WebFilings | EDGAR view
 
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 March 4, 2011
 
 or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                   to                   
 
Commission File Number: 0-15175
 
ADOBE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
_________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
77-0019522
(I.R.S. Employer
Identification No.)
 
345 Park Avenue, San Jose, California 95110-2704
(Address of principal executive offices and zip code)
 
(408) 536-6000
(Registrant’s telephone number, including area code)
 _________________________
 
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 April 1, 2011 was 504,458,624.
 
ADOBE SYSTEMS INCORPORATED
FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
Page No.
 
PART I—FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 PART II—OTHER INFORMATION
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 6.
 
 
 
 
 
 
 

2
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)
 
March 4,
2011
 
December 3,
2010
 
(Unaudited)
 
(*)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
900,156
 
 
$
749,891
 
Short-term investments
1,736,679
 
 
1,718,124
 
Trade receivables, net of allowances for doubtful accounts of $15,575 and $15,233, respectively
533,353
 
 
554,328
 
Deferred income taxes
66,928
 
 
83,247
 
Prepaid expenses and other current assets
113,682
 
 
110,460
 
Total current assets
3,350,798
 
 
3,216,050
 
Property and equipment, net
453,497
 
 
448,881
 
Goodwill
3,686,073
 
 
3,641,844
 
Purchased and other intangibles, net
447,616
 
 
457,263
 
Investment in lease receivable
207,239
 
 
207,239
 
Other assets
164,801
 
 
169,871
 
Total assets
$
8,310,024
 
 
$
8,141,148
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
 
 
Trade payables
$
54,742
 
 
$
52,432
 
Accrued expenses
458,463
 
 
564,275
 
Capital lease obligations
8,900
 
 
8,799
 
Accrued restructuring
6,759
 
 
8,119
 
Income taxes payable
57,096
 
 
53,715
 
Deferred revenue
399,572
 
 
380,748
 
Total current liabilities
985,532
 
 
1,068,088
 
Long-term liabilities:
 
 
 
 
 
Debt and capital lease obligations
1,511,553
 
 
1,513,662
 
Deferred revenue
43,826
 
 
48,929
 
Accrued restructuring
7,307
 
 
8,254
 
Income taxes payable
170,721
 
 
164,713
 
Deferred income taxes
120,756
 
 
103,098
 
Other liabilities
44,922
 
 
42,017
 
Total liabilities
2,884,617
 
 
2,948,761
 
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; 
     504,987 and 501,897 shares outstanding, respectively
61
 
 
61
 
Additional paid-in-capital
2,529,789
 
 
2,458,278
 
Retained earnings
6,045,631
 
 
5,980,914
 
Accumulated other comprehensive income
28,695
 
 
17,428
 
Treasury stock, at cost (95,847 and 98,937 shares, respectively), net of reissuances
(3,178,769
)
 
(3,264,294
)
Total stockholders’ equity
5,425,407
 
 
5,192,387
 
Total liabilities and stockholders’ equity
$
8,310,024
 
 
$
8,141,148
 
_________________________________________ 
(*)    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.

3
Table of Contents

ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
 Three Months Ended
 
March 4,
2011
 
March 5,
2010
Revenue:
 
 
 
Products
$
842,689
 
 
$
703,938
 
Subscription
106,171
 
 
95,507
 
Services and support
78,846
 
 
59,255
 
Total revenue
1,027,706
 
 
858,700
 
 
Cost of revenue:
 
 
 
 
 
Products
30,717
 
 
23,510
 
Subscription
47,878
 
 
45,735
 
Services and support
29,044
 
 
20,123
 
Total cost of revenue
107,639
 
 
89,368
 
 
Gross profit
920,067
 
 
769,332
 
 
Operating expenses:
 
 
 
 
 
Research and development
178,400
 
 
174,340
 
Sales and marketing
328,078
 
 
297,294
 
General and administrative
100,979
 
 
91,046
 
Restructuring charges
41
 
 
11,622
 
Amortization of purchased intangibles
10,235
 
 
18,197
 
Total operating expenses
617,733
 
 
592,499
 
 
Operating income
302,334
 
 
176,833
 
 
Non-operating income (expense):
 
 
 
 
 
Interest and other income (expense), net
(817
)
 
611
 
Interest expense
(17,020
)
 
(7,695
)
Investment gains (losses), net
1,590
 
 
(3,534
)
Total non-operating income (expense), net
(16,247
)
 
(10,618
)
Income before income taxes
286,087
 
 
166,215
 
Provision for income taxes
51,496
 
 
39,061
 
Net income
$
234,591
 
 
$
127,154
 
Basic net income per share
$
0.47
 
 
$
0.24
 
Shares used to compute basic net income per share
504,134
 
 
524,173
 
Diluted net income per share
$
0.46
 
 
$
0.24
 
Shares used to compute diluted net income per share
511,345
 
 
532,645
 
 
  See accompanying Notes to Condensed Consolidated Financial Statements.
 

