009.~~2010.

~~Subscription~~

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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~~decreased during the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011 as compared to the three and six months ended ~~August 28, 2009 as~~June 4, 2010 primarily due to a ~~result~~decrease in amortization of intangible assets purchased through our acquisition of Omniture offset in ~~the fourth quarter of fiscal 2009~~part by increases in compensation and ~~the addition of its~~ related benefits driven by additional headcount and increases in 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~~costs related to ~~intangible assets acquired in conjunction with this acquisition.~~

higher transaction volumes.

Services and Support

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

Cost of services and support revenue increased during the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011 as compared to the three and ~~nine~~six months ended ~~August 28, 2009,~~June 4, 2010, primarily due to increases in compensation and related benefits driven by additional headcount ~~as a result of our acquisition of Omniture.~~

~~TABLE OF CONTENTS~~primarily from the Day acquisition.

Operating Expenses for the Three and ~~Nine~~Six Months Ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 (dollars in millions)



	Three Months								Six Months
	2011			2010			% Change		2011			2010			% Change
Research and development	$	183.2		$	167.3		10	%	$	361.6		$	341.6		6	%
Percentage of total revenue	18		%	18		%			18		%	19		%
Sales and marketing	348.7			321.0			9	%	676.8			618.3			9	%
Percentage of total revenue	34		%	34		%			33		%	34		%
General and administrative	95.6			90.0			6	%	196.5			181.0			9	%
Percentage of total revenue	9		%	10		%			10		%	10		%
Restructuring charges	(0.6		)	11.5			(105	)%	(0.5		)	23.2			(102	)%
Percentage of total revenue	*			1		%			*			1		%
Amortization of purchased intangibles	10.4			18.1			(43	)%	20.6			36.3			(43	)%
Percentage of total revenue	1		%	2		%			1		%	2		%
Total operating expenses	$	637.3		$	607.9		5	%	$	1,255.0		$	1,200.4		5	%

^{_________________________________________}

^(*)Percentage is less than 1%.

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

The increase in research and development, sales and marketing and general and administrative expenses during the three and ~~nine~~six months ended ~~September~~June 3, 2011 as compared to the three and six months ended June 4, 2010 was primarily driven by ~~increases in~~higher employee compensation ~~expense~~ due to additional ~~headcount~~headcount. For comparative purposes, the change in compensation during the six months ended June 3, 2011 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~~six months ended ~~August 28, 2009.~~June 4, 2010 in the analysis which follows has been normalized for the impact of the extra week in the first quarter of fiscal 2010.

Research and Development

Three Months Percent Nine Months Percent
2010 2009 Change 2010 2009 Change
Expenses
$ 168.3 $ 138.9 21 % $ 510.0 $ 427.3 19 %
Percentage of total revenue
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 increased due to the following:

	Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD

					% Change 2011-2010 QTD		% Change 2011-2010 YTD
Compensation and related benefits associated with headcount growth					7	%	6	%
Compensation associated with incentive compensation and stock-based compensation	15	%	14	%	(2	)	(2	)
Compensation and related benefits associated with headcount growth	2		3
Various individually insignificant items	4		2		5		2
Total change	21	%	19	%	10	%	6	%

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, tool and ~~server-based software products.~~

service offerings.

Sales and Marketing

Three Months Percent Nine Months Percent
2010 2009 Change 2010 2009 Change
Expenses
$ 303.2 $ 231.3 31 % $ 921.5 $ 724.0 27 %
Percentage of total revenue
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.

~~TABLE OF CONTENTS~~

Sales and marketing expenses increased due to the following:

	Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD

					% Change 2011-2010 QTD		% Change 2011-2010 YTD
Compensation and related benefits associated with headcount growth					5	%	5	%
Marketing spending related to product launches and overall marketing efforts to further increase revenue					2		3
Compensation associated with incentive compensation and stock-based compensation	15	%	14	%	—		(1	)
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		1
Various individually insignificant items	5		5		2		2
Total change	31	%	27	%	9	%	9	%

General and Administrative

Three Months Percent Nine Months Percent
2010 2009 Change 2010 2009 Change
Expenses
$ 102.2 $ 79.6 28 % $ 283.2 $ 224.5 26 %
Percentage of total revenue
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.

General and administrative expenses increased due to the following:

	Percent Change 2009 to 2010 QTD		Percent Change 2009 to 2010 YTD
Compensation associated with incentive compensation and stock-based compensation	13	%	12	%

					% Change 2011-2010 QTD		% Change 2011-2010 YTD
Compensation and related benefits associated with headcount growth	6		6		4	%	3	%
Professional and consulting fees	4		4		2		4
Depreciation and amortization	3		2
Compensation associated with incentive compensation and stock-based compensation					1		1
Various individually insignificant items	2		2		(1	)	1
Total change	28	%	26	%	6	%	9	%

Restructuring Charges

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

*	~~Percentage is not meaningful.~~

During the past several years, we have initiated various restructuring plans. In connection with our 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~~accrued $6.1 million and the consolidation of facilities. The restructuring activities related to this plan 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 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 during the three and six months ended June 4, 2010, respectively, for ~~the fair value of our future contractual obligations under these operating leases.~~closing redundant facilities. We also recorded charges of $5.7 million and $17.6 million induring the three and six months ended June 4, 2010, respectively, for termination ~~benefits~~benefits. During the three and six months ended June 3, 2011 we recorded insignificant charges for ~~the elimination of approximately 245 full-time positions which represents substantially~~closing a redundant facility. In connection with all of ~~the remaining full-time positions expected to be terminated worldwide. We also~~our restructuring plans, we recorded minor favorable adjustments ~~to reflect reductions~~for changes in ~~previously recorded~~previous estimates ~~and fluctuations related to foreign currency translation.~~during the periods presented.

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~~TABLE OF CONTENTS~~See

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.

During fiscal 2009, we continued to implement restructuring activities under this program. We vacated approximately 89,000 square feet of research and development and sales facilities in the U.S., the United Kingdom and Canada. We accrued $8.5 million for the fair value of our future contractual obligations under these operating leases using our credit-adjusted risk-free interest rate, estimated at approximately 6% as of the date we ceased to use the leased properties. This amount is net of the fair value of future estimated sublease income of approximately $4.4 million. We also recorded additional charges of $6.7 million in termination benefits for the elimination of substantially all of the remaining 100 full-time positions expected to be terminated.

~~See~~ Note 11 of our Notes to Condensed Consolidated Financial Statements for further information regarding our restructuring plans.

Amortization of Purchased Intangibles

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 ~~increased during~~decreased 43% for both the three and ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011 as compared to the three and ~~nine~~six months ended ~~August 28, 2009 as~~June 4, 2010. The decrease was primarily due to a ~~result of~~decrease in amortization expense associated with intangible assets purchased through our acquisition of ~~Omniture in the fourth quarter of fiscal 2009 offset by a decrease in amortization associated with the intangible assets purchased through our~~ Macromedia ~~acquisition which~~that were fully amortized at the end of fiscal ~~2009.~~2010.

