Management Discussion and Analysis (USD $) | | | | | | | | | | | |
Share data in Thousands | 12 Months Ended
Nov. 27, 2009
| 12 Months Ended
Nov. 28, 2008
| | 12 Months Ended
Nov. 30, 2007
| | 12 Months Ended
Dec. 01, 2006
| | 24 Months Ended
Nov. 29, 2013
| 36 Months Ended
Dec. 02, 2011
| 144 Months Ended
Dec. 31, 2025
| 204 Months Ended
Dec. 31, 2025
|
[CostAndExpenseDiscussion] | | Research and Development, Sales and Marketing and General and Administrative Expenses Included in compensation costs for fiscal 2008, 2007 and 2006 are compensation and related benefits, including stock-based compensation costs as a result of adopting SFAS 123R at the beginning of fiscal 2006. The increase in compensation costs during fiscal 2008 as compared to fiscal 2007 related to increases in headcount and stock-based compensation offset by decreases in profit sharing and employee bonuses based on company performance. Additionally, the increase in compensation for fiscal 2007 as compared to fiscal 2006 related to higher expense for profit sharing and employee bonuses based on company performance. | | | | | | | | | |
[ProductCostDividedByTotalRevenue] | | 0.07 | | 0.09 | | 0.09 | | | | | |
[ProductCostChangeDividedByPriorYearProductCost] | | -0.02 | | 0.2 | | | | | | | |
[ServiceSupportCostChangeDividedByPriorYearServiceSupportCost] | | 0.15 | | 0.27 | | | | | | | |
[ServiceSupportCostDividedByTotalRevenue] | | 0.03 | | 0.03 | | 0.03 | | | | | |
[TotalCostOfRevenueChangeDividedByPriorYearTotalCostOfRevenue] | | 0.02 | | 0.21 | | | | | | | |
[CostOfProductRevenueFluctuationDueIncreaseDecreaseAmortizationOfAcquiredRightsToUseTechnology] | | 0.06 | | 0.08 | | | | | | | |
[CostOfProductRevenueFluctuationDueIncreaseDecreaseRoyaltiesForLicensedTechnologies] | | 0.03 | | 0.07 | | | | | | | |
[CostOfProductRevenueFluctuationDueIncreaseDecreaseAmortizationOfPurchasedIntangibles] | | -0.1 | | -0.11 | | | | | | | |
[CostOfProductRevenueFluctuationDueIncreaseDecreaseLocalizationCostProductLaunches] | | -0.01 | | 0.1 | | | | | | | |
[CostOfProductRevenueFluctuationDueIncreaseDecreaseExcessAndObsoleteInventory] | | -0.01 | | 0.03 | | | | | | | |
[CostOfProductRevenueFluctuationDueIncreaseDecreaseVariousInsignificantItems] | | 0.01 | | 0.03 | | | | | | | |
[TotalCostOfProductRevenueFluctuation] | | -0.02 | | 0.2 | | | | | | | |
[IncomeTaxesDiscussion] | | Our effective tax rate decreased approximately five percentage points during fiscal 2008 as compared to fiscal 2007. The decrease was primarily related to the completion in the third quarter of fiscal 2008 of a U.S. income tax examination covering our fiscal years 2001 through 2004, a refund of foreign taxes from our fiscal years 2000 through 2002 following a foreign tax court judgment and stronger international profits for fiscal 2008 offset in part by an increase due to the tax benefit for the reinstatement of the research and development credit relating to fiscal 2006 in the first quarter of fiscal 2007. Our effective tax rate decreased approximately two percentage points during fiscal 2007 as compared to fiscal 2006. The decrease is primarily due to the reinstatement of the federal research and development tax credit in December 2006. The reinstatement of the credit was retroactive to January 1, 2006. A $12.3 million cumulative tax benefit for the credit relating to fiscal 2006 was reflected in its entirety in the first quarter of fiscal 2007. | | | | | | | | | |
[TaxProvisionChangeDividedByPriorYearTaxProvision] | | -0.07 | | 0.28 | | | | | | | |
[TaxProvisionDividedByTotalRevenue] | | 0.06 | | 0.07 | | 0.07 | | | | | |
Effective Income Tax Rate, Continuing Operations | | 0.19 | | 0.24 | | 0.26 | | | | | |
[InvestmentsDiscussion] | | Investment gains and (losses), net consist 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 gains and losses associated with our interests in Adobe Ventures. Investment gains and (losses), net fluctuated due to the following: During fiscal 2008, investment gains and (losses), net increased as compared to fiscal 2007 due primarily to investment gains from our direct and Adobe Ventures investments. Additionally, during fiscal 2008, we received cash and recognized a gain resulting from the expiration of the escrow period related to the sale of our investment in Atom Entertainment, Inc. that occurred during the fourth quarter of fiscal 2006. Investment gains and (losses) net, increased in fiscal 2006 when compared to fiscal 2007 due to the sale of our investment in Atom Entertainment, Inc. | | | | | | | | | |
[NetGainsLossesRelatedToInvestmentsInAdobeVenturesAndCostMethodInvestments] | | $15,900,000 | | $6,900,000 | | ($6,500,000) | | | | | |
[GainsFromSaleOfEquityInvestments] | | 5,400,000 | | 200,000 | | 67,900,000 | | | | | |
[WritedownsDueToOtherThanTemporaryDeclinesInValueOfOurMarketableEquitySecurities] | | (4,900,000) | | 0 | | 0 | | | | | |
[LossesOnStockWarrants] | | 0 | | 0 | | (200,000) | | | | | |
[LiquidityCapitalResourcesDiscussion] | | This data should be read in conjunction with the consolidated statements of cash flows. Our primary source of cash is receipts from revenue. The primary uses of cash are payroll related expenses; general operating expenses including marketing, travel and office rent; and cost of product revenue. Another source of cash is proceeds from the exercise of employee options and participation in the employee stock purchase plan and another use of cash is our stock repurchase program, which is detailed below. | | | | | | | | | |
Cash, Cash Equivalents, and Short-term Investments | | 2,019,200,000 | | 1,993,900,000 | | | | | | | |
[WorkingCapital] | | 1,972,500,000 | | 1,720,400,000 | | | | | | | |