4
Table of Contents

ADOBE SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
 
March 4,
2011
 
March 5,
2010
Cash flows from operating activities:
 
 
 
Net income
$
234,591
 
 
$
127,154
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation, amortization and accretion
66,286
 
 
68,581
 
Stock-based compensation
70,992
 
 
64,480
 
Deferred income taxes
28,645
 
 
(157,932
)
Unrealized (gains) losses on investments
(1,330
)
 
2,331
 
Tax benefit from employee stock option plans
—
 
 
35,609
 
Other non-cash items
2,703
 
 
1,313
 
Excess tax benefits from stock-based compensation
—
 
 
(7,058
)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
 
 
 
 
Trade receivables, net
20,605
 
 
59,601
 
Prepaid expenses and other current assets
(2,716
)
 
4,180
 
Trade payables
2,310
 
 
(14,716
)
Accrued expenses
(110,084
)
 
(54,292
)
Accrued restructuring
(2,526
)
 
(18,716
)
Income taxes payable
8,905
 
 
106,740
 
Deferred revenue
13,721
 
 
42,586
 
Net cash provided by operating activities
332,102
 
 
259,861
 
Cash flows from investing activities:
 
 
 
 
 
Purchases of short-term investments
(375,077
)
 
(400,054
)
Maturities of short-term investments
134,296
 
 
78,958
 
Proceeds from sales of short-term investments
217,407
 
 
140,611
 
Purchases of property and equipment
(32,421
)
 
(25,547
)
Acquisitions, net of cash acquired
(36,572
)
 
—
 
Purchases of long-term investments and other assets
(5,389
)
 
(5,747
)
Proceeds from sale of long-term investments
2,755
 
 
719
 
Other
(124
)
 
2,341
 
Net cash used for investing activities
(95,125
)
 
(208,719
)
Cash flows from financing activities:
 
 
 
 
 
Purchases of treasury stock
(125,000
)
 
(20
)
Proceeds from issuance of treasury stock
40,651
 
 
49,824
 
Excess tax benefits from stock-based compensation
—
 
 
7,058
 
Proceeds from debt
—
 
 
1,493,439
 
Repayment of debt and capital lease obligations
(2,169
)
 
(1,000,058
)
Debt issuance costs
—
 
 
(10,142
)
Net cash (used for) provided by financing activities
(86,518
)
 
540,101
 
Effect of foreign currency exchange rates on cash and cash equivalents
(194
)
 
(1,288
)
Net increase in cash and cash equivalents
150,265
 
 
589,955
 
Cash and cash equivalents at beginning of period
749,891
 
 
999,487
 
Cash and cash equivalents at end of period
$
900,156
 
 
$
1,589,442
 
Supplemental disclosures:
 
 
 
 
 
Cash paid for income taxes, net of refunds
$
16,413
 
 
$
54,664
 
Cash paid for interest
$
31,623
 
 
$
2,617
 
Non-cash investing activities:
 
 
 
 
Issuance of common stock and stock awards assumed in business acquisitions
$
549
 
 
$
—
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

5
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 interim period or for the full fiscal year. Certain immaterial prior year amounts have been reclassified to conform to 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 December 3, 2010 on file with the SEC. The three months ended March 5, 2010 financial results benefited from an extra week in the first quarter of fiscal 2010 due to our 52/53 week financial calendar whereby fiscal 2010 was a 53-week year compared with fiscal 2011 which is a 52-week year.
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 December 3, 2010.
Recent Accounting Pronouncements 
There have been no new accounting pronouncements during the three months ended March 4, 2011, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 3, 2010, that are of significance, or potential significance, to us.
 
NOTE 2.  ACQUISITIONS
Demdex
On January 18, 2011, we completed our acquisition of privately held Demdex, a data management platform company. The impact of this acquisition was not material to our consolidated balance sheets and results of operations.
Day Software Holding AG
On October 28, 2010, we completed our acquisition of Day Software Holding AG (“Day”), a provider of Web content management solutions that many leading global enterprises rely on for Web 2.0 content application and 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 financial reporting purposes. We have included the financial results of Day in our Condensed Consolidated Financial Statements beginning on the acquisition date.
Under the acquisition method of accounting, the total preliminary purchase price was allocated to Day's net tangible and intangible assets based upon their estimated fair values as of October 28, 2010. The total preliminary purchase price for Day was approximately $248.3 million of which approximately $157.0 million was allocated to goodwill, $79.2 million to substantially all of the identifiable intangible assets and $9.0 million to net tangible assets. The impact of this acquisition was not material to our consolidated balance sheets and results of operations.
 
NOTE 3.  CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
 
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. We classify all of our cash equivalents and short-term investments as “available-for-sale.” In general, these investments are free of trading restrictions. We carry these investments at fair value, based on quoted market prices or other readily available market information. Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity in our 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 related to a credit loss is recognized in income. Gains and losses are determined using the specific identification method.

6
Table of Contents

Cash, cash equivalents and short-term investments consisted of the following as of March 4, 2011 (in thousands):
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Current assets:
 
 
 
 
 
 
 
Cash
$
87,027
 
 
$
—
 
 
$
—
 
 
$
87,027
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
Commerical paper
60,240
 
 
—
 
 
—
 
 
60,240
 
Foreign government securities
4,299
 
 
—
 
 
—
 
 
4,299
 
Money market mutual funds and repurchase agreements
671,614
 
 
—
 
 
—
 
 
671,614
 
Municipal securities
970
 
 
—
 
 
—
 
 
970
 
Time deposits
60,502
 
 
—
 
 
—
 
 
60,502
 
U.S. agency securities
3,999
 
 
—
 
 
—
 
 
3,999
 
U.S. Treasury securities
11,506
 
 
—
 
 
(1
)
 
11,505
 
Total cash equivalents
813,130
 
 
—
 
 
(1
)
 
813,129
 
Total cash and cash equivalents
900,157
 
 
—
 
 
(1
)
 
900,156
 
Short-term fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds and commercial paper
967,463
 
 
6,988
 
 
(1,719
)
 
972,732
 
Foreign government securities
16,500
 
 
159
 
 
—
 
 
16,659
 
Municipal securities
119,085
 
 
76
 
 
(35
)
 