Non-Operating Income (Expense), Net for the Three and ~~Nine~~Six Months Ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 (dollars in millions)



	Three Months								Six Months
	2011			2010			% Change		2011			2010			% Change
Interest and other income (expense), net	$	(0.9	)	$	(6.3	)	(86	)%	$	(1.7	)	$	(5.7	)	(70	)%
Percentage of total revenue	*			(1		)%			*			*
Interest expense	(16.7		)	(16.1		)	4	%	(33.7		)	(23.8		)	42	%
Percentage of total revenue	(2		)%	(2		)%			(2		)%	(1		)%
Investment gains (losses), net	0.1			(10.7		)	(101	)%	1.7			(14.2		)	(112	)%
Percentage of total revenue	*			(1		)%			*			(1		)%
Total non-operating income (expense), net	$	(17.5	)	$	(33.1	)	(47	)%	$	(33.7	)	$	(43.7	)	(23	)%

Three Months Percent Nine Months Percent
2010 2009 Change 2010 2009 Change
Interest and other income (expense), net
$ 7.6 $ 6.7 13 % $ 1.9 $ 24.8 (92 )%
Percentage of total revenue
1 % 1 % * 1 %
Interest expense
(16.4 ) (0.5 ) * (40.2 ) (1.9 ) *
Percentage of total revenue
(2 )% * (1 )% *
Investment gains (losses), net
3.5 0.6 483 % (10.7 ) (18.5 ) (42 )%
Percentage of total revenue
* * * (1 )%
Total non-operating income (expense), net $ (5.3 ) $ 6.8 (178 )% $ (49.0 ) $ 4.4 *

*	~~Percentage is not meaningful.~~

^{_________________________________________}

^(*)Percentage is less than 1%.

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~~Euro and Yen currencies, and ~~Euro currencies.~~

gains and losses on fixed income investments.

Interest and other income (expense), net ~~remained relatively unchanged during~~for the three and six months ended ~~September~~June 3, ~~2010~~2011 as compared to the three and six months ended ~~August 28, 2009. Included~~June 4, 2010 decreased 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

~~TABLE OF CONTENTS~~

~~August 28, 2009, interest and other income (expense),~~ net ~~decreased~~expense primarily due to ~~lower~~decreased foreign exchange losses and increased interest income due to higher average interest rates on our ~~investments of $16.5 million and increased foreign currency losses of $6.8 million.~~

investments.

Interest Expense

Investment Gains (Losses), Net

Investment gains (losses), net 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 and unrealized holding gains and losses associated with our deferred compensation plan assets (classified as trading securities)~~, and gains and losses of Adobe Ventures.~~. Our net investment gains for the three and six months ended ~~September~~June 3, 2011 were due to gains from our direct and equity investments. Our net investment losses during the three and six months ended June 4, 2010 ~~increased~~ were due to unrealized ~~gains~~losses related to our Adobe Ventures investments that did not recur during the threeand ~~direct investments as compared~~six months ended June 3, 2011 due to the ~~three months ended August 28, 2009. Our net investment losses for~~dissolution and distribution of the ~~nine months ended September 3, 2010 decreased primarily due to other-than-temporary impairment charges incurred on certain~~remaining assets of our ~~direct investments during~~limited partnership interest in Adobe Ventures portfolio of companies at the ~~nine months ended August 28, 2009.~~end of fiscal 2010.

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Provision for Income Taxes for the Three and ~~Nine~~Six Months Ended ~~September~~June 3, ~~2010~~2011 and ~~August 28, 2009~~June 4, 2010 (dollars in millions)


		Three Months					Percent			Nine Months					Percent		Three Months								Six Months
		2010			2009		Change			2010			2009		Change		2011			2010			% Change		2011			2010			% Change
Provision	$	66.7		$	38.4		74	%	$	151.3		$	122.8		23	%	$	29.8		$	45.6		(35	)%	$	81.3		$	84.6		(4	)%
Percentage of total revenue		7	%		6	%				5	%		6	%			3		%	5		%			4		%	5		%
Effective tax rate		23	%		22	%				23	%		23	%			11.5		%	23.5		%			14.9		%	23.5		%

Our effective tax rate ~~increased~~decreased by ~~one~~approximately twelve percentage ~~point~~points for the three months ended ~~September~~June 3, ~~2010. The increase was~~2011 and nine percentage points for the six months ended June 3, 2011. These decreases were primarily due to the ~~expiration~~one-time tax benefits related to a favorable state income tax ruling received in April 2011 and the reinstatement of the ~~U.S.~~federal research and development tax credit onin 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~~2010. The reinstatement of the credit was retroactive to January 1, 2010.

We are a United States-based multinational company subject to tax in multiple U.S. ~~research~~ and ~~development credit~~foreign tax jurisdictions. A significant portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S. income taxes on ~~December 31, 2009. This increase was offset~~earnings from the U.S., we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested outside the U.S. While we do not anticipate changing our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. Currently, there are a ~~one percentage point decrease,~~significant amount of foreign earnings upon which ~~is comprised of individually immaterial items.~~

U.S. income taxes have not been provided.

Accounting for Uncertainty in Income Taxes

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 above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0$0 to approximately ~~$100 million. These amounts could decrease income tax expense~~$5 million.

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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)		September 3, 2010		November 27, 2009	June 3, 2011		December 3, 2010
Cash, cash equivalents and short-term investments	$	2,578.3	$	1,904.5
Cash and cash equivalents					$	827.5	$	749.9
Short-term investments					$	1,798.0	$	1,718.1
Working capital	$	2,269.2	$	1,629.1	$	2,338.9	$	2,148.0
Stockholders’ equity	$	5,084.9	$	4,890.6	$	5,389.4	$	5,192.4

A summary of our cash flows is as follows:



	Six Months Ended
(in millions)	June 3, 2011			June 4, 2010
Net cash provided by operating activities	$	721.4		$	511.0
Net cash used for investing activities	(197.6		)	(689.6		)
Net cash (used for) provided by financing activities	(452.4		)	325.2
Effect of foreign currency exchange rates on cash and cash equivalents	6.2			(8.5		)
Net increase in cash and cash equivalents	$	77.6		$	138.1

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

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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. Other sources of cash are 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 ~~$802.4~~$721.4 million for the ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011 was primarily comprised of net income plus the net effect of non-cash items. The primary working capital sources of cash were net income coupled with increases in deferred ~~revenue, accrued expenses and taxes payable.~~revenue. Increases in deferred revenue related primarily to ~~activity from our acquisition~~billing of ~~Omniture,~~annual royalty fees, license renewals, upgrade plans and maintenance and support renewals during the ~~related renewal~~first six months of ~~calendar-year based contracts~~the fiscal year in addition to ~~increases in maintenance and support orders and royalty revenue 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 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 2010 associated with the repatriation of undistributed foreign earnings offset by approximately $150 million in payments against these liabilities during the secondactivity for Omniture hosted and ~~third quarters of fiscal 2010.~~professional services.

