# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# (Mark	One)

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

For	the	fiscal	year	ended	November	28,	2008

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

# ADOBE	SYSTEMS	INCORPORATED

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

(I.R.S.	Employer Identification	No.)

(Address	of	principal	executive	offices	and	zip	code)

(Registrant's	telephone	number,	including	area	code)

# Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Title	of	Each	Class

Common	Stock,	$0.0001	par	value	per	share

# Name	of	Each	Exchange	on	Which	Registered

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

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

Indicate	by	checkmark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.	Yes	o No	x

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	checkmark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.	x

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.	(Check	one):	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	aggregate	market	value	of	the	registrant's	common	stock,	$0.0001	par	value	per	share,	held	by	non-affiliates	of	the	registrant	on	May	30,	2008,	the	last	business day	of	the	registrant's	most	recently	completed	second	fiscal	quarter,	was	$20,399,247,623	(based	on	the	closing	sales	price	of	the	registrant's	common	stock	on	that	date). Shares	of	the	registrant's	common	stock	held	by	each	officer	and	director	and	each	person	who	owns	5%	or	more	of	the	outstanding	common	stock	of	the	registrant	have been	excluded	in	that	such	persons	may	be	deemed	to	be	affiliates.	This	determination	of	affiliate	status	is	not	necessarily	a	conclusive	determination	for	other	purposes.	As of	January	16,	2009,	524,035,626	shares	of	the	registrant's	common	stock,	$0.0001	par	value	per	share,	were	issued	and	outstanding.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Portions	of	the	Proxy	Statement	for	the	2009	Annual	Meeting	of	Stockholders	(the	"Proxy	Statement"),	to	be	filed	within	120	days	of	the	end	of	the	fiscal	year	ended November	28,	2008,	are	incorporated	by	reference	in	Part	III	hereof.	Except	with	respect	to	information	specifically	incorporated	by	reference	in	this	Form	10-K,	the	Proxy Statement	is	not	deemed	to	be	filed	as	part	hereof.

# TABLE	OF	CONTENTS

# PART	I

| Item	1. | Business | 3 |
| :--- | :--- | :--- |
| Item\t1A. | Risk\tFactors | 32 |
| Item\t1B. | Unresolved\tStaff\tComments | 41 |
| Item\t2. | Properties | 41 |
| Item\t3. | Legal\tProceedings | 42 |
| Item\t4. | Submission\tof\tMatters\tto\ta\tVote\tof\tSecurity\tHolders | 43 |
| PART\tII |  |  |
| Item\t5. | Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 43 |
| Item\t6. | Selected\tFinancial\tData | 46 |
| Item\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 47 |
| Item\t7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 64 |
| Item\t8. | Financial\tStatements\tand\tSupplementary\tData | 67 |
| Item\t9. | Changes\tin\tand\tDisagreements\tWith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 114 |
| Item\t9A. | Controls\tand\tProcedures | 114 |
| Item\t9B. | Other\tInformation | 115 |
| PART\tIII |  |  |
| Item\t10. | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 115 |
| Item\t11. | Executive\tCompensation | 115 |
| Item\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 115 |
| Item\t13. | Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 115 |
| Item\t14. | Principal\tAccounting\tFees\tand\tServices | 115 |
| PART\tIV |  |  |
| Item\t15. | Exhibits,\tFinancial\tStatement\tSchedules | 116 |
| Signatures |  | 117 |
| Summary\tof\tTrademarks |  | 119 |
| Exhibits |  | 120 |

# Forward-Looking	Statements

In	addition	to	historical	information,	this	Annual	Report	on	Form	10-K	contains	forward-looking	statements,	including	statements	regarding	product	plans,	future growth	and	market	opportunities	which	involve	risks	and	uncertainties	that	could	cause	actual	results	to	differ	materially	from	these	forward-looking	statements.	Factors that	might	cause	or	contribute	to	such	differences	include,	but	are	not	limited	to,	those	discussed	under	Item	1A,	Risk	Factors.	You	should	carefully	review	the	risks described	herein	and	in	other	documents	we	file	from	time	to	time	with	the	Securities	and	Exchange	Commission	("SEC"),	including	the	Quarterly	Reports	on	Form	10-Q	to be	filed	in	2009.	When	used	in	this	report,	the	words	"expects,"	"could,"	"would,"	"may,"	"anticipates,"	"intends,"	"plans,"	"believes,"	"seeks,"	"targets,"	"estimates," "looks	for,"	"looks	to"	and	similar	expressions,	as	well	as	statements	regarding	our	focus	for	the	future,	are	generally	intended	to	identify	forward-looking	statements.	You should	not	place	undue	reliance	on	these	forward-looking	statements	which	speak	only	as	of	the	date	of	this	Annual	Report	on	Form	10-K.	We	undertake	no	obligation	to publicly	release	any	revisions	to	the	forward-looking	statements	or	reflect	events	or	circumstances	after	the	date	of	this	document.

# ITEM	1.		BUSINESS

Founded	in	1982,	Adobe	Systems	Incorporated	is	one	of	the	largest	and	most	diversified	software	companies	in	the	world.	We	offer	a	line	of	creative,	business	and mobile	software	and	services	used	by	creative	professionals,	knowledge	workers,	consumers,	original	equipment	manufacturer	("OEM")	partners,	developers	and	enterprises for	creating,	managing,	delivering	and	engaging	with	compelling	content	and	experiences	across	multiple	operating	systems,	devices	and	media.	We	distribute	our	products through	a	network	of	distributors,	value-added	resellers	("VARs"),	systems	integrators,	independent	software	vendors	("ISVs")	and	OEMs,	direct	to	end	users	and	through our	own	Web	site	at	www.adobe.com.	We	also	license	our	technology	to	hardware	manufacturers,	software	developers	and	service	providers,	and	we	offer	integrated software	solutions	to	businesses	of	all	sizes.	We	have	operations	in	the	Americas,	Europe,	Middle	East	and	Africa	("EMEA")	and	Asia.	Our	software	runs	on	personal computers	with	Microsoft	Windows,	Apple	Mac	OS,	Linux,	UNIX	and	various	non-PC	platforms,	depending	on	the	product.

Adobe	was	originally	incorporated	in	California	in	October	1983	and	was	reincorporated	in	Delaware	in	May	1997.	We	maintain	executive	offices	and	principal facilities	at	345	Park	Avenue,	San	Jose,	California	95110-2704.	Our	telephone	number	is	408-536-6000.	We	maintain	a	Web	site	at	www.adobe.com.	Investors	can	obtain copies	of	our	SEC	filings	from	this	site	free	of	charge,	as	well	as	from	the	SEC	Web	site	at	www.sec.gov.

# BUSINESS	OVERVIEW

For	more	than	25	years,	Adobe	software	and	technologies	have	helped	redefine	how	people	engage	with	ideas	and	information—anytime,	anywhere	and	through	any medium.	The	impact	of	our	solutions	is	evident	across	many	industries	and	is	felt	by	anyone	who	creates,	views	and	interacts	with	information.

Today,	through	the	delivery	of	powerful	design,	imaging	and	publishing	software	for	print,	Web,	mobile	and	dynamic	media	production,	and	by	delivering	a technology	platform,	we	help	people	express,	share,	manage	and	collaborate	on	their	ideas	in	imaginative	and	meaningful	new	ways.

Our	strategy	is	to	address	the	needs	of	a	variety	of	customers	which	include	creative	professionals—graphic	designers,	Web	designers,	videographers,	photographers and	professional	publishers;	knowledge	workers—teams	of	workers	who	share	and	collaborate	on	high-value	information;	enterprise	users—IT	managers,	line	of	business managers	and	executives;	high-end	consumers—digital	imaging	and	digital	video	hobbyists	and	enthusiasts;	application	developers	and	OEM	partners—mobile	device manufacturers,	printer	manufacturers,	Internet	service	providers	and	developers.

We	execute	against	this	strategy	by	delivering	products	that	support	industry	standards	and	can	be	deployed	across	multiple	computing	environments.	We	also leverage	the	broad	reach	of	our	ubiquitous	client	technologies	including	our	universal	Adobe	Reader,	and	our	Adobe	Flash	Platform	which	enables	the	development	of products	and	solutions	that	dramatically	improves	how	businesses	and	governments	engage	with	their	customers,	employees	and	constituents.		Our	Adobe	Flash	Platform includes	our	broadly	deployed	Adobe	Flash	Player	and	our	Adobe	AIR	software	which	enables	developers	to	build	and	deploy	rich	media	and	Internet	applications	to	client devices.		Together,	these	client	technologies

allow	users	of	our	products	and	technologies	to	ensure	reliable,	secure	and	rich	application	experiences	across	devices,	browsers	and	operating	systems.

# PRODUCTS	AND	SERVICES	OVERVIEW

In	fiscal	2008,	we	categorized	our	products	and	services	into	the	following	businesses:	Creative	Solutions,	Business	Productivity	Solutions,	Mobile	and	Device Solutions	and	Other.		We	further	broke	our	Business	Productivity	Solutions	business	into	two	reported	segments:		Knowledge	Worker	and	Enterprise.		We	also	broke	our Other	business	into	two	reported	segments:		i)	Platform	and	ii)	Print	and	Publishing.

Effective	in	the	first	quarter	of	fiscal	2009,	we	modified	our	segment	reporting.		Our	Creative	Solutions	segment	and	our	Business	Productivity	Solutions	business that	is	reported	in	two	segments	(Knowledge	Worker	and	Enterprise),	continue	to	be	reported	as	they	were	in	fiscal	2008.		Our	Mobile	and	Device	Solutions	business,	which was	moved	into	our	Platform	business	unit,	will	be	reported	as	part	of	the	Platform	segment.

Accordingly,	our	five	fiscal	2009	business	segments	are	as	follows:		Creative	Solutions,	Knowledge	Worker,	Enterprise,	Platform,	and	Print	and	Publishing.	This overview,	organized	by	these	segments,	combines	an	explanation	of	our	various	market	opportunities	with	a	summary	of	our	fiscal	2008	results	and	a	discussion	of	our strategies	to	address	our	market	opportunities	in	fiscal	2009	and	beyond.