[CashFlowsOperatingActivitiesDiscussion] | | Net cash provided by operating activities of $1.3 billion for fiscal 2008, was primarily comprised of net income plus the net effect of non-cash expenses. The primary working capital sources of cash were increases in net income, deferred revenue and trade payables. Increases in deferred revenue related to maintenance and support and free of charge upgrade plan purchases which offset in part, decreases in deferred revenue related to royalties. The primary working capital uses of cash were increases in trade receivables and prepaid expenses and other current assets coupled with decreases in income taxes payable, accrued expenses and accrued restructuring costs. Trade receivables increased primarily as a result of high sales of our CS4 family of products at the end of fiscal 2008. Income taxes payable decreased primarily due to payments made as the result of the completion of a U.S. income tax examination covering our fiscal years 2001 through 2004. Accrued expenses decreased primarily due to payments for employee bonuses and profit sharing offset in part by increases in royalty accruals and charitable contributions. Accrued restructuring costs increased due to the restructuring program initiated in the fourth quarter of fiscal 2008 offset in part by payments of facility costs during fiscal 2008 associated with the Macromedia acquisition. See Note 9 of our Notes to Consolidated Financial Statements for information regarding our restructuring charges. Net cash provided by operating activities of $1.4 billion for fiscal 2007, was primarily comprised of net income, net of non-cash related expenses. The primary working capital sources of cash were increases in net income, accrued expenses, income taxes payable, deferred revenue and trade payables coupled with decreases in trade receivables and prepaid expenses and other current assets. Net changes in accrued expenses was primarily attributable to increases in accrued bonuses and accrued localization costs related to the localization of our CS3 family of products during fiscal 2007. Income taxes payable increased due to overall increased taxable income. Increases to deferred revenue related primarily to deferred maintenance and service revenue due to strong upgrade plan sales in the fourth quarter of fiscal 2007 for our CS3 family of products and related individual creative products. The decrease in trade receivables was due to collections in the first quarter of fiscal 2007 related to high Acrobat 8 sales at the end of fiscal 2006 and strong collections during the third quarter of fiscal 2007 resulting from shipments of our CS3 family of products. The primary working capital use of cash was a decrease in accrued restructuring costs which was primarily due to payments for facility and severance costs for fiscal 2007. Net cash provided by operating activities of $900.0 million for fiscal 2006, was primarily comprised of net income, net of non-cash related expenses. The primary working capital sources of cash were increases in deferred revenue, income taxes payable and trade payables. Deferred revenue increased primarily due to increased maintenance and support obligations. Income taxes payable increas | | | | | | | | | |
[CashFlowsInvestingActivitiesDiscussion] | | Net cash from investing activities changed from cash provided for fiscal 2007 of $81.5 million to cash used in fiscal 2008 of $304.7 million primarily due to purchases of short-term investments offset in part by maturities and sales of short-term investments. Other uses of cash during fiscal 2008 represented purchases of property and equipment, long-term investments and other assets and one business combination offset in part by proceeds from the sale of other investments in equity securities. The uses associated with the purchase of long-term investments and other assets related primarily to cash paid for future licensing rights acquired through certain technology licensing arrangements totaling $56.0 million in fiscal 2008. As part of our lease extension for the Almaden Tower lease completed during the second quarter of fiscal 2007, we purchased a portion of the lease receivable totaling $80.4 million. Other uses of cash during fiscal 2007 included the completion of two business combinations and one asset acquisition. Net cash from investing activities decreased from net cash provided for fiscal 2006 of $195.2 million to net cash provided for fiscal 2007 of $81.5 million. In fiscal 2006, net cash acquired with the Macromedia acquisition amounted to $488.4 million and the sale of our minority equity investment in Atom Entertainment, Inc. amounted to $82.3 million. No similar transactions of this magnitude occurred during fiscal 2007. The primary sources of cash during fiscal 2007 were sales and maturities of short-term investments offset in part by purchases of short-term investments. The proceeds from the sales of short-term investments were primarily used for stock repurchases. Uses of cash during fiscal 2007 included purchases of property and equipment, purchases of long-term investments and other assets which related primarily to the technology licensing arrangements that occurred during the second quarter of fiscal 2007, three acquisitions completed in fiscal 2007 and the purchase of the lease receivable associated with the Almaden tower lease. See Note 15 of our Notes to Consolidated Financial Statements for further information regarding this lease extension. | | | | | | | | | |