The primary working capital uses of cash were decreases in accrued expenses coupled with increases in trade receivables and prepaid expenses and other ~~current assets as well as decreases~~assets. Decreases in accrued ~~restructuring and trade payables.~~expenses primarily related to payment of fiscal year 2010 bonuses during the first six months of the fiscal year. During the six months ended June 3, 2011, we also made our second semi-annual interest payment associated with our Notes totaling $31.1 million. Trade receivables increased ~~from revenue related~~primarily due to products ~~that were~~ shipped during the latter half of the second quarter of fiscal ~~2010~~2011 as a result of the launch of ~~CS5 and the increase in business activity from our Omniture business unit. Increases in prepaid~~CS 5.5. Prepaid expenses and other ~~current~~ assets related primarily to 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 third quarter of fiscal 2010. Accrued restructuring decreasedincreased primarily due to ~~payments~~prepayments made ~~related~~ to our software vendors during the ~~fiscal 2009 restructuring plan that was initiated in the fourth~~second quarter of ~~fiscal 2009 in addi tion to adjustments made to previously recorded estimates,~~2011 for annual licenses offset in part by ~~new charges.~~

amortization during the period.

Cash Flows from Investing Activities

Net cash used for investing activities of ~~$956.3~~$197.6 million for the ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011 was primarily due to purchases of short-term investments, offset in part by maturities and sales of short-term investments.

Other uses of cash during the ~~nine~~six months ended ~~September~~June 3, ~~2010~~2011 represented purchases of property and equipment and long-term investments and other ~~assets. These uses~~assets as well as the acquisition 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.

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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 of ~~$29.0~~$452.4 million for the ~~nine~~six months ended ~~September~~June 3, ~~2010,~~2011 was primarily due to ~~payment of the outstanding balance on our credit facility and~~ treasury stock repurchases offset in part by proceeds from our ~~Notes and~~ treasury stock issuances. See the section titled “Stock Repurchase Program” discussed below.

We expect to continue our investing activities, including short-term and long-term investments, venture capital, facilities expansion and purchases of computer systems for research and development, sales and marketing, product support and administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase program and to strategically acquire companies, products or technologies that are complementary to our business.

In July 2010, we entered into a definitive agreement with 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 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 investment 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 2009~~Fiscal 2008 Restructuring Plan

·	~~Fiscal 2008~~Omniture Restructuring Plan

·	~~Omniture~~Macromedia Restructuring Plan

·	~~Macromedia Restructuring Plan~~

~~During the third quarter~~As of ~~fiscal 2010,~~June 3, 2011, we have accrued total restructuring charges of approximately ~~$17.0~~$12.5 million of which approximately ~~$2.6~~$2.0 million relates to ongoing termination benefits and contract terminations and are expected to be paid ~~during~~through fiscal ~~2010.~~2011. The remaining ~~$14.4~~$10.5 million relates to the cost of closing redundant facilities and are expected to be paid ~~per~~under contract through fiscal 2021 of which ~~over 80%~~approximately 75% will be paid through ~~2013.~~

2015.

During the ~~nine~~six months ended ~~September~~June 3, 2011, ~~2010,~~ we made payments related to the above restructuring plans totaling approximately ~~$47.2~~$3.7 million which principally consisted of approximately ~~$41.5~~$3.1 million ~~related to termination benefits and contract terminations and approximately $5.7 million~~ in payments related to the ~~cost~~closing of ~~closing~~ redundant facilities.

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We believe that our existing cash and cash equivalents, short-term investments and cash generated from operations will be sufficient to meet the cash outlays for the restructuring actions described above.

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

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Other Liquidity and Capital Resources Considerations

Our existing cash, cash equivalents and investment balances may fluctuate during the remainder of fiscal ~~2010~~2011 due to changes in our planned cash outlay, including changes in incremental costs such as direct and integration costs related to our acquisitions. Our cash and investments totaled $2.5 billion as of December 3, 2010. Of this amount, approximately 70% was held by our foreign subsidiaries and subject to material repatriation tax effects. Our intent is to permanently reinvest a significant portion of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event funds from foreign operations are needed to fund operations in the United States and if U.S. tax has not already been previously provided, we would provide for and pay additional U.S. taxes in connection with repatriating these funds.

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part II, Item 1A titled “Risk Factors”. However, based on our current business plan and revenue prospects, we believe that our existing balances, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months.

As of ~~September~~June 3, 2011, ~~2010,~~ the amount outstanding under the Notes was ~~$1.494 billion. On February 1, 2010, we used $1.0~~$1.5 billion ~~of the proceeds from this offering to pay the outstanding balance on our credit facility. The remainder of the proceeds from the Notes are available for general corporate purposes.~~. There is no outstanding balance under our credit facility and the entire ~~$1.0~~$1.0 billion credit line under this facility remains available for borrowing.

We use professional investment management firms to manage a large portion of our invested cash. External investment firms managed, on average, ~~73%~~80% of our consolidated invested balances during the ~~third~~second quarter of fiscal 2010. Within the U.S., the portfolio is invested in money market funds for working capital purposes and a fixed income portfolio which includes municipal securities, U.S. agency securities and corporate bonds. Outside of the U.S., our2011. The fixed income portfolio is primarily invested in U.S. Treasury securities, U.S. agency securities, municipal securities, corporate bonds and foreign government securities.

Stock Repurchase Program

During the ~~nine~~six months ended ~~September~~June 3, ~~2010 and August 28, 2009,~~2011, we entered into ~~several~~ structured stock repurchase agreements with large financial institutions, whereupon we provided ~~the financial institutions~~them with prepayments of ~~$650.0~~$545.0 million ~~and $350.0 million, respectively. Of~~. During the ~~$650.0 million of prepayments in the nine~~six months ended ~~September 3,~~June 4, 2010 ~~$250.0~~, we entered into a structured repurchase agreement with a large financial institution, whereupon we provided them with a prepayment of $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~~enter 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 ~~repur chases.~~repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.

Subsequent to ~~September~~June 3, ~~2010,~~2011, as part of our ~~$1.6~~$1.6 billion stock repurchase program, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of ~~$200.0 million.~~$150.0 million. This amount will be classified as treasury stock on our Condensed Consolidated Balance Sheets. Upon completion of the ~~$200.0~~$150.0 million stock repurchase agreement, ~~$1.0 billion now~~$305.0 million remains under our time-constrained dollar-based authority. See ~~Notes~~Note 12 and Note 18 of our Notes to Condensed Consolidated Financial Statements for further discussion of our stock repurchase program.

Refer to Part II, Item 2 in this report for share repurchases during the quarter ended ~~September~~June 3, ~~2010.~~2011.