# Creative	Solutions	Segment

# Creative	Solutions	Market	Opportunity

Our	Creative	Solutions	segment	focuses	primarily	on	the	needs	of	the	creative	professional	customer.	Creative	professionals	include	graphic	designers,	production artists,	Web	designers	and	developers,	user	interface	designers,	writers,	videographers,	photographers	and	prepress	professionals.		They	use	and	rely	on	Adobe's	solutions for	professional	publishing,	Web	design	and	development,	professional	photography,	video	production,	animation	and	motion	graphic	production	and	printing	visually	rich information.

Our	software	tools	are	used	by	creative	professionals	to	create	much	of	the	printed	and	on-line	information	people	see	and	read	every	day,	including	newspapers, magazines,	Web	sites,	catalogs,	advertisements,	brochures,	product	documentation,	books,	memos,	reports	and	banners.	Our	tools	are	also	used	to	create	and	enhance visually	rich	content,	including	video,	animation	and	mobile	content,	that	is	created	by	multimedia,	film,	television,	audio	and	video	producers	who	work	in	advertising, Web	design,	music,	entertainment,	corporate	and	marketing	communications,	product	design,	user	interface	design,	sales	training,	printing,	architecture	and	fine	arts. Knowledge	workers,	hobbyists	and	high	end	consumers	are	also	attracted	to	our	creative	products	to	create	and	deliver	content	that	is	of	creative	professional	quality.

Our	offerings	in	the	Creative	Solutions	market	extend	to	real-time	rich	media	solutions	which	give	business	users	the	control	to	upload,	manage,	enhance	and	publish dynamic	rich	content	with	minimal	IT	support.		Our	offerings	also	extend	to	the	delivery	of	rich	media	through	streaming	media	and	a	flexible	development	environment	for creating	and	delivering	innovative,	interactive	media	applications.		Our	media	products	and	services	enable	broadcasters,	events	organizers	and	marketers	to	reach	the broadest	possible	audience	via	our	rich	Flash	Platform.

As	technology	continues	to	improve,	the	market	dynamics	for	these	creative	professionals	continue	to	evolve.	Due	to	the	constantly	changing	ways	in	which	people choose	to	receive	information,	creative	professionals	look	to	their	software	tools	as	a	means	to	make	their	information	impactful	and	to	repurpose	content	across	a	variety	of media	and	applications.	They	desire	greater	efficiency	from	the	software	they	use	to	streamline	their	publishing	and	content	creation	workflows	and	to	effectively	manage their	assets.	They	also	look	for	new	and	innovative	ways	to	deliver	their	content	and	information	to	hand-held	devices	such	as	mobile	handsets	and	consumer	electronic devices.

Creative	professional	customers	license	upgrades	and	new	units	of	our	Creative	Solutions	products	due	to	the	high	degree	of	innovative	new	features	and	significant productivity	gained	through	their	use.	They	also	frequently	purchase	license	upgrades	and	new	units	of	these	products	when	they	buy	new	computers,	or	migrate	to	new	or updated	operating	systems.

In	addition,	knowledge	workers	in	enterprises,	educators	in	schools	and	universities,	and	hobbyists	at	home	license	our	Creative	Solutions	products.	Knowledge workers	desire	professional-quality	products	to	accomplish	tasks	such	as	creating	visually-rich	sales	presentations,	engineering	or	architectural	proposals,	real	estate	flyers and	 school	 year	 books.	 Educators	 utilize	 our	 solutions	 to	 educate	 future	 creative	 professionals,	 as	 well	 as	 create	 their	 course	 content	 and	 online	 eLearning-based lessons.		Hobbyists	use	our	tools	to	create	distinctive	online	communications	and	photo	albums,	community	newsletters,	Web	blogs,	animations,	videos	and	Web	sites	for family,	friends	or	community	organizations.

With	the	increasing	use	of	the	Web	as	a	means	for	marketing	and	advertising,	we	believe	a	key	driver	of	our	Creative	Solutions	business	will	also	be	the	growing amount	of	Web	site	and	mobile	device	content	created	by	our	customers	to	deliver	impactful	and	compelling	Web-based	experiences	for	their	constituents.

Another	driver	of	our	Creative	Solutions	business	is	the	growth	in	the	use	of	digital	devices	such	as	digital	cameras,	digital	video	cameras,	multimedia-enabled computers,	DVD	players,	scanners,	Web-capable	image	and	video-enabled	handheld	devices,	cellular	phones,	gaming	consoles	and	other	non-PC	Internet-connected	devices. In	addition,	faster	Internet	broadband	speeds	make	the	Web	a	viable	platform	for	the	delivery	of	rich	media,	especially	digital	video.	In	turn,	the	growth	in	the	use	of	high definition	("HD")	televisions	and	video	is	driving	the	need	for	HD-enhanced	video	tools	to	produce	HD	content	for	movies	and	commercial	television,	as	well	as	the	need	to deliver	or	repurpose	this	content	to	be	viewed	on	the	Web.

As	the	use	of	digital	photography	and	digital	videography	grows,	we	believe	creative	professionals	and	professional	photographers	throughout	the	world	will	continue to	require	software	solutions	to	edit,	enhance	and	manage	their	digital	photographs	and	digital	videos.		Increasingly,	we	expect	these	users	to	desire	software	solutions	which leverage	the	Web	as	a	platform	to	deliver	the	capabilities	of	some	or	all	of	the	features	they	desire	in	desktop	software.		In	addition,	we	believe	creative	professionals	and Web	developers	are	increasing	their	use	of	digital	video	streams	over	the	Web	to	create	more	compelling	Web	sites.	We	believe	professional	videographers	are	upgrading their	systems	to	support	HD	video	content	creation,	enhancement	and	delivery.	We	also	believe	hobbyists	will	use,	with	more	frequency,	digital	imaging	and	digital	video software	and	online	hosted	software	services	as	they	purchase	more	affordable	digital	cameras	and	digital	video	cameras.

# Creative	Solutions	Business	Summary

In	fiscal	2008,	we	maintained	our	focus	on	driving	adoption	of	our	creative	products	which	achieved	record	revenue	in	fiscal	2008	and	collectively	represented	a majority	of	our	overall	revenue	in	the	year.		During	the	first	three	quarters	of	the	year,	a	key	focus	in	our	Creative	Solutions	business	was	on	marketing	and	licensing	Adobe Creative	Suite	version	3	("CS3")	family	of	products.		Our	CS3	family	of	products,	which	first	shipped	in	fiscal	2007,	incorporated	Adobe	technologies	used	by	creative professionals	into	six	Creative	Suite	editions	and	thirteen	individual	creative	products,	providing	offerings	for	the	various	creative	disciplines	our	customers	desire.		These disciplines	include	end-user	markets	such	as	interactive	design	for	print	and	Web,	as	well	as	rich	media	and	digital	video	creation.		Licensing	of	CS3	products	was	solid during	this	time	period,	despite	uncertain	global	economic	conditions	in	our	end-user	markets.

In	the	fourth	quarter	of	fiscal	2008,	we	introduced	the	successor	to	our	CS3	family	of	products,	Adobe	Creative	Suite	version	4	("CS4")	family	of	products.		The	CS4 family	of	products	includes	six	Creative	Suite	editions,	thirteen	individual	creative	products	and	seven	services	which	enhance	the	overall	capabilities	of	the	product	family. Innovations	 in	 our	 CS4	 family	 of	 products	 include	 enhanced	 features	 which	 allow	 users	 to	 work	 more	 efficiently,	 improved	 product	 integration	 among	 the	 various technologies	within	the	Creative	Suite	products,	better	integrated	workflow	and	collaboration	capabilities,	and	significant	performance	improvements.		Our	CS4	family	of products	launch	included	new	versions	of	our	individual	creative	products	such	as	Adobe	After	Effects,	Adobe	Contribute,	Adobe	Dreamweaver,	Adobe	Encore,	Adobe Fireworks,	Adobe	Flash	Professional,	Adobe	InCopy,	Adobe	InDesign,	Adobe	Illustrator,	Adobe	Photoshop,	Adobe	Photoshop	Extended,	Adobe	Premiere	Pro	and	Adobe Soundbooth.	Services	include	Adobe	ConnectNow	from	Acrobat.com,	Adobe	Community	Help,	Adobe	InContext	Editing	(ICE),	Adobe	Kuler,	Adobe	Media	Player, Resource	Central	and	Adobe	Bridge	Home.	In	addition	to	licensing	the	Creative	Suite	editions	noted	above,	customers	also	license	these	individual	products.		Product reviews	and	general	industry	commentary	for	our	new	CS4	family	of	products	was	positive.		However,	we	believe	the	global	financial	crisis	and	the	general	macro	economic environment	caused	end-user	demand	for	our	new	CS4	family	of	products	to	be	weaker	than	we	expected	in	the	fourth	quarter.

During	 the	year,	with	both	 the	CS3	and	CS4	family	of	products,	we	also	maintained	our	focus	on	meeting	 the	digital	 imaging	and	video	software	needs	of professional	photographers,	professional	videographers,	business	users	and	hobbyists.		Adobe	Photoshop	is	an	essential	tool	in	these	customers'	workflows	and	they	rely	on Adobe's	digital	imaging	and	video	editing	solutions	to	create	and	enhance	many	of	the	pictures	and	video	we	see	everyday	in	print,	on	television,	in	movies	and	on	the Web.		Combined,	Photoshop,	Photoshop	Extended	Edition	and	Photoshop	Lightroom	achieved	strong	market	adoption	and	revenue	results	during	the	year.