119,126
 
U.S. agency securities
215,385
 
 
678
 
 
(254
)
 
215,809
 
U.S. Treasury securities
396,815
 
 
2,155
 
 
(461
)
 
398,509
 
Subtotal
1,715,248
 
 
10,056
 
 
(2,469
)
 
1,722,835
 
Marketable equity securities
11,034
 
 
2,810
 
 
—
 
 
13,844
 
Total short-term investments
1,726,282
 
 
12,866
 
 
(2,469
)
 
1,736,679
 
Total cash, cash equivalents and short-term investments
$
2,626,439
 
 
$
12,866
 
 
$
(2,470
)
 
$
2,636,835
 
 

7
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 December 3, 2010 (in thousands):
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Current assets:
 
 
 
 
 
 
 
Cash
$
98,691
 
 
$
—
 
 
$
—
 
 
$
98,691
 
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
68,195
 
 
1
 
 
—
 
 
68,196
 
Total cash equivalents
651,199
 
 
1
 
 
—
 
 
651,200
 
Total cash and cash equivalents
749,890
 
 
1
 
 
—
 
 
749,891
 
Short-term fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds and commerical 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
336,441
 
 
2,828
 
 
(209
)
 
339,060
 
Subtotal
1,696,789
 
 
12,023
 
 
(1,872
)
 
1,706,940
 
Marketable equity securities
11,196
 
 
1,122
 
 
(1,134
)
 
11,184
 
Total short-term investments
1,707,985
 
 
13,145
 
 
(3,006
)
 
1,718,124
 
Total cash, cash equivalents and short-term investments
$
2,457,875
 
 
$
13,146
 
 
$
(3,006
)
 
$
2,468,015
 
 
See Note 4 for further information regarding the fair value of our financial instruments.
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 March 4, 2011 and December 3, 2010 (in thousands):
 
2011
 
2010
 
Fair 
Value
 
Gross
Unrealized
Losses
 
Fair 
Value
 
Gross
Unrealized
Losses
Corporate bonds and commnerical paper
$
258,438
 
 
$
(1,719
)
 
$
257,615
 
 
$
(1,450
)
Foreign government securities
—
 
 
—
 
 
4,531
 
 
(2
)
Marketable equity securities
—
 
 
—
 
 
9,380
 
 
(1,134
)
Municipal securities
41,465
 
 
(35
)
 
43,028
 
 
(32
)
U.S. Treasury and agency securities
204,967
 
 
(716
)
 
192,702
 
 
(388
)
Total
$
504,870
 
 
$
(2,470
)
 
$
507,256
 
 
$
(3,006
)
 
As of March 4, 2011 and December 3, 2010, there were no securities in a continuous unrealized loss position for more than twelve months. There were 177 securities and 168 securities that were in an unrealized loss position at March 4, 2011 and at December 3, 2010, respectively.

8
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 maturities as of March 4, 2011 (in thousands):
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year
$
689,449
 
 
$
691,668
 
Due within two years
521,950
 
 
525,443
 
Due within three years
425,782
 
 
426,909
 
Due after three years
78,067
 
 
78,815
 
Total
$
1,715,248
 
 
$
1,722,835
 
 
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 March 4, 2011, we did not consider any of our investments to be other-than-temporarily impaired.

9
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 months ended March 4, 2011.
The fair value of our financial assets and liabilities at March 4, 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
$
60,240
 
 
$
—
 
 
$
60,240
 
 
$
—
 
Foreign Government Securities
4,299
 
 
—
 
 
4,299
 
 
—
 
Money market mutual funds and repurchase
    agreements
671,614
 
 
671,614
 
 
—
 
 
—
 
Municipal securities
970
 
 
—
 
 
970
 
 
—
 
Time deposits
60,502
 
 
60,502
 
 
—
 
 
—
 
U.S. agency securities
3,999
 
 
—
 
 
3,999
 
 
—
 
U.S. Treasury securities
11,505
 
 
—
 
 
11,505
 
 
—
 
Short-term investments:
 
 
 
 
 
 
 
 
 
 
Corporate bonds and commercial paper
972,732
 
 
—
 
 
972,732
 
 
—
 
Foreign government securities
16,659
 
 
—
 
 
16,659
 
 
—
 
Marketable equity securities
13,844
 
 
13,844
 
 
—
 
 
—
 
Municipal securities
119,126
 
 
—
 
 
119,126
 
 
—
 
U.S. agency securities
215,809
 
 
—
 
 
215,809
 
 
—
 
U.S. Treasury securities
398,509
 
 
—
 
 
398,509
 
 
—
 
Prepaid expenses and other current assets:
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives
7,649
 
 
—
 
 
7,649
 
 
—
 
Other assets:
 
 
 
 
 
 
 
 
 
 
Deferred compensation plan assets
13,148
 
 
635
 
 
12,513
 
 
—
 
Total assets
$
2,570,605
 
 
$
746,595
 
 
$
1,824,010
 
 
$
—
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued expenses:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives
$
7,192
 
 
$
—
 
 
$
7,192
 
 
$
—
 
Total liabilities
$
7,192
 
 
$
—
 
 
$
7,192
 
 
$
—
 
 

10
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

The fair value of our financial assets and liabilities at 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
 
 
$
—
 
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- and a weighted average credit rating of AA. We value these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, we classify all of our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing 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. 
We also have direct investments in privately held companies accounted for under the cost method, which are periodically assessed for other-than-temporary impairment. If we determine that an other-than-temporary impairment has occurred, we write-down the investment to its fair value. We 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

11
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

performance and any other readily available market data. For the three months ended March 4, 2011, we determined there were no other-than-temporary impairments on our cost method investments. See Note 7 for further information regarding our cost method investments.
 