[CashFlowsFinancingActivitiesDiscussion] | | Net cash used for financing activities decreased $328.8 million for a total of $1.0 billion in fiscal 2008 as compared to cash used for the same period last year, primarily due to net borrowings under our credit agreement of $350.0 million. Additionally, we had lower purchases of treasury stock when compared to the prior year (see sections entitled "Stock Repurchase Program I" and "Stock Repurchase Program II" discussed below), offset in part by lower proceeds related to the issuance of treasury stock. Net cash used for financing activities increased $603.0 million for a total of $1.4 billion during fiscal 2007 as compared to cash used of $747.4 million during fiscal 2006. Increases were primarily due to additional purchases of treasury stock when compared to the prior year. Cash used for stock repurchases increased due to a higher average cost per share, a greater number of shares being repurchased and remaining prepayments related to stock repurchase agreements. (See the following sections titled "Stock Repurchase Program I and Stock Repurchase Program II" discussed below). We expect to continue our investing activities, including short-term and long-term investments and purchases of computer systems for research and development, sales and marketing, product support and administrative staff. Furthermore, cash may be used to repurchase stock under our stock repurchase programs and strategically acquire software companies, products or technologies that are complementary to our business. The Board of Directors has approved a facilities expansion for our operations in India, which may include the purchase of land and buildings. As previously disclosed, we plan to invest $100.0 million directly in venture capital, of which, approximately $33.5 million has already been invested. We expect the remaining balance to be invested over the next three to five years. In the fourth quarter of fiscal 2008, we initiated a restructuring program in order to reduce our operating costs and focus our resources on key strategic priorities impacting a total of approximately 560 full-time positions globally. In connection with this restructuring plan, we recorded restructuring charges totaling $29.2 million related to termination benefits for the elimination of approximately 460 of these full-time positions globally. As of November 28, 2008, $0.4 million was paid. The remaining accrual associated with these termination benefits is expected to be substantially paid during fiscal 2009. In fiscal 2009, we expect to record approximately $10.0 million to $13.0 million primarily related to the consolidation of leased facilities and approximately $6.0 million to $7.0 million related to employee severance arrangements for the elimination of approximately 100 of the remaining full-time positions globally. We expect to pay this facility related liability through fiscal 2013. Our existing cash, cash equivalents and investment balances may decline during fiscal 2009 in the event of a further weakening of the economy or changes in our planned cash outlay. However, based on our current business plan and revenue prospects, we believe that our existing balances, our anticipated ca | | | | | | | | | |
[ManagementsDiscussionAndAnalysisTextBlock] | | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | | | | | | | | |
[CriticalAccountingEstimatesDiscussion] | | In preparing our consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, stock-based compensation, goodwill impairment and income taxes have the greatest potential impact on our 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. | | | | | | | | | |
[StockBasedCompensationDiscussion] | | We account for stock-based compensation in accordance with SFAS 123R. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, the risk-free interest rate, estimated forfeitures and expected dividends. We estimate the expected term of options granted by calculating the average term from our historical stock option exercise experience. We estimate the volatility of our common stock by using implied volatility in market traded options. Our decision to use implied volatility was based upon the availability of actively traded options on our common stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. We base the risk-free interest rate on zero-coupon yields implied from U.S. Treasury issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. If we use different assumptions for estimating stock-based compensation expense in future periods or if actual forfeitures differ materially from our estimated forfeitures, the change in our stock-based compensation expense could materially affect our operating income, net income and net income per share. | | | | | | | | | |
[GoodwillImpairment] | | We complete our goodwill impairment test on an annual basis, during the second quarter of our fiscal year, or more frequently, if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist. In order to estimate the fair value of goodwill, we typically estimate future revenue, consider market factors and estimate our future cash flows. Based on these key assumptions, judgments and estimates, we determine whether we need to record an impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value. Assumptions, judgments and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the assumptions, judgments and estimates we have made in the past have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect our reported financial results. | | | | | | | | | |
[AccountingForIncomeTaxes] | | We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. In addition, we are subject to the continual examination of our income tax returns by the IRS and other domestic and foreign tax authorities, including a current examination by the IRS for our fiscal 2005, 2006 and 2007 tax returns. These examinations are expected to focus on our intercompany transfer pricing practices as well as other matters. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of the current and any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations. | | | | | | | | | |