In	the	dynamic	media	market,	which	includes	users	who	require	new	and	advanced	digital	video	and	animation	technologies,	we	continued	to	focus	on	driving adoption	of	our	new	digital	video-based	technologies.	In	addition	to	our	new	versions	of	our	dynamic	media	authoring	tools	that	launched	in	the	fourth	quarter,		we	released Adobe	Flash	Media	Server	3	("FMS")	in	early	2008	which	provides	improved	streaming	capabilities,	performance	improvements	and	enhanced	digital	rights	management capabilities.		The	launch	of	FMS,	which	is	licensed	either	directly	by	our	customers	or	licensed	through	our	Flash	Video	Streaming	Service	via	Content	Delivery	Network ("CDN")	partners	such	as	Akamai	and	Limelight,	helped	to	accelerate	broad	adoption	of	Flash	Video	("FLV"),	the	video	file	format	compatible	with	Adobe	Flash	Player	as the	preferred	format	for	delivery	of	digital	video	via	the	Web.		Because	of	the	broad	reach	and	ubiquity	of	our	Flash	client	technologies,	the	growing	adoption	of	our authoring	tools	and	our	video	delivery	capabilities	via	our	Flash	Player,	it	is	estimated	by	the	research	agency	comScore	that	more	than	80%	of	worldwide	video	watched online	is	now	in	FLV	format.

In	the	professional	page	layout	market,	we	continued	to	drive	market	share	gains	during	the	year	with	our	Adobe	InDesign	product.	In	addition	to	success	with	our stand-alone	desktop	version,	we	also	saw	the	InDesign	ecosystem	continue	to	grow	in	fiscal	2008—our	software	and	systems	integrator	partners	successfully	deployed	new innovative	workflow	solutions	based	on	InDesign	and	InDesign	Server	within	enterprise-class	newspaper,	magazine	and	book	publishing	systems.		Similarly,	in	the	Web layout	and	Web	development	markets,	and	in	the	illustration	markets,	we	achieved	strong	revenue	results	driven	respectively	by	the	delivery	of	new	versions	of	our	Adobe Dreamweaver	and	Adobe	Illustrator	products.

Our	Scene7	business,	which	provides	businesses	with	an	easy-to-use	Web-based	system	to	upload,	manage,	enhance	and	publish	dynamic	rich	content,	achieved strong	year-over-year	growth	based	on	accelerated	customer	adoption	of	our	solution.		To	enhance	our	global	Scene7	capabilities,	in	the	fourth	quarter	of	fiscal	2008	we acquired	YaWah	ApS,	a	European	dynamic	imaging	software	provider	based	in	Denmark.

During	the	fourth	quarter	of	fiscal	2008,	we	released	version	7.0	of	our	Adobe	Photoshop	Elements	software	which	is	our	digital	imaging	application	targeted	for amateur	photographers	and	digital	imaging	hobbyists.	In	the	same	quarter,	we	released	version	7.0	of	Adobe	Premiere	Elements	software	which	is	our	video	editing software	that	can	be	used	by	hobbyists	to	enhance	and	share	their	digital	video	memories	on	DVDs.	We	also	released	a	software	bundle	that	includes	the	new	versions	of Adobe	Photoshop	Elements	and	Adobe	Premiere	Elements	to	target	hobbyists	who	desire	both	applications	in	one	affordable	package.	These	new	hobbyist	product	releases helped	to	generate	record	revenue	in	this	product	category	during	the	year	and	contributed	year-over-year	revenue	growth	to	our	overall	creative	business.

# Creative	Solutions	Business	Strategy

In	fiscal	2009,	our	Creative	Solutions	strategy	will	continue	to	focus	on	driving	revenue	growth	and	increasing	market	share	of	our	products	through	the	delivery	of comprehensive	software	solutions	that	meet	the	evolving	needs	of	our	customers.	To	help	drive	this	strategy,	we	will	continue	to	market	the	benefits	of	our	Creative	Suite family	 of	 products	 while	 our	 engineering	 teams	 work	 on	 future	 product	 versions	 with	 a	 focus	 on	 improved	 integration	 between	 our	 products,	 as	 well	 as	 enhanced functionality	and	more	efficient	collaboration	and	workflow	capabilities.

We	believe	that,	while	many	of	our	customers	have	made	the	switch	to	our	Creative	Suite	editions	from	individual	creative	products,	there	still	remains	a	large opportunity	to	migrate	customers	from	individual	products	to	Creative	Suite	editions	–	particularly	in	emerging	markets	and	other	large	geographic	markets	outside	the United	States	where	editions	of	our	Creative	Suite	penetration	is	lower.		We	also	believe	that	some	creative	customers	will	continue	to	remain	as	users	of	the	individual applications	–	and	over	time,	there	continues	to	exist	an	opportunity	of	upgrading	these	existing	individual	users	to	newer	versions	of	the	individual	applications	they regularly	use.

As	we	update	the	capabilities	of	our	creative	solutions,	we	will	continue	to	market	the	benefits	of	newer	versions	of	our	Creative	Suite	family	of	products	to	existing users	to	drive	upgrades.	We	also	will	market	the	features	of	these	products	to

new	users	of	creative	applications	—	those	who	aspire	to	be	creative	professionals,	or	those	at	home	or	at	work	who	wish	to	use	the	professional-level	capabilities	of	our solutions,	but	are	not	trained	creative	professionals.

We	intend	to	continue	our	efforts	to	be	the	recognized	market	leader	in	the	professional	page	layout,	Web	layout	and	illustration	software	markets.	In	page	layout,	we will	continue	to	add	new	features	to	our	InDesign	product	with	a	focus	on	cross-media	publishing	workflows,	as	well	as	continue	to	enhance	its	integration	with	other products	print	professionals	utilize	in	their	workflows.	In	Web	layout,	we	strive	to	continue	to	redefine	the	Web	experience	by	offering	the	most	feature-rich,	market-leading solutions	for	Web	site	design	and	development	with	our	Dreamweaver	and	Flash	offerings.		In	illustration,	we	will	continue	to	innovate	and	develop	new	capabilities	which we	believe	will	preserve	our	Illustrator	product	as	a	leading	graphics	creation	solution.

We	 plan	 to	 continue	 to	 work	 on	 enhancements	 for	 our	 Photoshop	 and	 Photoshop	 Extended	 product	 offerings	 to	 meet	 the	 evolving	 needs	 of	 professional photographers,	creative	professional	customers	(including	graphic	designers,	Web	designers	and	video	producers)	and	imaging	enthusiasts	to	drive	upgrades	and	new	user adoption.	We	also	plan	to	add	new	capabilities	to	Adobe	Photoshop	Lightroom,	our	digital	photography	workflow	tool	for	professional	photographers.	In	addition,	we continue	to	believe	many	customers	will	license	the	Photoshop	product	capabilities	via	our	Creative	Suite	editions	as	opposed	to	licensing	individual	creative	products.

With	our	set	of	professional	digital	video	and	motion	graphic	products,	we	strive	to	provide	the	market-leading,	end-to-end	digital	video,	motion	graphic	and animation	platform	for	our	customers.	To	grow	this	business,	we	will	continue	to	market	the	advanced	features,	the	cross-platform	and	cross-device	capabilities,	and	the workflow	benefits	of	this	platform	to	creative	professionals	and	videographers	in	the	film,	broadcast,	corporate	and	event	videography	market	segments.		We	are	also enhancing	our	FMS	solution	to	deliver	the	highest	quality	video	streaming	capability	and	we	are	working	with	partners	to	deliver	integrated	video	systems	and	video	delivery services.	With	broad	adoption	of	Adobe	Flash	Player	and	its	high-quality	video	playback	features,	we	will	continue	to	work	on	advancing	our	seamless	video	authoring-to- playback	workflow	capability	for	those	wishing	to	provide	a	rich	video	experience	on	the	Web	and	to	mobile	devices.

To	further	our	initiatives	in	digital	video	and	motion	graphics,	we	intend	to	extend	our	leadership	position	in	Web	video	by	continuing	to	support	and	drive	the improvement	of	industry	standards,	as	well	as	innovate	and	implement	new	content	creation	and	delivery	capabilities	in	our	dynamic	media	products	and	Adobe	Flash Player.		By	focusing	on	the	end-to-end	video	workflow	needs	of	our	customers,	we	believe	we	are	uniquely	positioned	to	provide	the	best	solution	for	the	creation	and delivery	of	high-quality	Web	video	content.		In	addition,	as	the	number	of	hobbyists	desiring	easy-to-use	video	editing	solutions	grows,	we	intend	to	enhance	the	video editing	and	DVD	creation	capabilities	of	our	Adobe	Premiere	Elements	and	Adobe	Premiere	Express	products	for	the	sharing	of	digital	video	memories.

With	our	Scene7	solutions,	we	intend	to	market	their	capabilities	to	help	customers	automate	the	production	and	availability	of	rich	media	experiences,	including zoom,	dynamic	sizing,	personalization	and	interactive	dynamic	product	catalogs.			In	addition,	we	believe	Scene7	will	help	Adobe	build	a	robust	Internet	infrastructure, allowing	us	to	further	develop	Scene7's	brand-name	customer	list	and	accelerate	the	online	availability	of	Adobe	technologies	used	by	millions	of	creative	professional	and hobbyist	users.

# Creative	Solutions	Products

Adobe	After	Effects	Professional—software	used	to	create	sophisticated	animation,	motion	graphics	and	visual	effects	found	in	television	broadcast,	film,	DVD authoring	and	the	Web;	provides	2D	and	3D	compositing,	animation	and	visual	effects	tools,	as	well	as	advanced	features	such	as	motion	tracking	and	stabilization, advanced	keying	and	warping	tools,	more	than	30	additional	visual	effects	and	additional	audio	effects.

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

Adobe	 Creative	 Suite	 Design	 Premium—an	 integrated	 software	 solution	 that	 creative	 professionals	 can	 use	 as	 a	 platform	 for	 print,	Web	 and	 mobile	 content publishing;	combines	Adobe	Acrobat	Pro,	Adobe	Dreamweaver,	Adobe	Flash	Professional,	Adobe	Illustrator,	Adobe	InDesign	and	Adobe	Photoshop	Extended	technologies with	file	management	and	integration	technology	called	Version	Cue,	a	file	management	and	control	center	called	Adobe	Bridge,	a	tool	used	to	produce	innovative	and compelling	content	for	a	broad	range	of	mobile	phones	and	consumer	electronics	devices	called	Adobe

Device	Central,	and	Adobe	Acrobat	Connect	Web	conferencing	software	that	enables	users	to	instantly	communicate	and	collaborate	through	easy-to-use,	easy-to-access online	personal	meeting	rooms.