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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.~~December 3, 2010. Our principal commitments as of ~~September~~June 3, ~~2010~~2011 consist of obligations under operating leases, capital leases, royalty agreements and various service agreements. ~~Except as discussed below, there~~There have been no significant changes in those obligations during the ~~nine~~six months ended ~~September~~June 3, ~~2010.~~ 2011. See 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~~our 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~~June 3, ~~2010,~~2011, our maximum commitment for interest payments under the Notes was ~~$493.9 million.~~

~~Capital Lease Obligation~~

~~In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2~~$462.8 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.~~

~~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 ~~September~~June 3, ~~2010,~~2011, 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. 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~~$5.2 million and ~~$3.0~~$3.0 million in liabilities, related to the extended East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to our Condensed Consolidated Statements of Income over the life of the leases. As of ~~September~~June 3, 2011~~, 2010~~ and ~~Nove mber 27, 2009,~~December 3, 2010, 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 ~~$0.9~~$0.4 million and ~~$1.3~~$0.7 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 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~~director's or ~~officer’s~~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~~six months ended ~~September~~June 3, 2011, as compared with those discussed in our Annual Report on Form 10-K for the fiscal year ended December 3, 2010.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of ~~September~~June 3, ~~2010,~~2011, 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.

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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 ~~controls~~control over financial reporting ~~that occurred~~ during the ~~period covered by this quarterly report on Form 10-Q~~quarter ended June 3, 2011 that have materially affected, or are reasonably likely to materially affect our internal ~~controls~~control 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.

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 and services. Our inability to extend our core technologies into new applications and new platforms, including the mobile and ~~embedded~~non-PC devices market, and to anticipate or respond to technological changes could affect continued market acceptance of our ~~produ cts~~products 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~~PC 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~~To the extent new releases of operating systems, including for mobile and non-PC devices, or other third-party ~~produc ts,~~products, 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 and distribution 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.~~consumers, all of which may result in downward pressure on pricing and gross margins. 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 exa mple, certain versions of Microsoft Windows operating systems contain a fixed document format, XPS, which competes with Adobe PDF. Additionally, certain versions of Microsoft Office 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. Oracle’s (formerly Sun’s) JavaFX, alternative approaches to deploying RIAs, compete with Adobe Flash and Adobe AIR. Additionally, HTML5 specifies scripting application programming interfaces which if broadly implemented in browsers could compete with the scripting capabilities found in Adobe Flash technologies. Companies,changes, such as ~~Google, Oracle (formerly Sun), Apple~~the evolution and ~~Microsoft, may introduce competing~~emergence of digital application marketplaces as a direct sales and software offerings for free or open source vendors may introduce competitive products. In addition, r ecent advances in computing and communications technologies have made the SaaS, or on-demand, business model viable. The SaaS model allows companies to provide hosted applications, data and related services over the Internet. SaaS providers primarily use advertising or subscription-based revenue models. We are further developing and deploying our own SaaS strategies through various business units, including our Omniture business unit, but 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 acquire Unica and Netezza), Yahoo! and WebTrends.delivery environment. If any competing products, services, or ~~services in these areas~~operating systems 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.

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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 ~~year 2009.~~

2010.

If we fail to successfully manage transitions to new business models and markets, our results of operations could be negatively impacted.

We plan to release numerous new product and service offerings and employ new software delivery methods in connection with our diversification into new business ~~models.~~models and markets. 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 ~~signific ant~~significant technical, legal or other costs. For example, with our introduction of on-demand or cloud-based services and subscription-based licensing models, we are entering ~~a market~~markets that isare at an early ~~stage~~stages of development. Market acceptance of such services is affected by a variety of factors, including security, reliability, performance, customer concerns with entrusting a third party to store and manage their data, public concerns regarding privacy and the enactment of laws or regulations that restrict our ability to provide such services to customers in the U.S. or internationally. As our business continues to transition to new business models that may be more highly regulated for privacy and data security, and to countries outside the U.S. that have more stringent data protection laws, our liability exposure, compliance requirements and costs may increase. In addition, recently there has been increasing sensitivity of consumers to the use of personal information and unauthorized data disclosure, which has resulted in regulatory scrutiny in the U.S. and other countries. As a result, laws and industry practices in the areas of privacy and online advertising are likely to change and technological solutions to comply with these changes may be ~~passed in the future,~~required or necessary, either of which could result in significant limitations on or changes to the ways in which we and our customers can collect, process, use, store or transmit the information of customers or employees, communicate with customers, and deliver products and services. Further, any perception of our practices or products as an invasion of privacy, whether or not ~~illegal,~~consistent with current regulations and industry practices, may subject us to public ~~criticism. Existing~~criticism and ~~potential future privacy laws, increased risks related to unauthorized data disclosures and increasing sensitivity~~reputational harm or claims by regulators, industry groups or other third parties, all of ~~consumers to use of personal information may create negative public relations related to~~which could harm our ~~products and business practices.~~business.

Additionally, customer requirements for open standards or ~~open source~~open-source products could impact adoption or use of some of our products or services. To the extent we incorrectly ~~estimate~~predict customer requirements for such products or services, or if there is a delay in market acceptance of such products or services, our business could be harmed.

From time to time we open source certain of our technology initiatives, provide broader open access to our technology, ~~such as opening access to~~license certain of our ~~technologies as part of our Open Screen Project (“OSP”) initiative,~~technology on a royalty-free basis, and release selected technology for industry standardization. These changes may have negative revenue implications and make it easier for our competitors to produce products or services similar to ours. If we are unable to respond to these competitive threats, our business could be harmed.

We are also devoting significant resources to the development of technologies and service offerings in markets where we have a limited operating history, including the enterprise, government, cloud-based computing and mobile and ~~non-pc~~non-PC device markets. In the enterprise ~~and government markets,~~market, we intend to increase our focus on vertical markets such as education, financial services, ~~manufacturing,~~government and ~~horizontal markets such as training and marketing.~~manufacturing. 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, cloud-based computing and mobile and non-PC device markets, and greater ~~s ales,~~sales, consulting and marketing resources. In the mobile and non-PC device markets, our intent is to partner with device makers, chipset and OS vendors, 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.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic and political conditions. Uncertainty about future economic and political conditions makes it difficult for us to forecast operating results and to make decisions about future investments. If economic growth in the U.S. and other

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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~~product and service offerings may be difficult to predict.

As previously discussed, we are devoting significant resources to the development of product and service offerings as well as new distribution models where we have a limited operating history. For example, we have begun to implement a subscription licensing model to augment our traditional perpetual licensing model. This makes it difficult to predict revenue and license revenue may decline 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~~could make our revenue less predictable, including longer than expected sales and implementation cycles, decisions to open source certain of our technology initiatives, potential deferral of revenue due to multiple-element revenue arrangements and alternate licensing arrangements. If any of our assumptions about revenue ~~fro m~~from our new businesses prove incorrect, our actual results may vary materially from those anticipated, estimated or projected.