NOTE 5.  DERIVATIVES AND HEDGING ACTIVITIES
 
In countries outside the U.S., we transact business in U.S. Dollars and in various other currencies. 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 in 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, net in 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 in 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 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 March 4, 2011 and December 3, 2010 was $7.6 million and $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 $7.2 million and $1.9 million, respectively, of liabilities included in master netting arrangements with those same counterparties.

12
Table of Contents
 
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 March 4, 2011 and December 3, 2010 were as follows (in thousands):
 
2011
 
2010
 
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) 
$
5,175
 
 
$
—
 
 
$
6,092
 
 
$
—
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 Foreign exchange forward contracts
2,474
 
 
7,192
 
 
12,729
 
 
1,945
 
Total derivatives
$
7,649
 
 
$
7,192
 
 
$
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 months ended March 4, 2011 and March 5, 2010 was as follows (in thousands):
 
2011
 
2010
 
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) 
$
67
 
 
$
—
 
 
$
10,364
 
 
$
—
 
Net gain (loss) reclassified from accumulated
OCI into income, net of tax(2)
$
—
 
 
$
—
 
 
$
—
 
 
$
—
 
Net gain (loss) recognized in income(3) 
$
(8,306
)
 
$
—
 
 
$
(3,921
)
 
$
—
 
Derivatives not designated as hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) recognized in income(4) 
$
—
 
 
$
(10,150
)
 
$
—
 
 
$
11,040
 
_________________________________________ 
(1) 
Net change in the fair value of the effective portion classified in other comprehensive income ("OCI").
(2) 
Effective portion classified as revenue.
(3) 
Ineffective portion and amount excluded from effectiveness testing classified in interest and other income (expense), net.
(4) 
Classified in interest and other income (expense), net.
 
NOTE 6.  GOODWILL AND PURCHASED AND OTHER INTANGIBLES
 
Goodwill as of March 4, 2011 and December 3, 2010 was $3.686 billion and $3.642 billion, respectively. The increase is due to our acquisition of Demdex and foreign currency translation adjustments offset in part by insignificant adjustments to our Day preliminary purchase price allocation.

13
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

Purchased and other intangible assets subject to amortization as of March 4, 2011 and December 3, 2010 was as follows (in thousands): 
 
2011
 
2010
 
Cost
 
Accumulated Amortization
 
Net
 
Cost
 
Accumulated Amortization
 
Net
Purchased technology
$
274,258
 
 
$
(73,750
)
 
$
200,508
 
 
$
260,198
 
 
$
(61,987
)
 
$
198,211
 
Localization
$
15,489
 
 
$
(10,422
)
 
$
5,067
 
 
$
14,768
 
 
$
(9,355
)
 
$
5,413
 
Trademarks
172,053
 
 
(137,784
)
 
34,269
 
 
172,019
 
 
(136,480
)
 
35,539
 
Customer contracts and relationships
400,285
 
 
(205,850
)
 
194,435
 
 
398,421
 
 
(197,459
)
 
200,962
 
Other intangibles
52,503
 
 
(39,166
)
 
13,337
 
 
51,265
 
 
(34,127
)
 
17,138
 
Total other intangible assets
$
640,330
 
 
$
(393,222
)
 
$
247,108
 
 
$
636,473
 
 
$
(377,421
)
 
$
259,052
 
Purchased and other intangible
    assets, net
$
914,588
 
 
$
(466,972
)
 
$
447,616
 
 
$
896,671
 
 
$
(439,408
)
 
$
457,263
 
 
Amortization expense related to purchased and other intangible assets was $30.0 million and $36.9 million for the three months ended March 4, 2011 and March 5, 2010, respectively. Of these amounts, $19.7 million and $18.7 million were included in cost of sales for the three months ended March 4, 2011 and March 5, 2010, respectively.
As of March 4, 2011, we expect amortization expense in future periods to be as follows (in thousands):
Fiscal Year
 
Purchased
Technology
 
Other Intangible
Assets
Remainder of 2011
$
33,878
 
 
$
43,758
 
2012
 
44,080
 
 
30,389
 
2013
 
40,045
 
 
27,419
 
2014
 
37,032
 
 
26,420
 
2015
 
34,341
 
 
25,995
 
Thereafter
11,132
 
 
93,127
 
Total expected amortization expense
$
200,508
 
 
$
247,108
 
 
NOTE 7.  OTHER ASSETS
 
Other assets as of March 4, 2011 and December 3, 2010 consisted of the following (in thousands):
 
2011
 
2010
Acquired rights to use technology
$
68,239
 
 
$
71,521
 
Investments
22,581
 
 
25,018
 
Deferred compensation plan assets
13,148
 
 
11,071
 
Prepaid land lease
13,175
 
 
13,215
 
Security and other deposits
11,415
 
 
11,266
 
Debt issuance costs
9,362
 
 
9,574
 
Prepaid royalties
6,623
 
 
7,726
 
Restricted cash
2,623
 
 
2,499
 
Prepaid rent
639
 
 
787
 
Other(*)
16,996
 
 
17,194
 
Other assets
$
164,801
 
 
$
169,871
 
_________________________________________ 
(*)    Fiscal 2011 and 2010 includes a tax asset of approximately $11.0 million related to an acquired entity.