Adobe	Creative	Suite	Design	Standard—an	integrated	software	solution	that	creative	professionals	can	utilize	for	professional	design	and	print	production,	page layout,	image	editing,	illustration	and	Adobe	PDF	workflows;	combines	Adobe	Acrobat	Pro,	Adobe	Illustrator,	Adobe	InDesign	and	Adobe	Photoshop	technologies, Version	Cue,	Adobe	Bridge,	Adobe	Device	Central	and	Adobe	Acrobat	Connect	Web	conferencing	software.

Adobe	Creative	Suite	Master	Collection—an	integrated	software	solution	which	provides	all	the	tools	creative	professionals	require	to	create	content	for	every	design discipline	 in	 one	 offering;	 provides	 capabilities	 for	 professional	 page	 layout,	 image	 editing,	 vector	 illustration,	 print	 production,	Web	 site	 design/development,	 rich interactive	content	creation,	visual	effects	and	motion	graphics,	video	capture/editing/production,	DVD	titling	and	digital	audio	production;	includes	Adobe	Acrobat	Pro, Adobe	After	Effects	Professional,	Adobe	Contribute,	Adobe	Dreamweaver,	Adobe	Encore,	Adobe	Fireworks,	Adobe	Flash	Professional,	Adobe	Illustrator,	Adobe	InDesign, Adobe	Photoshop	Extended,	Adobe	Premiere	Pro	and	Adobe	Soundbooth	technologies,	Version	Cue,	Adobe	Bridge,	Adobe	Device	Central,	Adobe	Acrobat	Connect	and Adobe	Dynamic	Link	which	enables	intermediate	rendering	for	a	smoother	workflow	between	video	production	tools.

Adobe	Creative	Suite	Production	Premium—an	integrated	software	solution	that	provides	creative	professionals	a	complete	post-production	solution	consisting	of video,	audio	and	design	tools	that	can	be	utilized	to	create	and	deliver	content	to	film,	video,	DVD,	Blu-ray	Disc,	the	Web	and	mobile	devices;	combines	Adobe	After Effects	Professional,	Adobe	Encore,	Adobe	Flash	Professional,	Adobe	Illustrator,	Adobe	Photoshop	Extended,	Adobe	Premiere	Pro	and	Adobe	Soundbooth	technologies, Version	Cue,	Adobe	Bridge,	Adobe	Device	Central,	Adobe	Acrobat	Connect	Web	conferencing	software	and	Adobe	Dynamic	Link.

Adobe	Creative	Suite	Web	Premium—an	integrated	software	solution	that	provides	creative	professionals	a	complete	solution	for	creating	interactive	Web	sites, applications,	user	interfaces,	presentations,	mobile	device	content	and	other	digital	experiences;	allows	users	to	prototype	Web	projects,	design	Web	site	assets,	build	Web experiences	and	efficiently	maintain	and	update	Web	content;	combines	Adobe	Acrobat	Pro,	Adobe	Contribute,	Adobe	Dreamweaver,	Adobe	Fireworks,	Adobe	Flash Professional,	 Adobe	 Illustrator	 and	 Adobe	 Photoshop	 Extended	 technologies,	 Version	 Cue,	 Adobe	 Bridge,	 Adobe	 Device	 Central,	 Adobe	 Acrobat	 Connect	 Web conferencing	software	and	Adobe	Dynamic	Link.

Adobe	Creative	Suite	Web	Standard—an	integrated	software	solution	that	provides	a	basic	toolkit	for	Web	designers	and	developers	to	prototype,	design,	develop	and maintain	Web	sites,	Web	applications,	interactive	Web	experiences	and	mobile	content;	combines	Adobe	Contribute,	Adobe	Dreamweaver,	Adobe	Fireworks	and	Adobe Flash	Professional	technologies,	Version	Cue,	Adobe	Bridge,	Adobe	Device	Central	and	Adobe	Acrobat	Connect	Web	conferencing	software.

Adobe	Dreamweaver—a	professional	software	development	application	used	by	designers	and	developers	to	create	a	broad	range	of	Web	solutions	for	publishing online	commerce,	customer	service	and	online	educational	content;	includes	capabilities	for	visually	designing	HTML	pages,	coding	HTML	and	application	logic	and working	with	application	server	technologies.

Adobe	Encore—professional	DVD	authoring	and	creation	software;	provides	a	comprehensive	set	of	design	tools	and	integration	with	other	Adobe	software	to	create a	streamlined	DVD	creation	workflow;	provides	ability	to	output	projects	to	recordable	DVD	formats	including	Blu-ray,	ensuring	a	wide	degree	of	playback	compatibility.

Adobe	Fireworks—a	professional	graphics	design	tool	that	allows	users	to	rapidly	prototype	and	design	Web	sites	and	Web	application	interfaces	while	giving professional	designers	and	developers	tools	for	creating	images	that	can	be	deployed	to	Web	browsers,	Adobe	Flash	Player	and	Adobe	AIR;	 integrates	with	Adobe Dreamweaver,	Adobe	Flash	and	Adobe	Photoshop,	and	supports	Adobe	AIR	application	development.

Adobe	Flash	Media	Interactive	Server—a	new	configuration	of	our	streaming	media	capabilities	to	deliver	secure,	high-quality	video	on	demand,	video	blogging	and messaging,	Web	conferencing	and	live	video	capabilities	that	can	be	viewed	via	Adobe	Flash	Player	and	Adobe	AIR;	provides	a	flexible	development	environment	for creating	and	delivering	interactive	media	applications;	utilized	by	many	industries,	including	media	and	entertainment,	telecommunications,	advertising,	government	and education.

Adobe	Flash	Media	Streaming	Server—a	new,	lower-cost	version	of	our	streaming	media	capabilities	that	can	be	used	to	deliver	live	streaming	and	video-on-demand streaming;	configured	for	lower	volume	streaming	of	content	that	is	suitable	for	small-	and	medium-	size	streaming	needs.

Adobe	Flash	Professional—provides	an	advanced	development	environment	for	creating	Internet	applications	which	integrate	animations,	motion	graphics,	sound, text	and	additional	video	functionality;	solutions	built	with	Adobe	Flash	Professional	are	deployed	via	the	Web	to	browsers	and	to	devices	that	run	Adobe	Flash	Player.

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

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

Adobe	InCopy—an	editorial	tool	for	collaboration	between	writers,	editors	and	copy-fitters;	Adobe	InCopy	is	a	companion	to	Adobe	InDesign.

Adobe	InDesign—a	page-layout	application	for	publishing	professionals;	based	on	an	open,	object-oriented	architecture	that	enables	Adobe	and	its	industry	partners to	deliver	powerful	publishing	solutions	for	magazine,	newspaper	and	other	publishing	applications.

Adobe	InDesign	Server—technology	for	third-party	systems	integrators	and	developers	to	use	for	building	design-driven,	server-based	publishing	solutions;	brings the	innovative	design	and	typography	features	of	InDesign	software	to	the	server	platform	and	enables	Adobe	partners	to	provide	new	levels	of	automation	and	efficiency	in high-end	editorial	workflows,	collateral	creation,	variable	data	publishing	and	Web-based	design	solutions.

Adobe	Media	Player—	A	cross-platform	media	playback	application	based	on	Adobe	AIR	that	allows	users	to	create	a	personal	catalog	of	television	shows,	movies and	podcasts	that	can	be	watched	online	and	offline.

Adobe	OnLocation—direct-to-disk	recording	and	monitoring	software	which	helps	generate	superior	quality	video	from	an	SD	or	HD	camera	connected	to	a	laptop computer;	formerly	called	DV	Rack.

Adobe	 Photoshop—provides	 photo	 design,	 enhancement	 and	 editing	 capabilities	 for	 print,	 the	Web	 and	 multi-media;	 used	 by	 graphic	 designers,	 professional photographers,	Web	designers,	professional	publishers	and	video	professionals,	as	well	as	amateur	photographers	and	digital	imaging	hobbyists.

Adobe	Photoshop	Elements—offers	powerful	yet	easy-to-use	photo	editing	functionality	plus	intuitive	organizing,	printing	and	sharing	capabilities	for	amateur photographers	and	hobbyists	who	want	to	create	professional-quality	images	for	print	and	the	Web.

Adobe	Photoshop	Express—a	new	Web-hosted	application	licensed	to	media	portals	for	photo	editing	and	sharing	that	utilizes	Adobe's	award-winning	imaging technologies.

Adobe	Photoshop	Extended—provides	the	capabilities	of	Adobe	Photoshop,	plus	additional	tools	for	editing	3D	and	motion-based	content	and	performing	image analysis;	targeted	for:		film,	video	and	multimedia	professionals;		graphic	and	Web	designers	using	3D	and	motion;	manufacturing	professionals;	medical	professionals; architects	and	engineers;	and	scientific	researchers.

Adobe	Photoshop	Lightroom—software	designed	for	professional	photographers,	it	addresses	their	unique	photography	workflow	needs	by	providing	more	efficient and	powerful	ways	to	import,	select,	develop	and	showcase	large	volumes	of	digital	images.

Adobe	Premiere	Elements—a	powerful	yet	easy-to-use	video-editing	software	for	home	video	editing;	provides	tools	for	hobbyists	to	quickly	edit	and	enhance	video footage	with	fun	effects	and	transitions	and	create	custom	DVDs	for	sharing	video	with	friends	and	family.

Adobe	Premiere	Express—new	Adobe	video	remix	and	video	editing	software	licensed	to	media	portals	such	as	MTV.com,	Photobucket	and	YouTube	to	provide consumers	with	embedded	access	to	industry	leading	Adobe	video	editing	and	enhancement	technologies.