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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~~non-renewal. We cannot provide assurance that these subscriptions will be renewed at the same or higher level of service, if at all. Moreover, under ~~some~~certain 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 decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our services, the prices of our services, the prices of services offered by our competitors, mergers and acquisitions affecting our customer base, reductions in our customers’ spending levels, or declines in consumer Internet activity as a result of economic downturns or uncertainty in financial markets. If our customers do not renew their subscriptions for our services or if they renew on less favorable terms to us, our revenues may decline.

Uncertainty about future economic conditions and other adverse changes in general political conditions in any of the major countries in which we do business could adversely affect our operating results.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic and political conditions. Uncertainty about future economic and political conditions, including the impact of the earthquakes and related events in Japan on us, our customers, suppliers and partners, makes it difficult for us to forecast operating results and to make decisions about future investments. If economic growth in the U.S. and other countries, including Japan, slows or does not improve, many customers may delay or reduce technology purchases, advertising spending or marketing spending. This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price competition.

Political instability in any of the major countries in which we do business would also likely harm our business, results of operations and financial condition.

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,~~Recently, we completed the acquisition of Omniture in October 2009 and ~~we announced~~completed the acquisition of Day in ~~July 2010 our intent to acquire Day.~~October 2010. We may not realize the anticipated benefits of an acquisition and each acquisition has numerous risks. These risks include:

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

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

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

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

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

entry into markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;

disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges;

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

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

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

~~entry into markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;~~

inability to retain key customers, distributors, vendors and other business partners of the acquired business;

inability to achieve the financial and strategic goals for the acquired and combined businesses;

~~disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges;~~

inability to take advantage of anticipated tax benefits as a result of unforeseen difficulties in our integration activities;

incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;

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

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

potential additional exposure to fluctuations in currency exchange rates;

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

~~inability to retain key customers, distributors, vendors and other business partners of the acquired business;~~

potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired company or technology, including but not limited to, issues with the acquired company’s intellectual property, product quality or product architecture, data back-up and security, privacy practices, revenue recognition or other accounting practices, employee, customer or partner issues or legal and financial contingencies;

unexpected changes in, or impositions of, legislative or regulatory requirements impacting the acquired business;

~~inability to achieve the financial and strategic goals for the acquired and combined businesses;~~

exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to, claims from terminated employees, customers, former stockholders or other third parties;

incurring significant exit charges if products or services acquired in business combinations are unsuccessful;

~~inability to take advantage of anticipated tax benefits as a result of unforeseen difficulties in our integration activities;~~

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;

~~incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;~~

potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product and service offerings; and

potential incompatibility of business cultures.

~~potential additional exposure to fluctuations in currency exchange rates;~~

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

potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired company or technology, including but not limited to, issues with the acquired company’s intellectual property, product quality or product architecture, data back-up and security, 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;~~

~~incurring significant exit charges if products or services acquired in business combinations are unsuccessful;~~

~~potential inability to assert that internal controls over financial reporting are effective;~~

~~potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions;~~

~~potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product and service offerings; and~~

~~potential incompatibility of business cultures.~~

Mergers and acquisitions of high technology companies are inherently risky, and ultimately, if we do not complete an announced acquisition transaction or integrate an acquired business successfully and in a timely manner, we may not realize the benefits of the acquisition to the extent anticipated.

We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings.

In connection with the enforcement of our own intellectual property rights, the acquisition of third-party intellectual property rights, or disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation are typically very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual ~~prope rty~~property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements and service agreements. In addition, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these occurrences could seriously harm our business.

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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.

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~~piracy as part of our enforcement of our intellectual property rights, but we nonetheless lose significant revenue due to illegal use of our software. If piracy activities increase, it may further harm our business.

Additionally, we take significant measures to protect the secrecy of our confidential information and trade secrets, including our source code. If unauthorized disclosure of our source code occurs through security breach or attack, or otherwise, we could potentially lose future trade secret protection for that source code. The loss of future trade secret protection could make it easier for ~~third-parties~~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~~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.

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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~~may be identified in certain of our ~~products.~~applications. These vulnerabilities could cause ~~the application~~such applications 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~~security measures designed to protect their existing computer systems from attack, which could delay adoption of new technologies. Any of these actions by customers could adversely affect our ~~revenue.~~

revenues.

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

Some of our ~~businesses,~~lines of business and services, including our online store at adobe.com and the 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~~some of ~~such data~~which is hosted in third-party facilities, a security incident may compromise the confidentiality, integrity or availability of customer data, or customer data may be exposed to unauthorized access. Unauthorized access to customer data may be obtained through break-ins, breach of our secure network by an unauthorized party, employee theft or misuse, or other misconduct. It is also possible that unauthorized access to customer data may be obtained through inadequate use of security controls by customers. While our products and services provide and support strong password controls, IP restriction and account controls, ~~are provided and supported,~~ their use is ~~contr olled~~controlled by the customer. As such, this could allow accounts to be created with weak passwords, which could result in allowing an attacker to gain access to customer data. Additionally, failure by customers to remove accounts of their own employees, or granting of accounts by the customer in an uncontrolled manner, may allow for access by former or unauthorized customer employees. If there were ever an inadvertent disclosure of personal information, or if a third party were to gain unauthorized access to the personal information we possess on behalf of our customers, our operations could be disrupted, our reputation could be harmed and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized disclosure of the information we collect or breach of our security could damage our reputation, result in the loss of customers and harm our business.

Because of the large amount of data that we collect and manage on behalf of our customers, it is possible that hardware or software failures or errors in our systems (or those of our third party service providers) could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. Furthermore, our ability to collect and report data

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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 some of our services, ~~including those using services offered by our Omniture business unit,~~ we collect and store information derived from the activities of Website visitors, which may include anonymous and/or personal information. This enables us to provide such customers with reports on aggregated anonymous or personal information from and about the visitors to their Websites in the manner specifically directed by each such individual customer. Federal, state and foreign ~~government bodies~~governments 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~~depend on such customers’ adherence to privacy laws and regulations and their use of our services in ways consistent with such visitors’ expectations. We also rely on representations made to us by customers that their own use of our services and the information 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

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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 ~~three distributors,~~one distributor, Ingram Micro, Inc., ~~Tech Data Corporation and the Douglas Stewart Company,~~ which represented ~~13%, 6% and 6%~~14% of our net revenue for the ~~third~~second quarter of fiscal ~~2010, respectively.~~2011. We have multiple non-exclusive, independently negotiated distribution agreements with Ingram Micro ~~Tech Data~~ and ~~the Douglas Stewart Company and their~~its subsidiaries covering our arrangements in specified countries and regions. Each of these contracts has an independent duration, is independent of any other agreement (such as a master distribution agreement) and any termination of one agreement does not affect the status of any of the other agreements. In the ~~third~~second quarter of fiscal ~~2010,~~2011, no single ~~a greement~~agreement with ~~these distributors~~this distributor was responsible for over 10% of our total net revenue. If any one of our agreements with ~~these distributors~~this distributor were terminated, we believe we could make arrangements with new or existing distributors to distribute our 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~~our distribution channel is not successful, we may lose sales opportunities, customers and revenues.