[InventoryDiscussion] | | With regard to our product backlog, the actual amount of backlog at any particular time may not be a meaningful indicator of future business prospects. 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 backlog at the end of the third and fourth quarters of fiscal 2008. The comparable backlog at the end of the fourth quarter of fiscal 2007 was approximately 7% of fourth quarter fiscal 2007 revenue. | | | | | | | | | |
[CostOfProductRevenue] | | Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization related to localization costs and acquired rights to use technology and the costs associated with the manufacturing of our products. Cost of product revenue increased (decreased) due to the following: Amortization of acquired rights to use technology increased primarily due to the fact that we entered into certain technology licensing arrangements totaling $100.4 million and $60.0 million during fiscal 2008 and fiscal 2007, respectively. Of this cost, an estimated $56.4 million and $44.8 million during fiscal 2008 and fiscal 2007, respectively, was related to future licensing rights and has been capitalized and will be amortized on a straight-line basis over the estimated useful lives up to fifteen years. Of the remaining costs, we estimated that approximately $27.2 million and $15.2 million was related to historical use of licensing rights which was expensed as cost of sales and the residual of $16.8 million for fiscal 2008 was expensed as general and administrative costs. In connection with these licensing arrangements, we have the ability to acquire additional rights to use technology in the future. Royalty costs increased during fiscal 2007 as compared to fiscal 2006 primarily due to an increase in the number of licensed technology agreements during the year coupled with royalty costs associated with a legal settlement in the fourth quarter of fiscal 2007. Localization costs which are amortized over the product life cycle, decreased during fiscal 2008 as compared to fiscal 2007 and increased during fiscal 2007 as compared to fiscal 2006 primarily due to increased costs during fiscal 2007 associated with the release of the localized versions of our CS3 family of products and the Acrobat 8 family of products. Amortization of purchased technology decreased during fiscal 2008 as compared to fiscal 2007 and decreased during fiscal 2007 as compared to fiscal 2006, due to a decrease in amortization primarily associated with intangible assets purchased through the Macromedia acquisition at the beginning of fiscal 2006. | | | | | | | | | |
[CostOfServicesSupportRevenue] | | Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to provide consulting services, training and product support. Cost of services and support revenue increased during fiscal 2008 as compared to fiscal 2007, primarily due to increases in compensation and related benefits driven by increases in headcount related to product support and utilization by customers of our consulting services. Cost of services and support revenue increased during fiscal 2007 as compared to fiscal 2006, primarily due to increases in compensation and related benefits primarily as a result of headcount increases and increases in costs to support consulting engagements and product releases. | | | | | | | | | |
[StockRepurchaseProgramI] | | | | | | | | | | | |
[StockRepurchasedFromEmployeesSharesDecember1997] | | 5 | [2] | 39 | [2] | 134 | [2] | | | | |
[StockRepurchasedFromEmployeesAveragePriceDecember1997] | | 34.89 | | 39.24 | | 37.1 | | | | | |
[StockRepurchasedFromOpenMarketSharesDecember1997] | | 3,554 | | 0 | | 1,650 | | | | | |
[StockRepurchasedFromOpenMarketAveragePriceDecember1997] | | 36.41 | | 0 | | 36.04 | | | | | |
[StockRepurchasedFromStucturedRepurchasesSharesDecember1997] | | 22,418 | [1] | 22,012 | [1] | 36,792 | [1] | | | | |
[StockRepurchasedFromStucturedRepurchasesAveragePriceDecember1997] | | 36.26 | | 40.04 | | 34 | | | | | |
[StockRepurchaseProgramII] | | | | | | | | | | | |
[StockRepurchasedFromStucturedRepurchasesSharesApril2007] | | 31,859 | [1] | 17,684 | [1] | 0 | [1] | | | | |
[StockRepurchasedFromStucturedRepurchasesAveragePriceApril2007] | | 37.15 | | 40.5 | | 0 | | | | | |
[StockRepurchasedFromOpenMarketSharesApril2007] | | 456 | | 0 | | 0 | | | | | |
[StockRepurchasedFromOpenMarketAveragePriceApril2007] | | 39.79 | | 0 | | 0 | | | | | |
[TotalStockRepurchasedShares] | | 58,292 | | 39,735 | | 38,576 | | | | | |
[TotalStockRepurchasedSharesAveragePrice] | | 36.79 | | 40.25 | | 34.1 | | | | | |
[TotalStockRepurchasedCost] | | 2,144,400,000 | | 1,599,214,000 | | 1,315,317,000 | | | | | |
[SalesMarketingDiscussion] | | 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. Sales and marketing expenses increased due to the following: | | | | | | | | | |
[SalesMarketingExpenseDividedByTotalRevenue] | | 0.3 | | 0.31 | | 0.34 | | | | | |
[SalesMarketingExpensesChangeDividedByPriorYearSalesMarketingExpenses] | | 0.11 | | 0.14 | | | | | | | |
[SalesMarketingFluctuationDueIncreaseDecreaseCompensationBenefitsAssociatedWithHeadCountGrowth] | | 0.05 | | 0.03 | | | | | | | |
[SalesMarketingFluctuationDueIncreaseDecreaseMarketingSpendingProductLaunchesOverallMarketingEffortsRevenue] | | 0.04 | | 0.02 | | | | | | | |
[SalesMarketingFluctuationDueIncreaseDecreaseCompensationAssociatedWithIncentiveCompensationAndStockBasedCompensation] | | 0.01 | | 0.06 | | | | | | | |
[SalesMarketingFluctuationDueIncreaseDecreaseVariousInsignificantItems] | | 0.01 | | 0.03 | | | | | | | |
[TotalSalesMarketingChange] | | 0.11 | | 0.14 | | | | | | | |