Adobe	Premiere	Pro—professional	digital	video-editing	software	used	to	create	broadcast-quality	content	for	video,	film,	DVD,	multimedia	and	streaming	over	the

Adobe	Soundbooth—an	application	that	provides	video	editors,	designers	and	others	who	do	not	specialize	in	audio	with	the	tools	that	they	need	to	accomplish	audio- based	tasks	in	their	everyday	work,	such	as	removing	noise	from	recordings,	polishing	voiceovers	and	customizing	music	to	fit	a	video	or	animation	production.

Adobe	Ultra—software	used	to	transform	digital	video	and	HD	keying	into	a	practical	daily	production	tool	for	all	types	of	video	professional	users.

Adobe	Visual	Communicator—software	used	to	create	newscast-style	video	presentations	that	can	be	delivered	via	e-mail,	CD,	DVD,	PowerPoint	or	live	over	the

# Internet.

Flash	Video	Streaming	Service—either	through	direct	sales,	or	together	with	leading	CDN	providers,	Adobe	offers	hosted	services	for	streaming	on-demand	video for	the	Adobe	Flash	Player	runtime	across	high-performance	networks;	built	with	Adobe	Flash	Media	Server,	Flash	Video	Streaming	Service	provides	an	effective	way	to deliver	FLV	to	large	audiences	without	the	overhead	of	setting	up	and	maintaining	streaming	server	hardware	and	network.

Ovation—software	 which	 allows	 users to	 enhance	 Microsoft	 PowerPoint slides into	 a richer	 visual	 experience to	 help	 deliver	 more impactful information, presentations	and	messages.

Photoshop.com—an	online	hosted	service	that	provides	customers	with	the	ability	to	view,	enhance	and	share	their	photos	in	fun	ways;	also	provides	photo	backup services,	the	ability	to	obtain	seasonal	artwork	and	other	inspiring	ideas	that	can	be	utilized	to	enhance	the	photo	viewing	and	sharing	experience.

Scene7	On-Demand—provides	an	easy-to-use,	Web-based	system	to	upload,	manage,	enhance	and	publish	dynamic	rich	content;	used	by	many	leading	online	retail Web	sites	to	automate	the	production	and	availability	of	rich	media	experiences,	including	zoom,	dynamic	sizing,	personalization	and	interactive	dynamic	product	catalogs.

Vlog	It!—software	which	allows	users	to	easily	create	dynamic	video	blogs	containing	photos,	audio,	video	clips	and	narration.

# Business	Productivity	Solutions

The	focus	of	our	Business	Productivity	Solutions	business	is	to	provide	solutions	which	meet	the	needs	of	enterprises	and	governments	to	improve	their	productivity, help	automate	business	processes,	improve	collaboration	and	reduce	time-to-market	and	costs.		Within	our	Business	Productivity	Solutions,	we	categorize	our	opportunities and	our	results	into	two	distinct	businesses:		Knowledge	Worker	and	Enterprise.		Both	businesses	leverage	our	client	platforms	that	include	Adobe	Reader,	Adobe	Flash Player	and	Adobe	AIR.

# Knowledge	Worker	Market	Opportunity

As	part	of	our	Business	Productivity	Solutions	focus,	we	address	the	needs	of	the	knowledge	worker	customer	whom	we	define	as	someone	focused	on	creating	and disseminating	high-value	information	as	part	of	their	job	on	a	regular	basis.	Knowledge	workers	include	a	wide	variety	of	job	functions—such	as	accountants,	attorneys, administrative	assistants,	executives,	architects,	educators,	engineers,	graphic	designers,	insurance	underwriters,	software	developers	and	stock	analysts.	These	jobs	typically require	the	sharing	of	information,	either	in	an	information	dissemination	(one-way)	format,	or	in	a	collaborative	(multi-way)	format.

Knowledge	workers	must	create	information	and	content	from	a	variety	of	sources	and	software	applications,	and	be	able	to	exchange	this	information	within	a reliable	format	that	ensures	coworkers	and	constituents	can	reliably	and	securely	access	the	information.	When	appropriate,	this	information	often	needs	to	be	protected	or securely	managed	and	controlled.

Collaboration	among	knowledge	workers	can	occur	through	face-to-face	meetings,	via	phone	calls,	through	e-mail	or	through	Web	conferencing	technologies. Knowledge	workers	who	participate	in	collaborations	with	their	colleagues	may	be	located	in	offices	next	door	to	each	other,	or	in	different	parts	of	the	world.	These	team members	may	change	with	every	project	and	either	be	part	of	an	organization's	employee	base,	or	be	an	external	consultant	or	third-party	partner.

We	believe	there	is	a	significant	opportunity	to	provide	solutions	which	enable	knowledge	workers	to	communicate	and	collaborate	across	technical,	geographical	and social	boundaries,	both	inside	and	outside	of	their	companies.	We	believe	that	with	such	solutions,	users	can	collaborate	and	efficiently	manage	feedback	from	their colleagues	in	both	real	time	and	on-demand,	and	control	how,	when	and	by	whom	information	is	accessed.

Since	the	early	1990s,	our	Acrobat	family	of	products	has	provided	for	the	reliable	creation	and	exchange	of	electronic	documents,	regardless	of	platform	or application	source	type.	Users	can	collaborate	on	documents	with	electronic	comments	and	tailor	the	security	of	a	file	in	order	to	distribute	reliable	Adobe	PDF	documents that	can	be	viewed,	printed	or	interacted	with	utilizing	the	free	Adobe	Reader.	Available	in	different	versions	which	target	a	variety	of	user	needs,	Adobe	Acrobat	provides essential	electronic	document	capabilities	and	services	to	help	knowledge	workers	accomplish	a	wide	range	of	ad	hoc	tasks	involving	digital	documents	ranging	from	simple publications	to	forms	to	mission	critical	engineering	and	architectural	plans.	Although	Acrobat	has	achieved	strong	market	adoption	in	document-intensive	industries	such as	government,	financial	services,	pharmaceutical,	legal,	aerospace,	insurance	and	technical	publishing,	we	believe	there	are	tens	of	millions	of	users	who	need	capabilities such	as	those	provided	by	Acrobat	who	have	not	yet	licensed	an	Acrobat-based	solution.

In	addition	to	sharing	and	collaborating	on	documents	reliably	across	disparate	platforms	with	Acrobat,	we	believe	there	is	an	adjacent	market	opportunity	whereby knowledge	workers	will	increasingly	utilize	Web	conferencing,	document	co-authoring	and	Acrobat	hosted	service	capabilities	to	more	effectively	collaborate	and	consult with	their	colleagues,	partners	and	customers.	We	also	believe	businesses	will	increasingly	utilize	Web	conferencing	to	improve	how	they	train,	market,	sell	and	support their	products	and	solutions	to	their	customers.

Our	Adobe	Acrobat	Connect	Pro	product	provides	capabilities	via	Adobe	Flash	Player	for	live	Web	conferencing,	as	well	as	delivering	on-demand	rich	presentations through	 an	 on-premise	 server	 or	 as	 a	 hosted	 service.	 By	 integrating	 the	Web	 conferencing	 functionality	 of	Acrobat	 Connect	 Pro	 with	Acrobat,	Adobe	 Reader	 and Acrobat.com,	we	believe	we	can	extend	adoption	of	Web	conferencing	to	a	broader	potential	market	and	grow	the	use	of	such	technology	with	an	easy-to-adopt	business model.

Our	new	Acrobat.com	service	provides	centralized	online	file	sharing	and	storage	capabilities,	as	well	as	simple	PDF	creation,	an	online	word	processor	and	personal Web	conferencing	services	with	Adobe	ConnectNow	that	is	based	on	our	Acrobat	Connect	Web	conferencing	solution.		In	addition	to	complementing	our	Acrobat	desktop solutions,	Acrobat.com	also	serves	as	an	introductory	service	for	knowledge	workers	who	wish	to	utilize	PDF-creation	capabilities	and	the	Adobe	Reader,	but	have	not	yet licensed	an	Acrobat	desktop	solution.

# Knowledge	Worker	Business	Summary

Our	business	targeting	knowledge	workers	achieved	record	revenue	and	solid	year-over-year	growth	in	fiscal	2008.	The	largest	component	of	this	business	was revenue	generated	by	our	Acrobat	family	of	products.		Our	Acrobat	business	benefitted	from	continued	adoption	of	Adobe	Acrobat	version	8	throughout	the	year,	as	well	as licensing	of	the	new	release	of	version	9	beginning	in	the	third	quarter	of	the	year.

The	version	9	product	family	offers	enhanced	features	that	allow	workgroups	to	manage	a	range	of	essential	business	activities	such	as	assembling	documents	from multiple	 sources,	 controlling	 security	 and	 access	 to	 sensitive	 information,	 enabling	 the	 creation	 and	 filling	 out	 of	 intelligent	 electronic	 forms	 and	 more	 effectively collaborating	on	documents	and	projects.	In	addition,	the	Acrobat	9	family	of	products	allows	users	to	unify	a	wide	range	of	content	into	a	PDF	Portfolio.		Users	can assemble	documents,	drawings,	e-mail,	spreadsheets	and	rich	media	—	including	audio,	video,	3D	and	maps	—	in	a	single,	compressed	PDF	Portfolio.		Other	new	version	9 features	and	enhancements	include	the	ability	to:	create	interactive,	on-demand	presentations	using	Adobe	Presenter	software;	easily	share	video	in	PDF	using	FLV; improved	security	to	help	protect	and	control	access	to	PDF	documents;	permanently	remove	sensitive	information	through	the	use	of	redaction	tools	to	black	out	sensitive text,	illustrations,	or	other	information;	easily	create	and	manage	electronic	forms;	enable	anyone	using

the	free	Adobe	Reader	to	digitally	sign	documents,	participate	in	shared	document	reviews	and	save	forms	locally;	enable	others	to	access	design	data	such	as	2D	and	3D designs	that	include	layers,	dimensions	and	metadata;	view	and	interact	with	PDF	maps,	including	searching,	measuring	and	marking	up	geospatially	enabled	PDF	maps; and	manage	and	track	electronic	document	reviews	through	interactive	document	reviews	that	enable	participants	to	see	and	build	on	each	other's	comments,	which	can	be sorted	by	author,	date,	or	page.	These	enhanced	capabilities	helped	to	continue	the	increase	of	our	penetration	of	Acrobat	desktop	licenses	in	enterprises,	thereby	helping	our business	to	grow.