Our distributors also sell our ~~competitors’~~competitors' products, and if they favor our competitors’ products for any reason, they may fail to market our products as effectively or to devote resources necessary to provide effective sales, which would cause our results to suffer. We also distribute some products through our OEM channel, and if our OEMs decide not to bundle our applications on their devices, our results could suffer.

In addition, the financial health of our distributors and our continuing relationships with them are important to our success. Some of these distributors may be 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~~such 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~~flows 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~~weakened 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 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~~Risks associated with licensing and ~~sale of~~selling products and services to governmental entities ~~may require~~include longer sales cycles associated with selling to diverse governmental entities, varying governmental budgeting processes and timelines and adherence to potentially complex specific procurement regulations and other requirements. ~~While we believe we have adequate controls in this area, failure to effectively manage this complexity and satisfy~~Ineffectively managing these ~~requirements~~risks 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 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

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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, software or hardware malfunctions, 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 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~~A number of factors may affect 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, 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 and developments in our ~~industry;~~industry, as well as 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 global operations which may harm our business.

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

foreign currency fluctuations;

~~foreign currency fluctuations;~~

changes in government preferences for software procurement;

international economic, political and labor conditions;

~~changes in government preferences for software procurement;~~

tax laws (including U.S. taxes on foreign subsidiaries);

increased financial accounting and reporting burdens and complexities;

~~international economic, political and labor conditions;~~

unexpected changes in, or impositions of, legislative or regulatory requirements;

failure of laws to protect our intellectual property rights adequately;

~~tax laws (including U.S. taxes on foreign subsidiaries);~~

inadequate local infrastructure and difficulties in managing and staffing international operations;

delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;

~~increased financial accounting and reporting burdens and complexities;~~

transportation delays;

operating in locations with a higher incidence of corruption and fraudulent business practices; and

~~unexpected changes in, or impositions of, legislative or regulatory requirements;~~

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

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

~~inadequate local infrastructure and difficulties in managing and staffing international operations;~~

~~delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;~~

~~transportation delays;~~

~~operating in locations with a higher incidence of corruption and fraudulent business practices; and~~

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

If sales to any of our customers outside of the Americas are delayed or ~~cancelled~~canceled because of any of the above factors, our revenue may be negatively impacted.

In addition, approximately ~~45%~~46% of our employees are located outside the U.S. This ~~means we have exposure~~exposes us to changes in foreign laws governing our employee 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, as a global company we are subject to varied and complex laws, regulations and customs domestically and internationally. These laws and regulations relate to a number of aspects of our business, including trade protection, import and export control, data and transaction processing security, records management, gift policies, employment and labor relations laws,

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securities regulations and other regulatory requirements affecting trade and investment. The application of these laws and regulations to our business is often unclear and may at times conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance could ~~al so~~also result in fines, damages, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, and damage to our reputation. We incur additional legal compliance costs associated with our global operations and could become subject to legal penalties in foreign countries if we ~~do not~~fail to 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~~that 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 for 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~~$1.5 billion of notes in a debt offering and may incur other debt in the future, which may adversely affect our financial condition and future financial results.

In the first quarter of fiscal ~~year~~ 2010, we issued ~~$1.5~~$1.5 billion in senior unsecured notes. We also have a ~~$1.0~~$1.0 billion revolving credit ~~facility.~~facility, which is currently undrawn. Although we have no current plans to request any advances under this credit facility, we may use the proceeds of any future borrowing for general corporate purposes, or for future acquisitions or expansion of our business.

This debt may adversely affect our financial condition and future financial results by, among other things:

requiring the dedication of a portion of our expected cash from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions; and

limiting our flexibility in planning for, or reacting to, changes in our business and our industry.

~~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~~increase. Downgrades in our credit ratings ~~may affect~~could also restrict our ability to obtain additional financing in the future and ~~may~~could 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; and~~

~~accounting for business combinations and related goodwill.~~

In December 2007, the FASB issued 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 restructuring liabilities, the treatment of acquisition-related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance. The revised standards for business combinations were effective for us beginning the first quarter of fiscal 2010. We currentl y believe that the adoption of the revised standards for business combinations will result in the recognition of certain types of expenses in our results of operations that we previously capitalized pursuant to prior accounting standards.

~~TABLE OF CONTENTS~~

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 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 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~~GAAP requires us to ~~be tested~~test 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 ~~operati ons.~~operations.

Table of Contents

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

We are a ~~U.S.-based~~United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. A significant portion of our foreign earnings for the current fiscal year were earned by our Irish subsidiaries. In addition to providing for U.S. income taxes on earnings from the United States, we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested outside the United States. While we do not anticipate changing our intention regarding permanently reinvested earnings, if certain foreign earnings previously treated as permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.

Our income tax expense has differed from the tax computed at the U.S. federal statutory income tax rate due primarily to discrete items and to earnings considered as permanently reinvested in foreign operations. Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in, or our interpretation of, tax rules and regulations in the jurisdictions in which we do business, by unanticipated decreases in the amount of ~~revenue or~~ earnings in countries with low statutory tax rates, by lapses of the availability of the U.S. research and development tax credit, or by changes in the valuation of our deferred tax assets and liabilities.

In addition, we are subject to the continual examination of our income tax returns by the ~~IRS~~Internal Revenue Service (“IRS”) and other domestic and foreign tax authorities, including a current examination by the IRS of our fiscal ~~2005, 2006~~2008 and ~~2007~~2009 tax returns. These examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current ~~examination.~~examinations. We believe such estimates to be reasonable; however, there can be no assurance that the final determination of any of these examinations will not have an adverse effect on our operating results ~~a nd~~and financial position.

If we are unable to recruit and retain key personnel our business may be harmed.

Much of our future success depends on the continued service and availability of our senior management. These individuals have acquired specialized knowledge and skills with respect to Adobe. The loss of any of these individuals could harm our business. Our business is also dependent on our ability to retain, hire and motivate talented, highly skilled personnel. 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. Accounting regulations requiring the expensing of equity ~~compen sation~~compensation may impair our ability to provide these incentives without incurring significant compensation costs. If we are unable to continue to successfully attract and retain key personnel, our business may be harmed. Effective succession planning is also a key factor for our long-term success. Our failure to enable the effective transfer of knowledge and facilitate smooth transitions with regards to our key employees could adversely affect our long-term strategic planning and execution.

~~TABLE OF CONTENTS~~

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 ~~September~~June 3, ~~2010~~2011 consisted of corporate bonds and commercial paper, foreign government securities, money market mutual funds ~~U.S. Treasury~~and repurchase agreements, municipal securities, U.S. agency securities ~~municipal securities, corporate bonds~~ and ~~foreign government~~U.S. Treasury securities. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes.