14
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

Investments represent our direct investments in privately held companies 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 March 4, 2011 and December 3, 2010 consisted of the following (in thousands):
 
2011
 
2010
Accrued compensation and benefits
$
165,912
 
 
$
290,366
 
Sales and marketing allowances 
38,827
 
 
38,706
 
Accrued marketing
39,571
 
 
26,404
 
Taxes payable
24,289
 
 
21,800
 
Accrued interest expense
5,811
 
 
21,203
 
Other
184,053
 
 
165,796
 
Accrued expenses                                                                                         
$
458,463
 
 
$
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 March 4, 2011 was $163.5 million, exclusive of interest and penalties. If the total unrecognized tax benefits at March 4, 2011 were recognized in the future, $147.3 million of unrecognized tax benefits would decrease the effective tax rate, which is net of an estimated $16.2 million federal benefit related to deducting certain payments on future state tax returns.
As of March 4, 2011, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns was approximately $15.2 million. This amount is included in non-current income taxes payable.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the uncertainties described, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0 to approximately $5 million. These amounts would decrease income tax expense.
 
NOTE 10.  STOCK-BASED COMPENSATION
 
The assumptions used to value option grants during the three months ended March 4, 2011 and March 5, 2010 were as follows: 
 
2011
 
2010
Expected life (in years)
3.8 - 4.1
 
3.8 - 4.1
Volatility
31 - 35%
 
31 - 36%
Risk free interest rate
1.46 - 1.92%
 
1.76 - 1.97%
 

15
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

The expected 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 months ended March 4, 2011 and March 5, 2010 were as follows:
 
2011
 
2010
Expected life (in years)
0.5 - 2.0
 
0.5 - 2.0
Volatility
32 - 34%
 
32%
Risk free interest rate
0.19 - 0.61%
 
0.18 - 1.09%
 
Summary of Stock Options 
Option activity for the three months ended March 4, 2011 and the fiscal year ended December 3, 2010 was as follows (in thousands):
 
2011
 
2010
Beginning outstanding balance
37,075
 
 
41,251
 
Granted
4,095
 
 
3,198
 
Exercised
(2,244
)
 
(5,196
)
Cancelled
(527
)
 
(2,908
)
Increase due to acquisition
130
 
 
730
 
Ending outstanding balance
38,529
 
 
37,075
 
 
Information regarding stock options outstanding at March 4, 2011 and March 5, 2010 is summarized below:
 
 
Number of
Shares
(thousands)
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(years)
 
Aggregate
Intrinsic
Value(*)
(millions)
2011
 
 
 
 
 
 
 
Options outstanding
38,529
 
 
$
31.18
 
 
3.80
 
$
203.1
 
Options vested and expected to vest
36,857
 
 
$
31.22
 
 
3.70
 
$
194.6
 
Options exercisable
26,948
 
 
$
31.92
 
 
2.95
 
$
133.1
 
2010
 
 
 
 
 
 
 
 
 
 
Options outstanding
41,356
 
 
$
30.27
 
 
4.29
 
$
254.7
 
Options vested and expected to vest
39,258
 
 
$
30.32
 
 
4.19
 
$
241.2
 
Options exercisable
26,270
 
 
$
30.55
 
 
3.39
 
$
158.9
 
_________________________________________ 
(*)    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 March 4, 2011 and March 5, 2010 were $35.27 and $35.16, respectively.
Summary of Employee Stock Purchase Plan Shares
Employees purchased 1.4 million shares at an average price of $20.61 and 1.3 million shares at an average price of $20.20 for the three months ended March 4, 2011 and March 5, 2010, respectively. The intrinsic value of shares purchased during the three months ended March 4, 2011 and March 5, 2010 was $15.3 million and $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.

16
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 three months ended March 4, 2011 and the fiscal year ended December 3, 2010 was as follows (in thousands):
 
2011
 
2010
Beginning outstanding balance
13,890
 
 
10,433
 
Awarded
6,831
 
 
7,340
 
Released
(2,567
)
 
(2,589
)
Forfeited
(290
)
 
(1,294
)
Increase due to acquisition
59
 
 
—
 
Ending outstanding balance
17,923
 
 
13,890
 
 
Information regarding restricted stock units outstanding at March 4, 2011 and March 5, 2010 is summarized below:
 
 
Number of
Shares
(thousands)
 
Weighted
Average
Remaining
Contractual
Life
(years)
 
Aggregate
Intrinsic
Value(*)
(millions)
2011
 
 
 
 
 
Restricted stock units outstanding
17,923
 
 
1.92
 
$
632.1
 
Restricted stock units vested and expected to vest
13,661
 
 
1.75
 
$
481.1
 
2010
 
 
 
 
 
 
 
Restricted stock units outstanding
14,142
 
 
2.08
 
$
497.2
 
Restricted stock units vested and expected to vest
10,527
 
 
1.90
 
$
369.8
 
_________________________________________ 
(*)    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 March 4, 2011 and March 5, 2010 were $35.27 and $35.16, respectively. 
Summary of Performance Shares 
Effective January 24, 2011, the Executive Compensation Committee adopted the 2011 Performance Share Program (the "2011 Program"). The purpose of the 2011 Program is to align key management and senior leadership with stockholders’ interests and to retain key employees. The measurement period for the 2011 Program is our fiscal 2011 year. All members of our executive management and other key senior management are participating in the 2011 Program. Awards granted under the 2011 Program 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 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 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 2011 Program for the three months ended March 4, 2011 (in thousands): 
 
Shares
Granted
 
Maximum
Shares Eligible
to Receive
Beginning outstanding balance
—
 
 
—
 
Awarded
425
 
 
638
 
Forfeited
—
 
 
—
 
Ending outstanding balance
425
 
 
638
 

17
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

 
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.
 