During	the	year,	continued	success	with	adoption	of	our	Creative	Suite	products	has	also	contributed	to	broader	adoption	of	Acrobat	in	the	creative	professional market.	 	Acrobat	Pro	version	8	and	Acrobat	Pro	version	9	are	 included	 in	four	of	 the	six	Creative	Suite	editions	and	utilization	of	Acrobat	prepress,	printing	and collaboration	functionality	is	a	critical	component	of	creative	customer	workflows.		As	such,	adoption	of	Acrobat	through	the	Creative	Suite	family	of	products	has	resulted in	an	increasing	amount	of	Acrobat	revenue	being	reported	in	our	Creative	Solutions	Segment	during	the	year.

As	indicated	earlier,	to	supplement	our	Acrobat	family	of	products,	we	introduced	a	beta	version	of	our	new	hosted	service	Acrobat.com	in	the	third	quarter	of	fiscal 2008.		We	experienced	strong	user	signup	for	accounts	on	Acrobat.com	and	believe	this	compelling	service	will	enhance	the	growth	capabilities	of	the	Acrobat	family	of products	in	the	coming	years.

Over	the	course	of	fiscal	2008,	we	also	continued	to	focus	on	the	Web	conferencing	market	opportunity	with	our	Acrobat	Connect	Pro	product	line	which	is	licensed by	customers	as	on-premise	server-based	software	or	as	a	hosted	service.	This	approach	focuses	on	charging	meeting	organizers	for	the	ability	to	host	meetings	and	allows for	participants	to	join	meetings	for	free	utilizing	Adobe	Flash	Player.

# Knowledge	Worker	Strategy

In	fiscal	2009,	we	plan	to	continue	to	market	the	benefits	of	our	knowledge	worker	solutions	to	small	and	medium-sized	businesses,	large	enterprises	and	government institutions	around	the	world.	With	our	Acrobat	family	of	products,	we	intend	to	continue	to	increase	our	seat	penetration	in	these	markets	through	the	utilization	of	our corporate	and	volume	licensing	programs.	We	intend	to	increase	our	focus	on	marketing	and	licensing	Acrobat	in	targeted	vertical	markets	such	as	education,	financial services,	telecommunications,	government,	manufacturing	and	the	architecture,	engineering	and	construction	markets	as	well	as	expanding	into	emerging	markets.

We	 also	 plan	 to	 continue	 to	 market	 the	 newest	 capabilities	 of	 our	Acrobat	 version	 9	 family	 of	 products,	 including	 PDF	 Portfolios	 and	 integrated	 real-time collaboration,	which	provide	additional	value	for	users	who	require	more	advanced	features	and	solutions.	 	In	addition,	we	 intend	 to	market	 the	easy-to-use	hosted capabilities	of	our	new	Acrobat.com	service	to	users	requiring	basic	and	easy-to-use	document	authoring,	collaboration	and	file	storage	capabilities.

With	our	Acrobat	Connect	Pro	product,	we	intend	to	increase	awareness	of	our	solution	in	targeted	horizontal	markets	such	as	training	and	marketing,	as	well	as targeted	vertical	markets	such	as	manufacturing,	financial	services	and	telecommunications.	We	also	intend	to	market	the	benefits	of	how	our	Acrobat	and	Acrobat	Connect Pro	solutions	can	be	used	together	to	meet	the	synchronous	and	asynchronous	collaboration	needs	in	the	marketplace.	With	the	broad	distribution	and	reach	of	our	free Adobe	Reader,	we	also	intend	to	expose	the	capabilities	of	Acrobat	Connect	Pro	to	potentially	new	users	with	a	simple-to-adopt	business	model	based	on	monthly	or	annual subscription	fees.

# Knowledge	Worker	Products

Adobe	Acrobat.com—new	service	(currently	in	beta	release)	which	provides	centralized	online	file	sharing	and	storage	capabilities,	as	well	as	simple	PDF	creation, an	online	word	processor	called	Buzzword	and	personal	Web	conferencing	services	with	Adobe	ConnectNow	that	is	based	on	our	Acrobat	Connect	Pro	Web	conferencing solution.

Adobe	Acrobat	Connect	Pro—a	rich	Web-based	communication	system	which	enables	organizations	to	reduce	the	costs	of	travel	and	increase	the	effectiveness	of online	training,	marketing	events,	sales	meetings	and	collaborative	Web	conferencing	solutions	which	are	instantly	accessible	by	customers,	partners	and	employees	using Adobe	Flash	Player;	consists	of	a	core	Connect	Events	Server	or	hosted	service,	and	modules	that	provide	specific	application	functionality,	including	Connect	Training	and Connect	Events;	can	be	deployed	with	either	some	or	all	of	these	components	together;	Connect	Training	allows	organizations	to	build	a	complete	online	training	system with	Microsoft	PowerPoint	presentations

that	include	surveys,	analysis,	course	administration	and	content	management;	Connect	Events	allows	users	to	provide	seminar	and	training	sessions	as	well	as	to	conduct business	presentations	through	the	Web.

Adobe	Acrobat	Standard—creates	secure,	reliable	and	compact	Adobe	PDF	documents	from	desktop	authoring	applications	such	as	Microsoft	Office	software, graphics	applications	and	more;	supports	automated	collaborative	workflows	with	a	rich	set	of	commenting	tools	and	review	tracking	features;	includes	everything	needed to	create	and	distribute	rich	electronic	documents	that	can	be	viewed	easily	within	leading	Web	browsers	or	on	computer	desktops	via	the	free	Adobe	Reader.

Adobe	Acrobat	Pro—in	addition	to	all	the	capabilities	of	Acrobat	Standard,	Acrobat	Pro	delivers	specialized	capabilities	for	creative	professional	and	engineering users,	such	as	pre-flighting,	color	separation	and	measuring	tools;	also	allows	users	to	insert	FLV	or	H.264	video	for	direct	playback	in	Adobe	Acrobat	and	Adobe	Reader, create	dynamic	XML	forms	with	Adobe	LiveCycle	Designer	ES	and	create	PDF	documents	that	enable	Adobe	Reader	users	to	digitally	sign	PDF	documents.

Adobe	Acrobat	Pro	Extended—in	addition	to	all	the	capabilities	of	Acrobat	Pro,	Acrobat	Pro	Extended	enables	collaboration	between	extended	teams	of	designers and	engineers	to	more	securely	and	reliably	communicate,	visualize	and	document	architectural	and	manufacturing	designs	using	3D	data;	allows	users	to	insert	and	publish 3D	designs	from	major	CAD	applications	in	Adobe	PDF	documents	that	can	easily	be	shared	with	suppliers,	partners	and	customers	using	the	free	Adobe	Reader	software; Acrobat	Pro	Extended	also:		allows	users	to	easily	add	audio,	video	and	quizzes	to	PowerPoint	slides	to	create	rich,	interactive	presentations	with	Adobe	Presenter;	enables conversion	of	a	variety	of	video	formats	to	FLV	for	playback	in	PDF;	and	enables	the	creation	of		PDF	maps	through	the	importing	geospatial	files	that	can	retain	metadata and	coordinates.		Acrobat	9	Pro	Extended	includes	Adobe	LiveCycle	Designer	ES,	Adobe	Presenter,	Adobe	3D	Reviewer	and	Adobe	3D	Capture	Utility	for	UNIX.

Adobe	Document	Center—a	hosted	service	that	enables	businesses	to	secure	and	manage	Adobe	PDF	documents	and	other	common	business	document	files	such	as those	in	Microsoft	Office	formats.

Create	Adobe	PDF	Online—a	Web-based	subscription	service	that	provides	for	the	easy	conversion	of	Microsoft	Office	documents	and	other	application	files	to Adobe	PDF	for	the	secure	and	reliable	sharing	of	rich	electronic	documents	that	can	be	viewed	easily	within	leading	Web	browsers	or	on	computer	desktops	via	the	free Adobe	Reader.

# See	below	for	other	Knowledge	Worker	related	products.

# Enterprise	Opportunity

Enterprises	are	under	increasing	pressure	to	save	money,	offer	improved	customer	service,	adhere	to	regulatory	requirements	and	leverage	existing	investments	in core	systems.	As	a	means	to	address	these	issues,	a	critical	component	of	an	organization's	business	processes	is	the	need	to	interact	with	data	stored	in	enterprise applications.	As	this	need	expands	beyond	the	core	users	of	those	applications,	adapting	systems	to	accommodate	a	diverse	group	of	users	–	including	those	within	and those	external	to	the	organization	–	has	become	an	expensive	and	time-consuming	endeavor.	The	outcome	is	a	proliferation	of	manual	workarounds	that	result	in	process inefficiencies,	delays	and	poor	quality	of	information.

In	addition,	enterprises	have	built	Web	applications	which	enjoy	the	reach	of	the	Web	but	often	fail	to	deliver	a	user	interface	with	the	ease	of	use	and	richness	that users	expect.	This	impedes	utilization	of	these	applications	and	increases	training	costs,	and	reduces	the	overall	return	on	investment	("ROI")	that	enterprises	expect. Organizations	are	now	looking	to	Rich	Internet	Applications	("RIA")	to	boost	their	ROI	for	these	Web	applications	by	combining	a	rich	graphical	application	interface	with the	universal	reach	of	the	Web.