[GeneralAdministrativeDiscussion] | | 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: Allocation of costs associated with acquired rights to use technology increased primarily due to the fact that we entered into certain technology licensing arrangements totaling $100.4 million and $60.0 million during fiscal 2008 and fiscal 2007, respectively. Of this cost, an estimated $56.4 million and $44.8 million during fiscal 2008 and fiscal 2007, respectively, was related to future licensing rights and has been capitalized and will be amortized on a straight-line basis over the estimated useful lives up to fifteen years. Of the remaining costs, we estimated that approximately $27.2 million and $15.2 million during fiscal 2008 and fiscal 2007, respectively, was related to historical use of licensing rights which was expensed as cost of sales and the residual of $16.8 million for fiscal 2008 was expensed as general and administrative costs. In connection with these licensing arrangements, we have the ability to acquire additional rights to use technology in the future. Charitable contributions represent funding of the Adobe Foundation which is a private foundation created to leverage human, technological and financial resources to drive social change and improve the communities in which we live and work. | | | | | | | | | |
[GandAExpensesDividedByTotalRevenue] | | 0.09 | | 0.09 | | 0.09 | | | | | |
[GandAExpensesChangeDividedByPriorYearGandAExpenses] | | 0.23 | | 0.17 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseCompensationRelatedBenefitsAssociatedWithHeadCountGrowth] | | 0.04 | | 0.03 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseCharitableContributions] | | 0.04 | | 0 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseAllocationCostsCertainTechnologyLicenseArrangements] | | 0.06 | | 0 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseProfessionalConsultingFees] | | 0.02 | | 0.02 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseProvisionForBadDebts] | | 0.02 | | 0 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseDepreciationAndAmortization] | | 0.01 | | 0.02 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseCompensationAssociatedWithIncentiveCompensationAndStockBasedCompensation] | | 0.02 | | 0.08 | | | | | | | |
[GandAFluctuationDueIncreaseDecreaseVariousInsignificantItems] | | 0.02 | | 0.02 | | | | | | | |
[TotalGeneralAdmininistrativeChange] | | 0.23 | | 0.17 | | | | | | | |
[AmortizationPurchasedIntangiblesDiscussion] | | As a result of our acquisition of Macromedia in fiscal 2006, we acquired purchased intangibles which are amortized over their estimated useful lives of two to four years. In addition, during fiscal 2008 we completed one business combination and during fiscal 2007, we completed two business combinations and one asset acquisition. We acquired purchased intangibles through these acquisitions which are amortized over their estimated useful lives. Amortization expense decreased during fiscal 2008 as compared to fiscal 2007, due to a decrease in amortization expense associated with intangible assets purchased through the Macromedia acquisition. Additionally, included in the amortization of purchased intangibles and incomplete technology for fiscal 2007 was $1.5 million related to the write-off of in-process research and development from an acquisition that occurred during the second quarter of fiscal 2007. | | | | | | | | | |
[AmortizationPurchasedIntangiblesChangeDividedByPriorYearAmortizationPurchasedIntangibles] | | -0.06 | | 0.04 | | | | | | | |
[AmortizationPurchasedIntangiblesDividedByTotalRevenue] | | 0.02 | | 0.02 | | 0.03 | | | | | |
[InterestOtherIncomeNetDiscussion] | | Interest and other income, net, included interest earned on cash, cash equivalents and short-term fixed income investments as well as foreign exchange gains and losses, including those from hedging revenue transactions primarily denominated in Euro and Japanese Yen currencies. Interest and other income, net, decreased during fiscal 2008 as compared to fiscal 2007 primarily as a result of lower average invested balances due to cash used for our share repurchase programs, lower interest rates and increased hedging costs. Additionally, during fiscal 2008, interest and other income, net included losses on fixed income investments associated with a write-down for an other-than-temporary impairment totaling approximately $1.3 million during the second quarter of fiscal 2008. Interest and other income, net increased during fiscal 2007 as compared to fiscal 2006 primarily as a result of higher rates of return on invested cash and short-term investments. | | | | | | | | | |
[InterestExpenseDiscussion] | | Interest expense for fiscal 2008, primarily represents interest associated with our credit facility. The outstanding balance as of November 28, 2008 was $350.0 million. Interest due under the credit facility is paid upon expiration of the London interbank offered rate ("LIBOR") contract or at a minimum, quarterly. | | | | | | | | | |
[NonOperatingIncomeDiscussion] | | | | | | | | | | | |
[InterestOtherIncomeNetDividedByTotalRevenue] | | 0.01 | | 0.03 | | 0.03 | | | | | |
[InterestOtherIncomeNetChangeDividedByPriorYearInterestOtherIncomeNet] | | -0.47 | | 0.23 | | | | | | | |
[InterestExpenseChangeDividedByPriorYearInterestExpense] | | 0 | | 1 | | | | | | | |
[InterestExpenseDividedByTotalRevenue] | | 0 | | 0 | | 0 | | | | | |
[InvestmentGainLossNetDividedByTotalRevenue] | | 0 | | 0 | | 0.02 | | | | | |
[InvestmentGainLossChangeDividedByPriorYearInvestmentGainLoss] | | 1.31 | | -0.88 | | | | | | | |
[TotalNonOperatingIncomeChangeDividedByPriorYearTotalNonOperatingIncome] | | -0.44 | | -0.3 | | | | | | | |