The following table sets forth the summary of performance share activity under our 2007, 2008 and 2010 programs, based upon share awards actually achieved, for the three months ended March 4, 2011 and the fiscal year ended December 3, 2010 (in thousands):
 
2011
 
2010
Beginning outstanding balance
557
 
 
950
 
Achieved
337
 
 
—
 
Released
(415
)
 
(350
)
Forfeited
(10
)
 
(43
)
Ending outstanding balance
469
 
 
557
 
 
Information regarding performance shares outstanding at March 4, 2011 and March 5, 2010 is summarized below:
 
 
Number of
Shares
(thousands)
 
Weighted
Average
Remaining
Contractual
Life
(years)
 
Aggregate
Intrinsic
Value(*)
(millions)
2011
 
 
 
 
 
Performance shares outstanding
469
 
 
1.11
 
$
16.6
 
Performance shares vested and expected to vest
401
 
 
1.08
 
$
13.9
 
2010
 
 
 
 
 
 
 
Performance shares units outstanding
607
 
 
1.28
 
$
21.3
 
Performance shares vested and expected to vest
505
 
 
1.23
 
$
17.6
 
_________________________________________ 
(*)    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 March 4, 2011 and March 5, 2010 were $35.27 and $35.16, respectively.     
 
Compensation Costs
As of March 4, 2011, there was $517.1 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 2.9 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

18
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

Total stock-based compensation costs that have been included in our Condensed Consolidated Statements of Income for the three months ended March 4, 2011 and March 5, 2010 were as follows (in thousands):
 
 
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
$
192
 
 
$
321
 
 
$
—
 
 
$
—
 
Cost of revenue—services and support
1,095
 
 
2,075
 
 
417
 
 
531
 
Research and development
6,755
 
 
20,578
 
 
12,054
 
 
15,361
 
Sales and marketing
7,550
 
 
16,416
 
 
12,086
 
 
12,435
 
General and administrative
5,949
 
 
10,061
 
 
5,610
 
 
5,986
 
Total
$
21,541
 
 
$
49,451
 
 
$
30,167
 
 
$
34,313
 
 
NOTE 11.  RESTRUCTURING CHARGES
 
Fiscal 2009 Restructuring Plan
In the fourth quarter of fiscal 2009, in order to appropriately align our costs in connection with our fiscal 2010 operating plan, we initiated a restructuring plan consisting of reductions in workforce and the consolidation of facilities. 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.
Total costs incurred for termination benefits through the first quarter of fiscal 2011 was $40.0 million. Total costs incurred to date and expected to be incurred for closing redundant facilities are $8.9 million and $12.6 million, respectively.
Omniture Restructuring Plan
We completed our acquisition of Omniture on October 23, 2009. In the fourth quarter of fiscal 2009, we initiated a plan to restructure the pre-merger operations of Omniture to eliminate certain duplicative activities, focus our resources on future growth opportunities and reduce our cost structure. In connection with this restructuring plan, we accrued a total of approximately $11.8 million in costs related to termination benefits, the closure of duplicative facilities and cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by Omniture through the first quarter of fiscal 2011. Substantially all of these costs were recorded as a part of the purchase price allocation.    
Fiscal 2008 Restructuring Plan
In the fourth quarter of fiscal 2008, we initiated a restructuring program consisting of reductions in workforce and the consolidation of facilities, in order to reduce our operating costs and focus our resources on key strategic priorities. In connection with the restructuring plan, we recognized costs related to termination benefits for employee positions that were eliminated and for the 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 2011. Total costs incurred to date and expected to be incurred for closing redundant facilities are $8.7 million and $8.8 million, respectively. 
Macromedia Restructuring Plan
We completed our acquisition of Macromedia on December 3, 2005. In connection with this acquisition, we initiated plans to restructure both the pre-merger operations of Adobe and Macromedia to eliminate certain duplicative activities, focus our resources on future growth opportunities and reduce our cost structure. In connection with the worldwide restructuring plan, we recognized costs related to termination benefits for employee positions that were eliminated and for the closure of duplicative facilities. We also recognized costs related to the cancellation of certain contracts associated with the wind-down of subsidiaries and other service contracts held by Macromedia. Total costs incurred for termination benefits and contract terminations were $27.0 million and $3.2 million, respectively, and those actions were completed during fiscal 2007.

19
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

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 three months ended March 4, 2011 (in thousands):
 
December 3,
2010
 
Costs
Incurred
 
Cash
Payments
 
Other
Adjustments
 
March 4,
2011
Fiscal 2009 Plan:
 
 
 
 
 
 
 
 
 
Termination benefits
$
1,573
 
 
$
—
 
 
$
(297
)
 
$
(41
)
 
$
1,235
 
Cost of closing redundant facilities
7,302
 
 
—
 
 
(1,055
)
 
199
 
 
6,446
 
Omniture Plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Termination benefits
486
 
 
—
 
 
—
 
 
21
 
 
507
 
Cost of closing redundant facilities
2,720
 
 
—
 
 
(444
)
 
15
 
 
2,291
 
Contract termination
179
 
 
—
 
 
—
 
 
—
 
 
179
 
Fiscal 2008 Plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Termination benefits
300
 
 
—
 
 
(164
)
 
(136
)
 
—
 
Cost of closing redundant facilities
2,149
 
 
—
 
 
(99
)
 
203
 
 
2,253
 
Macromedia Plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of closing redundant facilities
1,658
 
 
—
 
 
(504
)
 
—
 
 
1,154
 
Other
6
 
 
—
 
 
(5
)
 
—
 
 
1
 
Total restructuring plans
$
16,373
 
 
$
—
 
 
$
(2,568
)
 
$
261
 
 
$
14,066
 
 
Accrued restructuring charges of approximately $14.1 million at March 4, 2011 includes $6.8 million recorded in accrued restructuring, current and $7.3 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 the second quarter of fiscal 2011 and facilities-related liabilities under contract through fiscal 2021.
 