Should ~~uncertain~~ financial market conditions ~~continue,~~worsen in the future, investments in some financial instruments may pose risks arising from market liquidity and credit concerns. In addition, any deterioration of the capital markets could cause our other income and expense to vary from expectations. As of ~~September~~June 3, ~~2010,~~2011, we had no material impairment charges associated with our short-term investment portfolio, and although we believe our current investment portfolio has very little risk of material impairment, we cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.

~~We may suffer losses from our equity investments which could harm our business.~~

~~We have investments and plan to continue to make future investments in privately held companies, many~~Table 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.

Contents

~~TABLE OF CONTENTS~~

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

Below is a summary of stock repurchases for the three months ended ~~September~~June 3, ~~2010.~~ 2011. See Note 12 of our Notes to Condensed Consolidated Financial Statements for information regarding our stock repurchase program.



Period	Shares Repurchased	Average Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value that May Yet be Purchased Under the Plan⁽¹⁾
	(in thousands, except average price per share)
Beginning repurchase authority					916,618
March 5—April 1, 2011
Shares repurchased	1,235	$	33.71	1,235	$	(41,618	)
April 2—April 29, 2011
Shares repurchased	12,482	$	33.65	12,482	$	(420,000	)	⁽²⁾
April 30—June 3, 2011
Shares repurchased	—	$	—	—	$	—
Total	13,717			13,717	$	455,000

^{_________________________________________}

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 our stock repurchase program which was not subject to expiration. This repurchase program was limited to covering net dilution from stock issuances and was subject to business conditions and cash flow requirements as determined by our Board of Directors from time to time.
⁽¹⁾	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~~$1.6 billion in common stock through the end of fiscal ~~2012.~~2012.

~~(2)~~	~~During the three months ended September 3, 2010, there were no shares that were cancelled when employees surrendered them in lieu of cash payments for withholding taxes due. These shares were not~~
⁽²⁾	In April 2011, as part of the ~~publicly announced repurchase program.~~

~~(3)~~

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

~~(4)~~

~~In June 2010, as part of the amended program, we entered into structured stock repurchase agreements with large financial institutions whereupon we provided them with prepayments of $400.0 million.~~$420.0 million. As of ~~September~~June 3, ~~2010, approximately $132.9 million of up-front payments~~2011, no prepayments remained under ~~these agreements.~~this agreement.

ITEM 6. EXHIBITS

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

Table of Contents

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

Date: ~~October 8, 2010~~June 29, 2011

Table of Contents

~~TABLE OF CONTENTS~~

SUMMARY OF ~~TRADEMAR~~KSTRADEMARKS

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~~Scene7

Shockwave

All other trademarks are the property of their respective owners.

Table of Contents

~~TABLE OF CONTENTS~~INDEX TOEXHIBITS

~~INDEX TO EXHIBITS~~

Incorporated by Reference**

Exhibit

Number

Exhibit Description

Form

Date

Number

Filed

Herewith

3.1

Restated Certificate of Incorporation of Adobe Systems Incorporated

8-K

4/26/11

3.3

3.2

Amended and Restated Bylaws

8-K

4/26/11

3.4

4.1

Specimen Common Stock Certificate

S-3

1/15/10

4.3

4.2

Form of Indenture

S-3

1/15/10

4.1

4.3

Forms of Global Note for Adobe Systems Incorporated’s 3.250% Notes due 2015 and 4.750% Notes due 2020, together with Form of Officer’s Certificate setting forth the terms of the Notes

8-K

1/26/10

4.1

10.1

Amended 1994 Performance and Restricted Stock Plan*

10-Q

4/9/10

10.1

10.2

Form of Restricted Stock Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan*

10-K

1/23/09

10.3

1997 Employee Stock Purchase Plan, as amended*

8-K

4/26/11

10.1

10.4

1996 Outside Directors Stock Option Plan, as amended*

10-Q

4/12/06

10.6

10.5

Forms of Stock Option Agreements used in connection with the 1996 Outside Directors Stock Option Plan*

S-8

6/16/00

4.8

10.6

2003 Equity Incentive Plan, as amended and restated*

8-K

4/20/10

10.1

10.7

Form of Stock Option Agreement used in connection with the 2003 Equity Incentive Plan*

8-K

12/20/10

99.4

10.8

Form of Indemnity Agreement*

10-Q

6/26/09

10.12

10.9

Forms of Retention Agreement*

10-K

11/28/97

10.44

10.10

Second Amended and Restated Master Lease of Land and Improvements by and between SMBC Leasing and Finance, Inc. and Adobe Systems Incorporated

10-Q

10/7/04

10.14

10.11

Lease between Adobe Systems Incorporated and Selco Service Corporation, dated March 26, 2007

8-K

3/28/07

10.1

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

Table of Contents

Incorporated by Reference**

Exhibit

Number

Exhibit Description

Form

Date

Number

Filed

Herewith

10.12

Participation Agreement among Adobe Systems Incorporated, Selco Service Corporation, et al. dated March 26, 2007

8-K

3/28/07

10.2

10.13

Form of Restricted Stock Unit Agreement used in connection with the Amended 1994 Performance and Restricted Stock Plan*

8-K

12/20/10

99.2

10.14

Form of Restricted Stock Unit Agreement used in connection with the 2003 Equity Incentive Plan*

8-K

12/20/10

99.3

10.15

Form of Restricted Stock Agreement used in connection with the 2003 Equity Incentive Plan*

10-Q

10/7/04

10.11

10.16

2005 Equity Incentive Assumption Plan, as amended*

10-Q

4/9/10

10.19

10.17

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

8-K

12/20/10

99.10

10.18

Allaire Corporation 1997 Stock Incentive Plan*

S-8

3/27/01

4.06

10.19

Allaire Corporation 1998 Stock Incentive Plan*

S-8

3/27/01

4.07

10.20

Allaire Corporation 2000 Stock Incentive Plan*

S-8

3/27/01

4.08

10.21

Andromedia, Inc. 1999 Stock Plan*

S-8

12/7/99

4.09

10.22

Blue Sky Software Corporation 1996 Stock Option Plan*

S-8

12/29/03

4.07

10.23

Macromedia, Inc. 1999 Stock Option Plan*

S-8

8/17/00

4.07

10.24

Macromedia, Inc. 1992 Equity Incentive Plan*

10-Q

8/3/01

10.01

10.25

Macromedia, Inc. 2002 Equity Incentive Plan*

S-8

8/10/05

4.08

10.26

Form of Macromedia, Inc. Stock Option Agreement*

S-8

8/10/05

4.09

10.27

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

S-8

11/23/04

4.10

10.28

Form of Macromedia, Inc. Restricted Stock Purchase Agreement*

10-Q

2/8/05

10.01

10.29

Adobe Systems Incorporated Form of Performance Share Program pursuant to the 2003 Equity Incentive Plan*

8-K

1/29/10

10.1

Table of Contents

Incorporated by Reference**

Exhibit

Number

Exhibit Description

Form

Date

Number

Filed

Herewith

10.30

Form of Award Grant Notice and Performance Share Award Agreement used in connection with grants under the Adobe Systems Incorporated 2008 Performance Share Program pursuant to the 2003 Equity Incentive Plan*