[OffBalanceSheetArrangementsAndAggregateContractualObligations] | | Our principal commitments as of November 28, 2008, consist of obligations under operating leases, royalty agreements and various service agreements. See Note 15 of our Notes to Consolidated Financial Statements for additional information regarding our contractual commitments. | | | | | | | | | |
[ContractualCommitments] | | The following table summarizes our contractual commitments as of November 28, 2008: As of November 28, 2008, the principal outstanding under the credit agreement was $350.0 million which is due in full no later than February 16, 2013. Interest associated with this agreement cannot be estimated with certainty by period throughout the term since it is based on a fluctuating interest rate calculation. As a result of adopting FIN 48, we reclassified $197.7 million from current income taxes payable to long-term income taxes payable related to unrecognized tax benefits. The gross liability for unrecognized tax benefits at November 28, 2008 was $139.5 million, exclusive of interest and penalties. The timing of the resolution of income tax examinations is highly uncertain and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues with the IRS and other examinations could be resolved within the next 12 months, based upon the current facts and circumstances, we cannot estimate the timing of such resolution or range of potential changes as it relates to the unrecognized tax benefits that are recorded as part of our financial statements. We do not expect any material settlements in fiscal 2009 but it is inherently uncertain to determine. Two of our lease agreements and our credit agreement are subject to financial covenants. As of November 28, 2008, we were in compliance with all of our financial covenants and we expect to remain in compliance during the next 12 months. 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. Under the terms of our credit agreement and lease agreements, we are not prohibited from paying cash dividends unless payment would trigger an event of default or one currently exists. | | | | | | | | | |
[TotalNonCancelableOperatingLeases] | 49,200,000 | | | | | | | 34,700,000 | 60,900,000 | 84,400,000 | 229,200,000 |
[TotalPurchaseCommitments] | 111,100,000 | | | | | | | 4,600,000 | 15,700,000 | 14,500,000 | 145,900,000 |
[TotalDebt] | 0 | | | | | | | 350,000,000 | 0 | 0 | 350,000,000 |
[TotalContractualCommitments] | $160,300,000 | | | | | | | $389,300,000 | $76,600,000 | $98,900,000 | $725,100,000 |
[RoyaltiesDiscussion] | | 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. | | | | | | | | | |
[GuaranteesDiscussion] | | The lease agreements for our corporate headquarters provide for residual value guarantees. Under Financial Accounting Standards Board ("FASB") Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," the fair value of a residual value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our consolidated balance sheet. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As of November 28, 2008, the unamortized portion of the fair value of the residual value guarantees remaining in other long-term liabilities and prepaid rent was $2.6 million. | | | | | | | | | |
[IndemnificationsDiscussion] | | 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 or officer's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. As part of our limited partnership interests 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. | | | | | | | | | |
[RecentAccountingPronouncements] | | Recent Accounting Pronouncements See Note 1 of our Notes to Consolidated Financial Statements for information regarding the effect of new accounting pronouncements on our financial statements. | | | | | | | | | |
[ProductDevelopmentDiscussion] | | Research and development expenses consist primarily of salary and benefit expenses for software developers, contracted development efforts, related facilities costs and expenses associated with computer equipment used in software development. Research and development expenses increased due to the following: We believe that investments in research and development, including the recruiting and hiring of software developers, are critical to remaining competitive in the marketplace and are directly related to continued timely development of new and enhanced products. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our desktop application and server-based software products. | | | | | | | | | |
[ResearchDevelopmentExpensePercentageOfTotalRevenue] | | 0.18 | | 0.19 | | 0.21 | | | | | |
[ResearchDevelopmentExpenseChangeDividedByPriorYearResearchDevelopmentExpense] | | 0.08 | | 0.14 | | | | | | | |
[RDFluctuationDueIncreaseDecreaseCompensationRelatedBenefitsAssociatedWithHeadCountGrowth] | | 0.07 | | 0.09 | | | | | | | |
[RDFluctuationDueIncreaseDecreaseCompensationAssociatedWithIncentiveCompensationAndStockBasedCompensation] | | 0 | | 0.05 | | | | | | | |
[RDFluctuationDueIncreaseDecreaseVariousInsignificantItems] | | 0.01 | | 0 | | | | | | | |
[TotalResearchDevelopmentChange] | | 0.08 | | 0.14 | | | | | | | |