NOTE 12.  STOCKHOLDERS’ EQUITY
 
Retained Earnings
The changes in retained earnings for the three months ended March 4, 2011 were as follows (in thousands): 
Balance as of December 3, 2010
$
5,980,914
 
Net income
234,591
 
Re-issuance of treasury stock
(169,874
)
Balance as of March 4, 2011
$
6,045,631
 
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.

20
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

Comprehensive Income
The following table sets forth the activity for each component of comprehensive income, net of related taxes, for the three months ended March 4, 2011 and March 5, 2010 (in thousands):
 
2011
 
2010
 
Increase/(decrease)
Net income
$
234,591
 
 
$
127,154
 
Other comprehensive income:
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
Unrealized gains on available-for-sale securities
(53
)
 
(758
)
Reclassification adjustment for gains on available-for-sale securities recognized
     during the period
(544
)
 
(344
)
Subtotal available-for-sale securities
(597
)
 
(1,102
)
Derivatives designated as hedging instruments:
 
 
 
 
 
Unrealized gains on derivative instruments
(67
)
 
10,364
 
Reclassification adjustment for gains on derivative instruments recognized
     during the period
—
 
 
—
 
Subtotal derivatives designated as hedging instruments
(67
)
 
10,364
 
Foreign currency translation adjustments
11,931
 
 
(4,599
)
Other comprehensive income
11,267
 
 
4,663
 
Total comprehensive income, net of taxes
$
245,858
 
 
$
131,817
 
The following table sets forth the components of accumulated other comprehensive income, net of related taxes, as of March 4, 2011 and December 3, 2010 (in thousands):
 
2011
 
2010
Net unrealized gains on available-for-sale securities:
 
 
 
Unrealized gains on available-for-sale securities
$
11,430
 
 
$
12,138
 
Unrealized losses on available-for-sale securities
(2,382
)
 
(2,493
)
Total net unrealized gains on available-for-sale securities
9,048
 
 
9,645
 
Net unrealized gains on derivative instruments designated as hedging instruments
84
 
 
151
 
Cumulative foreign currency translation adjustments
19,563
 
 
7,632
 
Total accumulated other comprehensive income, net of taxes
$
28,695
 
 
$
17,428
 
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 billion in common stock through the end of fiscal 2012.
During the three months ended March 4, 2011, we entered into a structured stock repurchase agreement with a large financial institution, whereupon we provided them with a prepayment of $125.0 million. We did not enter into any new structured repurchase agreements during the three months ended March 5, 2010. We 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

21
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us.
The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval and the average VWAP of our stock during the interval less the agreed upon discount. During the three months ended March 4, 2011, we repurchased approximately 2.5 million shares at an average price of $32.84 through structured repurchase agreements entered into during the three months ended March 4, 2011. During the three months ended March 5, 2010, we repurchased approximately 1.7 million shares at an average price of $36.21 through structured repurchase agreements entered into during fiscal 2009.
As of March 4, 2011 and 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 were excluded from the computation of earnings per share. As of March 4, 2011, approximately $41.6 million of payments remained under these agreements. As of March 5, 2010, there were no up-front payments remaining under the agreements.
Subsequent to March 4, 2011, as part of our $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 $420.0 million. This amount will be classified as treasury stock on our Condensed Consolidated Balance Sheets. Upon completion of the $420.0 million stock repurchase agreement, $455.0 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 months ended March 4, 2011 and March 5, 2010 (in thousands, except per share data):
 
2011
 
2010
Net income
$
234,591
 
 
$
127,154
 
Shares used to compute basic net income per share
504,134
 
 
524,173
 
Dilutive potential common shares:
 
 
 
 
 
Unvested restricted stock and performance share awards
3,764
 
 
3,078
 
Stock options
3,447
 
 
5,394
 
Shares used to compute diluted net income per share
511,345
 
 
532,645
 
Basic net income per share
$
0.47
 
 
$
0.24
 
Diluted net income per share
$
0.46
 
 
$
0.24
 
For the three months ended March 4, 2011, options to purchase approximately 21.9 million shares of common stock with exercise prices greater than the average fair market value of our stock of $32.35 were not included in the calculation because the effect would have been anti-dilutive. Comparatively, for the three months ended March 5, 2010, options to purchase approximately 17.5 million shares of common stock with exercise prices greater than the average fair market value of our stock of $35.13 were not included in the calculation because the effect would have been anti-dilutive.
 