We	believe	significant	opportunities	exist	to	help	enterprises	address	these	issues	by	making	their	business	processes	more	efficient	and	their	Web	applications	more engaging.	To	address	these	opportunities,	we	offer	Adobe	LiveCycle	solutions	to	securely	extend	the	reach	of	information,	processes	and	services	to	engage	with	customers and	constituents.	Our	solutions	 leverage	our	Adobe	Reader	and	Adobe	Flash	Platform	which	help	businesses	and	government	agencies	 inspire	commitment	 in	 their customers	and	constituents	by	engaging	them	—	anywhere,	anytime	and	in	any	medium	through	our	universal	clients	and	application	solutions.

Adobe	Reader	and	our	Adobe	Flash	Platform	ensure	reliable,	secure	and	rich	application	experiences	across	browsers,	desktops	and	devices.	The	platform	provides developers	with	an	RIA	programming	model	to	integrate	and	optimize	workflows	and	a	server	software	framework	to	simplify	integration	and	leverage	existing	enterprise infrastructures.	We	also	offer	services	and	other	software	components	to	accelerate	the	creation	of	compelling,	relevant	and	actionable	applications,	either	through	RIAs	or through	intelligent	electronic	documents	based	on	Adobe	PDF.

We	believe	Adobe	Reader	and	our	Adobe	Flash	Platform	revolutionize	how	enterprises	and	government	agencies	present,	deliver,	consume	and	 interact	with information	 and	 content.	 By	 providing	 an	 integrated	 client-server	 framework,	 toolset	 and	 server-side	 process	 orchestration	 engine	 for	 developers,	 designers	 and	 IT organizations,	we	believe	our	solutions	allow	our	customers	to:

· Engage	their	constituents	with	compelling	experiences	and	intelligent	documents—providing	them	with	the	ability	to	act	upon	information	or	tasks	presented	to them	for	improved	and	effective	collaboration;

· Streamline	and	accelerate	document-based	processes	so	more	work	gets	done;

· Simplify	the	creation	and	deployment	of	compelling,	relevant	and	actionable	applications;

· Augment	existing	enterprise	infrastructures	to	deliver	the	next	level	of	engagement	with	their	stakeholders;

· Implement	solutions	which	adhere	to	security	and	regulatory	compliance	requirements;

· Scale	these	solutions	needs	regardless	of	the	size	of	their	constituent	populations;	and

· Leverage	Adobe	Reader	and	Adobe	Flash	Platform	to	reach	people	inside	and	outside	of	their	organizations,	and	across	all	desktops	and	devices.

Although	 our	 solutions	 address	 the	 needs	 of	 a	 diverse	 set	 of	 enterprise	 customers,	 we	 focus	 primarily	 on	 key	 vertical	 industries	 such	 as	 financial	 services, government,	telecommunications,	manufacturing	and	life	sciences.		For	these	customers,	we	offer	comprehensive,	scalable,	secure	and	reliable	server	products	and	tools	to develop	applications	tailored	to	their	specific	information	and	business	process	requirements.

Adobe	LiveCycle	Enterprise	Suite	("ES")	brings	together	Adobe	PDF	and	Adobe	Flash	Platform	technologies	to	provide	capabilities	which	allow	businesses	and enterprises	to	more	effectively	engage	customers,	constituents,	partners	and	employees	in	key	business	processes.		LiveCycle	ES	software	is	an	integrated	J2EE	server solution	 that	blends	data	capture,	process	management,	 information	security,	document	generation	and	content	services	 to	help	create	and	deliver	rich	and	engaging applications	that	reduce	paperwork,	accelerate	decision-making	and	help	ensure	regulatory	compliance.

Key	differentiating	features	 in	LiveCycle	ES	allow	developers	 to	build	more	engaging	experiences	 that	scale	from	paper	forms	 to	rich	and	 interactive	online applications,	protect	sensitive	information	and	extend	business	processes	that	span	from	data	capture	through	process	orchestration	to	document	generation	—	inside	and outside	an	organization's	firewall.

A	key	enhancement	in	LiveCycle	ES	is	the	fusion	of	Adobe	PDF	with	our	Adobe	Flex	technologies	which	utilize	the	Flash	file	format	and	leverage	our	widely-used Adobe	Flash	Player	technology.		With	Flex,	developers	are	able	to	combine	the	rich	user	interface	of	desktop	software	with	the	reach	and	ease	of	deployment	of	the	Web and	the	processing	power	of	desktop	computers.	This	combination	enables	the	delivery	of	more	complex	interactions	than	are	currently	supported	by	the	Web	browser model.	Flex	applications	extend	the	server-based	object	model	to	client	systems,	improving	interactivity	by	eliminating	the	constant	page	refreshes	and	context	switches	that users	frequently	experience.	As	a	result,	Flex	applications	enable	organizations	to	provide	users	with	a	dramatically	improved	experience	that	supports	the	manipulation	of data	and	information	in	ways	that	are	impractical	in	a	traditional	browser-based	environment.

The	other	primary	component	of	our	LiveCycle	ES	solutions	utilizes	Adobe	PDF	documents	which	interact	with	core	business	applications	and	integrate	information contained	in	those	documents	into	business	processes.	In	addition	to	capturing	the	necessary	fidelity	for	electronic	forms,	Adobe	PDF	documents	are	"intelligent"	–	they retain	the	best	characteristics	of	paper	documents,	such	as	a	familiar	look,	but	add	powerful	business	logic	capabilities	such	as	data	calculation	and	validation	and	automated routing	instructions.	In	addition,	arbitrary	data	(including	XML-based	data)	can	be	embedded	inside	of	intelligent	PDF	documents	for	use	or	access	in	a	business	process. These	features	allow	for	more	efficient

interaction	with	enterprise	applications	while	still	providing	the	ability	for	people	to	manually	access	and	interact	with	the	data	when	necessary.

Our	LiveCycle	ES	products	leverage	our	Adobe	Reader	software—with	more	than	500	million	distributed	copies	of	Adobe	Reader,	we	have	created	a	platform	for extending	high	value	business	processes	to	a	wide	variety	of	end	users.	Adobe	Reader	is	available	on	the	most	common	operating	system	platforms	free	of	charge,	including Microsoft	Windows,	Apple	Mac	OS,	Linux,	various	Unix-based	platforms	and	portable	device	systems	such	as	Palm	OS,	Pocket	PC	and	the	Symbian	operating	system	for cellular	phones.	As	a	universal	client,	Adobe	Reader	enables	users	inside	and	outside	the	firewall	to	interact	with	intelligent	PDF	documents	on	most	platforms,	including desktops,	laptops,	PDAs,	mobile	phones	and	kiosks,	regardless	of	the	application	used	to	author	the	document.

# Enterprise	Business	Summary

In	fiscal	2008,	we	generated	record	revenue	in	our	Enterprise	business	with	Adobe	LiveCycle	as	we	continued	to	achieve	strong	adoption	in	targeted	markets	such	as government,	financial	services	and	manufacturing.		Helping	to	drive	this	success	was	the	release	of	a	substantial	upgrade	to	our	LiveCycle	ES		product	line	during	the	year. This	release	 included	numerous	usability	and	performance	 improvements	as	well	as	 two	new	product	modules:	 	Adobe	LiveCycle	Content	Services	ES	and	Adobe LiveCycle	PDF	Generator	3D	ES.		In	addition,	our	integration	of	Adobe	LiveCycle	with	other	software	vendors'	platforms,	including	those	from	SAP	AG	and	Parametric Technology	Corporation	("PTC"),	helped	to	further	drive	adoption	during	the	year.

# Enterprise	Strategy

In	fiscal	2009,	we	will	continue	to	focus	on	offering	more	complete	enterprise	server-based	solutions	targeting	the	needs	of	governments	and	enterprises	worldwide. We	wish	to	help	these	customers	develop	and	deliver	self-service	and	assisted-service	Web-based	applications	that	blend	rich	user	interfaces	and	documents	with	data capture,	document	collaboration,	process	management	and	document	generation	capabilities	that	are	easy	to	use.	We	strive	to	provide	solutions	which	are	customer-centric and	help	the	constituents	of	our	customers	work	together	on	complex	processes	and	bridge	the	digital	and	paper-based	environments,	and	do	so	by	providing	capabilities	that are	accessible	by	anyone.	We	intend	to	provide	such	solutions	directly	through	our	consulting	services	organization,	as	well	as	together	with	software	partners	such	as	SAP AG	and	PTC,	along	with	global	and	regional	systems	integrators	we	partner	with	that	deliver	comprehensive	solutions	to	their	customers.

We	will	continue	to	focus	our	go-to-market	efforts	on	markets	such	as	financial	services,	government,	manufacturing	and	life	sciences	and	work	to	augment	our	sales model	to	include	more	systems	integrator	partners.		We	will	also	work	to	enhance	our	solutions	offerings	through	investments	in	new	software	as	a	service	capabilities	for our	enterprise	server	product	family.

# Enterprise	Products

# Data	Capture

Adobe	LiveCycle	Barcoded	Forms	ES—server-based	software	application	which	enables	organizations	to	accurately	capture	user-supplied	information	from	fill-and- print	paper	forms	that	uses	proven	and	dynamic	2D	barcode	technology	online	and	offline	to	automate	the	extraction	of	data	from	paper	forms	and	deliver	it	to	core	systems for	processing;	dramatically	reduces	costs,	errors	and	time	compared	to	manual	data	entry	and	solutions	based	on	optical	character	recognition;	barcodes	are	initially	set	up through	creation	of	the	form	with	Adobe's	Designer	application;	after	the	form	is	printed,	signed	and	returned	by	users	of	the	form,	the	barcode	on	the	form	is	scanned	and decoded,	and	form	data	obtained	from	the	barcode	is	routed	to	the	appropriate	enterprise	application	through	Adobe's	LiveCycle	server	products.