[RestructuringChargesDiscussion] | | In the fourth quarter of fiscal 2008, we initiated a restructuring program in order to reduce our operating costs and focus our resources on key strategic priorities impacting a total of approximately 560 full-time positions globally. In connection with this restructuring plan, we recorded restructuring charges totaling $29.2 million related to termination benefits for the elimination of approximately 460 of these full-time positions globally. As of November 28, 2008, $0.4 million was paid. The remaining accrual associated with these termination benefits is expected to be substantially paid during fiscal 2009. In fiscal 2009, we expect to record approximately $10.0 million to $13.0 million primarily related to the consolidation of leased facilities and approximately $6.0 million to $7.0 million related to employee severance arrangements for the elimination of approximately 100 of the remaining full-time positions globally. We expect to pay this facility related liability through fiscal 2013. Charges associated with these ongoing termination benefits were recorded in accordance with SFAS No. 112, "Employers' Accounting for Postemployment Benefits," and expected charges associated with the consolidation of leased facilities will be recorded in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Macromedia Restructuring Charges We acquired Macromedia on December 3, 2005 and in the first quarter of fiscal 2006, pursuant to Board of Directors' approval, implemented a restructuring plan to eliminate approximately 313 positions held by Adobe employees worldwide, which impacted all functional areas. The reduction in force was completed in fiscal 2006. The restructuring plan also included costs related to the world-wide consolidation of facilities, the cancellation of certain contracts and the write-off of fixed assets located at facilities that have been vacated. During fiscal 2008, we recorded charges of $2.9 million related to changes in estimates related to Macromedia facilities restructuring charges due to changes in sub-lease income estimates. Additionally, we have a $13.1 million liability for restructuring as of November 28, 2008 primarily associated with the Macromedia restructured facilities. We expect to pay this liability through fiscal 2011. See Note 9 of our Notes to Consolidated Financial Statements for further information regarding our restructuring charges. | | | | | | | | | |
[RestructuringDividedByTotalRevenue] | | 0.01 | | 0 | | 0.01 | | | | | |
[RestructuringChangeDividedByPriorYearRestructuring] | | 0 | | -0.97 | | | | | | | |
[RevenueDiscussion] | | In fiscal 2008, we categorized our products into the following segments: Creative Solutions, Knowledge Worker, Enterprise, Mobile and Device Solutions, Platform and Print and Publishing products. Our Creative Solutions segment focuses on delivering a complete professional line of integrated tools for a full range of creative and developer tasks to an extended set of customers. Our Knowledge Worker segment focuses on the needs of knowledge worker customers, providing essential applications and services to help them reliably share information and collaborate effectively. This segment contains revenue generated by the Adobe Acrobat family of products. Our Enterprise segment provides server-based enterprise interaction solutions that automate people-centric processes and contains revenue generated by our LiveCycle line of products. The Mobile and Device Solutions segment provides solutions that create compelling experiences through rich content, user interfaces and data services on mobile and non-PC devices such as cellular phones, consumer devices and Internet connected hand-held devices. The Platform segment provides developer solutions and technologies, including Adobe Flash Player, Adobe AIR and Flex Builder which are used to build rich application experiences. Finally, the Print and Publishing segment addresses market opportunities ranging from the diverse publishing needs of technical and business publishing, to our legacy type and OEM printing businesses. We will adjust our reporting segments at the beginning of fiscal 2009 to reflect changes in how we manage our business as we enter the new fiscal year. We are combining our former Mobile and Device Solutions segment with our Platform segment. These segment reporting changes reflect changes we have made internally in terms of how we manage these businesses. Our services and support revenue is composed of consulting, training and maintenance and support, primarily related to the licensing of our enterprise, developer and platform products. 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, is recognized ratably over the term of the arrangement. | | | | | | | | | |
[ProductRevenueDividedByTotalRevenue] | | 0.95 | | 0.96 | | 0.96 | | | | | |
[ProductRevenueChangeDividedByPriorYearProductRevenue] | | 0.12 | | 0.22 | | | | | | | |
[ServicesSupportRevenueDividedByTotalRevenues] | | 0.05 | | 0.04 | | 0.04 | | | | | |
[ServiceSupportRevenueChangeDividedByPriorYearServiceSupportRevenue] | | 0.33 | | 0.53 | | | | | | | |
[TotalRevenueChangeDividedByPriorYearTotalRevenue] | | 0.13 | | 0.23 | | | | | | | |
[CurrentPeriodRevenueComparedToLastPeriodRevenue] | | Revenue from our Creative Solutions segment increased $173.8 million during fiscal 2008 as compared to fiscal 2007 primarily due to ongoing adoption of our CS3 family of products, as well as the launch of our CS4 family of products in the fourth quarter of fiscal year. We also achieved solid growth in our Scene7 business and with our hobbyist products. Also contributing to the increase in fiscal 2008 as compared to fiscal 2007 was an increase in certain unit average selling prices. Units sold remained relatively stable. Revenue in our Knowledge Worker segment increased $82.4 million during fiscal 2008 as compared to fiscal 2007 primarily due to an increase in the licensing of our Acrobat 8 and new Acrobat 9 family of products. An increase in the number of units sold as well as a slight increase in certain unit average selling prices also contributed to higher revenue as compared to fiscal 2007. Revenue from our Enterprise segment increased $61.7 million during fiscal 2008 as compared to fiscal 2007 primarily due to an increased adoption of our LiveCycle family of products and a larger number of enterprise solution transactions at a higher average transaction size. Revenue from our Mobile and Device Solutions