NOTE 14.  COMMITMENTS AND CONTINGENCIES
 
Lease Commitments
We occupy three office buildings in San Jose, California where our corporate headquarters are located. We reference these office buildings as the Almaden Tower and the East and West Towers.
In August 2004, we extended the lease agreement for our East and West Towers for an additional five years with an option to extend for an additional five years solely at our election. In June 2009, we submitted notice to the lessor that we intended to exercise our option to renew this agreement for an additional five years effective August 2009. As stated in the original lease agreement, in conjunction with the lease renewal, we were required to obtain a standby letter of credit for approximately $16.5

22
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

million which enabled us to secure a lower interest rate and reduce the number of covenants. As defined in the lease agreement, the standby letter of credit primarily represents the lease investment equity balance which is callable in the event of default. In March 2007, the Almaden Tower lease was extended for five years, with a renewal option for an additional five years solely at our election. As part of the lease extensions, we purchased the lease receivable from the lessor of the East and West Towers for $126.8 million and a portion of the lease receivable from the lessor of the Almaden Tower for $80.4 million, both of which are recorded as investments in lease receivables on our Condensed Consolidated Balance Sheets. As of March 4, 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 million and $103.6 million, respectively. The residual value guarantees under the East and West Towers and the Almaden Tower obligations are $126.8 million and $89.4 million, respectively.
These two leases are both subject to standard covenants including certain financial ratios that are reported to the lessors quarterly. As of March 4, 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 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 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.
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 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 March 4, 2011 and 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 $0.6 million and $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 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 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 or 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

23
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
During fiscal 2010, our limited partnership interest in Adobe Ventures was dissolved and all remaining assets were distributed to the partners. As part of this limited partnership interest, we provided a general indemnification to Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences while Granite Ventures was serving at our request in such capacity provided that Granite Ventures acted in good faith on behalf of the partnership.
Legal Proceedings
In October 2009, Eolas Technologies Incorporated filed a complaint against us and 22 other companies for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that a number of our Web pages and products infringe two patents owned by plaintiff purporting to cover “Distributed Hypermedia Method for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 5,838,906) and “Distributed Hypermedia Method and System for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 7,599,985) and seeks injunctive relief, monetary damages, costs and attorneys fees. We dispute these claims and intend to vigorously defend ourselves in this matter. As of March 4, 2011, no amounts have been accrued as a loss is not probable or estimable.
In connection with our anti-piracy efforts, conducted both internally and through organizations such as the Business Software Alliance, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other local laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, cash flows or results of operations could be affected in any particular period by the resolution of one or more of these counter-claims.
Adobe is subject to legal proceedings, claims and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, indemnification claims, commercial, employment and other matters. Adobe makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. 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. It is possible, nevertheless, that our consolidated financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.
 
NOTE 15.  DEBT
 
Our debt as of March 4, 2011 and December 3, 2010 consisted of the following (in thousands):
 
2011
 
2010
Notes
$
1,494,130
 
 
$
1,493,969
 
Credit facility
—
 
 
—
 
Capital lease obligations
26,323
 
 
28,492
 
Total debt and capital lease obligations
1,520,453
 
 
1,522,461
 
Less: current portion
8,900
 
 
8,799
 
Debt and capital lease obligations
$
1,511,553
 
 
$
1,513,662
 
 Notes
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900.0 million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). Our proceeds were approximately $1.5 billion and were net of an issuance discount of $6.6 million. The Notes rank equally with our other unsecured and unsubordinated indebtedness. In addition, we incurred issuance costs of approximately $10.7 million. Both

24
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

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. In February 2011, we made a semi-annual interest payment of $31.1 million. The proceeds from the Notes are available for general corporate purposes, including repayment of any balance outstanding on our credit facility. Based on quoted market prices, the fair value of the Notes was approximately $1.5 billion as of March 4, 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 March 4, 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 million to $1.0 billion. The Amendment also permits us to request one-year extensions effective on each anniversary of the closing date of the original agreement, subject to the majority consent of the lenders. We also retain an option to request an additional $500.0 million in commitments, for a maximum aggregate facility of $1.5 billion.
In February 2008, we entered into a Second Amendment to the Credit Agreement dated February 26, 2008, which extended the maturity date of the facility by one year to February 16, 2013. The facility would terminate at this date if no additional extensions have been requested and granted. All other terms and conditions remain the same.
The facility contains a financial covenant requiring us not to exceed a certain maximum leverage ratio. At 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. On February 1, 2010, we paid the outstanding balance on our credit facility and the entire $1.0 billion credit line under this facility remains available for borrowing.
Capital Lease Obligation
In June 2010, we entered into a sale-leaseback agreement to sell equipment totaling $32.2 million and leaseback the same equipment over a period of 43 months. This transaction was classified as a capital lease obligation and recorded at fair value. As of March 4, 2011, our capital lease obligations of $26.3 million includes $8.9 million of current debt.

25
Table of Contents
 
ADOBE SYSTEMS INCORPORATED
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(Unaudited)

 
NOTE 16.  NON-OPERATING INCOME (EXPENSE)
 
 Non-operating income (expense) for the three months ended March 4, 2011 and March 5, 2010 included the following (in thousands):
 
2011
 
2010
Interest and other income (expense), net:
 
 
 
Interest income
$
6,099
 
 
$
5,105
 
Foreign exchange gains (losses)
(7,774
)
 
(5,084
)
Realized gains on fixed income investment
605
 
 
342
 
Realized losses on fixed income investment
(61
)
 
—
 
Other
314
 
 
248
 
Interest and other income (expense), net
$
(817
)
 
$
611
 
Interest expense
$
(17,020
)
 
$
(7,695
)
Investment gains (losses), net:
 
 
 
 
 
Realized investment gains
$
1,802
 
 
$
183
 
Unrealized investment gains
438
 
 
222
 
Realized investment losses
(650
)
 
(405
)
Unrealized investment losses
—
 
 
(3,534
)
Investment gains (losses), net
$
1,590
 
 
$
(3,534
)
Non-operating income (expense), net
$
(16,247
)
 
$
(10,618
)
 
NOTE 17.  SEGMENTS
 
We have the following reportable segments:
•
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.
•
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.
•
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.