8-K

1/30/08

10.2

10.31

2008 Award Calculation Methodology Exhibit A to the 2008 Performance Share Program pursuant to the 2003 Equity Incentive Plan*

8-K

1/30/08

10.3

10.32

Adobe Systems Incorporated Deferred Compensation Plan*

10-K

1/24/08

10.52

10.33

Adobe Systems Incorporated 2007 Performance Share Program pursuant to the Amended 1994 Performance and Restricted Stock Plan*

8-K

1/30/07

10.3

10.34

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

10.35

Adobe Systems Incorporated Executive Cash Bonus Plan*

DEF 14A

2/24/06

Appendix B

10.36

Second Amendment to Retention Agreement between Adobe Systems Incorporated and Shantanu Narayen, effective as of

December 17, 2010*

10-K

1/27/11

10.40

10.37

Adobe Systems Incorporated Executive Severance Plan in the Event of a Change of Control*

10-K

1/27/11

10.41

10.38

Employment offer letter between Adobe Systems Incorporated and Richard Rowley, dated October 30, 2006*

8-K

11/16/06

10.1

10.39

Employment offer letter between Adobe Systems Incorporated and Mark Garrett dated January 5, 2007*

8-K

1/26/07

10.1

10.40

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

~~TABLE OF CONTENTS~~

Table of Contents

Incorporated by Reference**

Exhibit

Number

Exhibit Description

Form

Date

Number

Filed

Herewith

10.41

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

10.42

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

10.43

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

10.44

Form of Director Annual Grant Stock Option Agreement used in connection with the 2003 Equity Incentive Plan*

8-K

12/20/10

99.8

10.45

Form of Director Initial Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan*

8-K

12/20/10

99.6

10.46

Form of Director Annual Grant Restricted Stock Unit Agreement in connection with the 2003 Equity Incentive Plan*

8-K

12/20/10

99.7

10.47

2009 Executive Annual Incentive Plan*

8-K

1/29/09

10.4

10.48

Omniture, Inc. 1999 Equity Incentive Plan, as amended (the “Omniture 1999 Plan”)*

S-1

4/4/06

10.2A

10.49

Forms of Stock Option Agreement under the Omniture 1999 Plan*

S-1

4/4/06

10.2B

10.50

Form of Stock Option Agreement under the Omniture 1999 Plan used for Named Executive Officers and Non-Employee Directors*

S-1

6/9/06

10.2C

10.51

Omniture, Inc. 2006 Equity Incentive Plan and related forms*

10-Q

8/6/09

10.3

10.52

Omniture, Inc. 2007 Equity Incentive Plan and related forms*

10-K

2/27/09

10.9

10.53

Omniture, Inc. 2008 Equity Incentive Plan and related forms*

10-K

2/27/09

10.10

10.54

Visual Sciences, Inc. (formerly, WebSideStory, Inc.) Amended and Restated 2000 Equity Incentive Plan*

10-K

2/29/08

10.5

Table of Contents

Incorporated by Reference**

Exhibit

Number

Exhibit Description

Form

Date

Number

Filed

Herewith

10.55

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

10.56

Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under the VS 2004 Plan*

10-K

2/29/08

10.6A

10.57

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

10.58

Avivo Corporation 1999 Equity Incentive Plan and Form of Option Grant Agreement*

10-K

2/29/08

10.7

10.59

The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002*

S-8

3/16/07

99.5

10.60

Forms of Agreements under The Touch Clarity Limited Enterprise Management Incentives Share Option Plan 2002*

S-8

3/16/07

99.6

10.61

Form of Performance Share Award Grant Notice and Performance Share Award Agreement pursuant to the 2003 Equity Incentive Plan*

8-K

12/20/10

99.5

10.62

2010 Performance Share Program Award Calculation Methodology pursuant to the 2003 Equity Incentive Plan*

8-K

1/29/10

10.3

10.63

Fiscal Year 2010 Executive Annual Incentive Plan*

8-K

1/29/10

10.4

10.64

Day Software Holding AG International Stock Option/Stock Issuance Plan*

S-8

11/1/10

99.1

10.65

Day Interactive Holding AG U.S. Stock Option/ Stock Issuance Plan*

S-8

11/1/10

99.2

10.66

Form of Restricted Stock Unit Award Agreement used in connection with the 2005 Equity Incentive Assumption Plan*

8-K

12/20/10

99.9

10.67

Description of 2011 Director Compensation*

10-K

1/27/11

10.73

10.68

Demdex, Inc. 2008 Stock Plan

S-8

1/27/11

99.1

10.69

Award Calculation Methodology to the 2011 Performance Share Program pursuant to the 2003 Equity Incentive Plan*

8-K

1/28/11

10.3

10.70

2011 Executive Cash Performance Bonus Plan*

8-K

1/28/11

10.4

Table of Contents

Incorporated by Reference**

Exhibit

Number

Exhibit Description

Form

Date

Number

Filed

Herewith

10.71

2011 Executive Annual Incentive Plan*

8-K

1/28/11

10.5

31.1

Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1

Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

32.2

Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

101.INS

XBRL Instance††

101.SCH

XBRL Taxonomy Extension Schema††

101.CAL

XBRL Taxonomy Extension Calculation††

101.LAB

XBRL Taxonomy Extension Labels††

101.PRE

XBRL Taxonomy Extension Presentation††

101.DEF

XBRL Taxonomy Extension Definition††

~~Exhibit~~

	Incorporated by Reference**				~~Filed~~
~~Number~~		~~Exhibit Description~~	~~Form~~	~~Date~~		~~Number~~	~~Herewith~~Compensatory plan or arrangement.

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

~~TABLE OF CONTENTS~~

~~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

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 Allaire Corporation 2000 Stock Incentive Plan* S-8 3/27/01 4.08

10.23 Andromedia, Inc. 1999 Stock Plan* S-8 12/07/99 4.09

10.24 Blue Sky Software Corporation 1996 Stock Option Plan* S-8 12/29/03 4.07

10.25 Macromedia, Inc. 1999 Stock Option Plan* S-8 8/17/00 4.07

10.26 Macromedia, Inc. 1992 Equity Incentive Plan* 10-Q 8/03/01 10.01

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

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

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

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

~~TABLE OF CONTENTS~~

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

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

~~TABLE OF CONTENTS~~

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

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

~~TABLE OF CONTENTS~~

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

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

~~TABLE OF CONTENTS~~

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

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

~~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~~

~~Exhibit~~		Incorporated by Reference**			~~Filed~~
~~Number~~	~~Exhibit 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 ~~10.20~~10.18 through ~~10.30~~10.28 are to filings made by Macromedia, Inc. References to Exhibits ~~10.53~~10.48 through ~~10.65~~10.60 are to filings made by 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.


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

(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

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

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

(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	%

		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	$	—

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

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