segment increased by $60.6 million during fiscal 2008 as compared to fiscal 2007 due to continued adoption of Flash Lite by mobile and non-PC device manufacturers. On May 1, 2008, we announced the Open Screen Project. The project aims to enable a consistent runtime environment that will remove barriers for developers and designers as they publish content and applications across desktops and consumer devices, including phones, MIDs and set top boxes. See Overview of 2008 for further information regarding the Open Screen Project. Platform revenue increased by $37.6 million during fiscal 2008 as compared to fiscal 2007 primarily due to increased revenue related to Flash Player and the launch of Adobe AIR which resulted in increased revenue from our developer tools. Revenue in our Print and Publishing business increased by $5.9 million during fiscal 2008 as compared to fiscal 2007, driven by ongoing adoption of our eLearning solutions as well as some of our legacy print and publishing products. | | | | | | | | | |
[LastPeriodRevenueComparedToPeriodBeforeLastRevenue] | | Revenue from our Creative Solutions segment increased $461.0 million during fiscal 2007 as compared to fiscal 2006 primarily due to the launch of the English versions of our CS3 family of products in the second quarter of fiscal 2007 and the release of localized versions of our CS3 family of products during the third quarter of fiscal 2007. The increase in fiscal 2007 as compared to fiscal 2006 was also due to an increase in certain unit average selling prices. Increases in revenue were offset in part, by a slight decrease in the number of units sold. Revenue from our Knowledge Worker segment increased $70.7 million during fiscal 2007 as compared to fiscal 2006 primarily due to an increase in the licensing of our new Acrobat 8 family of products. The number of units sold as well as the average unit selling prices remained relatively stable during fiscal 2007 as compared to fiscal 2006. Revenue from our Enterprise segment increased $33.1 million during fiscal 2007 as compared to fiscal 2006 primarily due to continued adoption of our LiveCycle family of products. Revenue also increased due to a larger number of enterprise solution transactions offset with a decrease in the average transaction size during fiscal 2007 as compared to fiscal 2006. Revenue from our Mobile and Device Solutions segment increased $15.0 million during fiscal 2007 as compared to fiscal 2006 due to continued adoption of Flash Lite by mobile and non-PC device manufacturers, and our Flash Cast solutions by mobile operators. Revenue from our Platform segment increased $12.8 million during fiscal 2007 as compared to fiscal 2006 due primarily to increased revenue related to Flash Player. Revenue from our Print and Publishing segment decreased $10.0 million during fiscal 2007 as compared to fiscal 2006 due to lower revenue associated with some of our legacy products. | | | | | | | | | |
[CurrentPeriodRevenueByGeographyComparedToLastPeriodRevenueByGeography] | | Overall revenue in each of the geographic segments for fiscal 2008 increased compared to fiscal 2007 primarily due to the ongoing adoption of our CS3 family of products during the first half of the year, the launch of our CS4 family of products in the fourth quarter of the year, the launch of our Acrobat 9 family of products in the third quarter of the year and strong growth in our enterprise business. Included in the overall increase in revenue were impacts associated with foreign currency. Revenue in EMEA measured in U.S. dollars was favorably impacted by approximately $69.3 million during fiscal 2008 as compared to fiscal 2007 primarily due to the strength of the Euro against the U.S. dollar. Additionally, during fiscal 2008 we had a hedging gain of $13.2 million. Revenue in Asia was favorably impacted by approximately $39.6 million during fiscal 2008 as compared to fiscal 2007 primarily due to the strength of the Yen against the U.S. dollar. | | | | | | | | | |
[LastPeriodRevenueByGeographyComparedToPeriodBeforeLastRevenueByGeography] | | Overall revenue in each of the geographic segments for fiscal 2007 increased compared to fiscal 2006 primarily due to the launch of the English versions of our CS3 family of products in the second quarter of fiscal 2007, the release of the localized versions of our CS3 family of products during the third quarter of fiscal 2007 and success with our Acrobat 8 family of products. Revenue in the Americas increased during fiscal 2007 as compared to fiscal 2006 primarily due to the launch of the English versions of our CS3 family of products during the second quarter of fiscal 2007 and increased revenue from the Acrobat 8 family of products. Revenue in EMEA increased during fiscal 2007 as compared to fiscal 2006 due to the release of localized versions of our CS3 family of products and increases in revenue from the Acrobat Pro products. Additionally, revenue in EMEA increased approximately $65.9 million due to the strength of the Euro against the U.S. dollar. Revenue in Asia increased during fiscal 2007 as compared to fiscal 2006 due to the release of localized versions of our CS3 family of products. Changes in the Yen over the U.S. dollar did not have a significant impact to revenue in Asia during fiscal 2007 as compared to fiscal 2006. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk regarding foreign currency risks. | | | | | | | | | |
[1]Stock repurchase agreements executed with large financial institutions. See "Stock Repurchase Program I" and
"Stock Repurchase Program II" above. |
[2]The repurchases from employees represent shares cancelled when surendered in lieu of cash payments for the
option exercise price or withholding taxes due. |