Adobe	LiveCycle	Data	Services	ES—high-performance,	scalable	and	flexible	framework	that	streamlines	the	development	of	RIAs	using	Adobe	Flex	and	Adobe AIR;	abstracts	the	complexity	required	to	create	server	push–based	applications	and	supports	a	rich	set	of	features	to	create	real-time	solutions;	utilizes	powerful	data services	and	simplifies	data	management	problems	such	as	tracking	changes,	synchronization,	paging	and	conflict	resolution;	deployed	as	a	standard	J2EE	Web	application, which	enables	customers	to	leverage	their	existing	infrastructure.

Adobe	LiveCycle	Forms	ES—server-based	software	application	that	organizations	can	use	to	cost-effectively	and	securely	extend	their	core	business	processes beyond	their	enterprise	system;	enables	customers	to	create	and	deploy	XML-based	form	templates	as	PDF,	SWF,	or	HTML	for	use	with	Adobe	Reader	or	Adobe	Flash Player	software,	or	with	Web	browsers;	provides	for	the	capture	of	data	from	submitted	forms	and	the	transfer	of	the	data	directly	into	an	organization's	core	business systems,	thereby	streamlining	form-driven	business	processes	and	improving	data	accuracy.

Adobe	LiveCycle	Reader	Extensions	ES—server-based	software	application	which	lets	enterprises	easily	share	interactive	Adobe	PDF	documents	with	external parties	without	requiring	recipients	of	the	documents	to	purchase	Acrobat	software	that	normally	would	be	necessary	to	interact	with	the	Adobe	PDF	documents	they receive;	unlocks	features	on	an	individual	Adobe	PDF	document	by	document	basis	so	that	when	such	a	file	is	opened	in	the	free	Adobe	Reader,	users	have	access	to	tools that	normally	would	not	be	available	in	Adobe	Reader,	such	as	reviewing	and	commenting	functions,	digital	signatures	to	electronically	sign	PDF	documents,	embedding file	attachments,	enabling	database	and	Web	service	capabilities,	and	the	ability	to	fill	in	form	data,	submit	and	save	electronic	documents	locally.

# Information	Assurance

Adobe	LiveCycle	Digital	Signatures	ES—server-based	software	application	that	helps	organizations	automate	the	processing	of	electronic	documents	by	providing batch-based	capabilities	to	digitally	sign	and	certify	Adobe	PDF	documents,	validate	digital	signatures	and	encrypt/decrypt	Adobe	PDF	documents;	safeguards	information when	it	leaves	a	company's	network	and	integrates	with	existing	public	key	infrastructures.

Adobe	LiveCycle	Rights	Management	ES—server-based	software	application	that	helps	organizations	manage	information	access	securely	with	dynamic,	persistent document	control;	allows	for	access	control	and	auditing	of	Adobe	PDF,	Microsoft	Word,	Microsoft	Excel,	Microsoft	PowerPoint,	PTC	Pro/ENGINEER,	Dassault	CATIA and	Lattice	XVL	CAD	document	usage	inside	or	outside	the	firewall,	online	or	offline	and	across	multiple	document	platforms;	lets	organizations	know	when	a	document has	been	viewed,	printed	or	altered	and	restricts	access	so	that	only	intended	recipients	can	open,	use	and	forward	a	document;	allows	for	previously	granted	document permissions	and	access	to	be	revoked;	leverages	Adobe	Acrobat	and	Adobe	Reader	and	other	client	plug-in	software	to	author	and	view	protected	documents.

# Document	Output

Adobe	LiveCycle	Output	ES—server-based	solution	which	supports	on-demand	document	processes	including	the	generation	of	documents	such	as	correspondence, confirmations,	bids,	or	shipping	 labels;	provides	capabilities	 to	merge	XML	data	from	back-end	systems	with	Adobe	LiveCycle	Designer	ES	 templates	 to	generate documents	in	PDF,	PDF/A,	PostScript,	PCL,	or	Zebra	label	formats;	customers	can	customize	electronic	document	packages	by	combining	newly	generated	PDF	documents with	existing	files	from	document	repositories;	customers	can	also	convert	PDF	documents	to	print	or	image	file	formats	and	then	route	them	automatically	to	support	direct server-based	printing	or	archiving	operations.

Adobe	LiveCycle	PDF	Generator	ES—server-based	software	which	automates	the	creation,	assembly,	distribution	and	archival	of	PDF	documents	in	combination with	critical	business	processes;	converts	a	wide	range	of	native	and	standard	file	formats,	and	can	combine	newly	created	PDF	documents	with	existing	files	or	pages	to assemble	customized	PDF	packages;	supports	direct	server-based	PDF	printing	or	can	convert	PDF	documents	to	a	wide	variety	of	formats,	including	image	formats	and PDF/A.

Adobe	LiveCycle	PDF	Generator	3D	ES—server-based	software	which	extends	Adobe	LiveCycle	PDF	Generator	ES	with	support	for	the	conversion	and	integration of	complex	2D	and	3D	CAD	design	and	engineering	product	data	into	a	single	PDF	document	that	can	be	shared	using	the	Adobe	Reader	software	without	requiring	a	CAD application	or	viewer.

Adobe	LiveCycle	Production	Print	ES—server-based	solution	that	performs	high-volume	jobs	through	efficient	batch	processes,	generating	documents	such	as statements,	invoices,	contracts,	or	welcome	kits;	merges	XML,	ASCII	or	other	data	types	from	back-end	systems	with	Adobe	LiveCycle	Designer	ES	templates	to	generate documents	in	a	broad	range	of	print	or	electronic	formats	to	support	high	volume	production	requirements;	enables	customers	to	print	document	packages	by	collecting multiple	jobs	over	time	and	then	grouping	them	to	minimize	mailing	costs.

# Process	Management

Adobe	LiveCycle	Business	Activity	Monitoring	ES—software	that	allows	administrators	and	process	participants	to	quickly	identify	bottlenecks,	check	progress	and view	other	process	information	related	to	business	transactions;	comes	in	two	versions:		Adobe	LiveCycle	Business	Activity	Monitoring	("BAM")	ES	Standard,	which allows	for	the	monitoring	of	all	LiveCycle	processes	with	16	out-of-the-box	dashboards	and,	Adobe	LiveCycle	BAM	ES	Extended,	which	adds	the	ability	to	extend	Adobe LiveCycle	BAM	ES	to	other	enterprise	business	systems	so	that	users	can	monitor	business	processes	inside	and	outside	the	LiveCycle	environment.

Adobe	LiveCycle	Process	Management	ES—server-based	process	management	application	that	allows	organizations	to	orchestrate	people,	systems,	content	and business	rules	into	streamlined,	end-to-end	processes	that	are	accessible	to	process	participants	through	engaging	user	interfaces,	online	or	offline;	provides	out-of-box dashboards	to	help	users	gain	insights	into	business	operations	in	real	time	and	management	tools	to	fix	day-to-day	operational	problems	and	make	long-term	process improvements.

# Content	Services

Adobe	LiveCycle	Content	Services	ES—offers	a	library	of	services	that	can	be	used	with	other	LiveCycle	solution	components	to	create	content-rich	engagement applications	whereby	end	users	can	share	and	collaborate	on	content	development	in	content	spaces	as	part	of	a	company's	business	processes;	supports	check-in/check-out capabilities,	keeps	a	complete	audit	history	of	all	document	actions	and	provides	a	fully	integrated	set	of	content	services	ranging	from	an	enterprise	content	repository	to social	collaboration	tools	such	as	enterprise	forums;	also	includes	team	collaboration	capabilities	such	as	forums	and	discussions,	and	provides	Microsoft	Office	plug-ins that	enable	users	to	interact	with	the	process	engine	and	content	repository	using	Microsoft	Word	and	Microsoft	Excel.

Adobe	LiveCycle	ES	Connectors	for	ECM—solutions	which	enables	Adobe	LiveCycle	customers	to	connect	their	LiveCycle	applications	with	other	industry-leading enterprise	content	management	("ECM")	systems,	such	as	EMC	Documentum,	IBM	FileNet	and	IBM	Content	Manager.

# Other	Knowledge	Worker	and	Enterprise	Related	Products

Adobe	Central	Pro	Output	Server—a	server-based	software	application	for	document	generation	that	allows	organizations	to	create	personalized,	customer-facing documents	from	any	data	source—including	legacy,	line-of-business,	ERP	or	CRM	applications;	merges	data	with	an	electronic	document	template	using	a	powerful processing	engine	to	dynamically	generate	electronic	documents	such	as	purchase	orders,	invoices,	statements	and	checks	for	delivery	via	Adobe	PDF,	the	Web,	e-mail,	fax or	print;	works	with	Adobe	Output	Designer	which	is	a	companion	tool	used	to	create	sophisticated	document	templates.

Adobe	LiveCycle	Designer	ES—desktop	software	application	which	simplifies	the	creation	and	maintenance	of	intelligent	XML	based	forms	for	deployment	as Adobe	PDF	forms,	HTML	applications	and	Flash	based	RIAs;	provides	an	intuitive,	graphical	design	tool	for	creating	XML	templates	that	look	exactly	as	the	author intended	and	previewing	them	before	deployment;	it	also	simplifies	adding	intelligence	to	documents,	such	as	business	and	routing	logic,	and	binding	form	fields	to	arbitrary XML	schemes	for	seamless	integration	with	enterprise	applications.

Adobe	Output	Designer—a	design	tool	that	allows	users	to	create	electronic	document	templates	for	use	with	Adobe	solutions	for	document	generation;	aids	in	the creation	of	electronic	documents	that	exactly	replicate	existing	paper	documents.

Adobe	 Output	 Pak	 for	 mySAP.com—a	 SAP-certified	 server-based	 software	 application	 for	 document	 generation	 that	 enables	 organizations	 to	 optimize	 their investment	in	their	SAP	solution	by	creating	personalized,	professional-looking,	customer-facing	documents;	provides	an	easy,	fast	and	cost-effective	way	to	create	and maintain	documents	for	the	SAP	environment;	integrates	directly	with	an	SAP	system	to	extract	information	which	is	merged	with	a	document	template	that	defines	the layout	and	formatting	of	the	document;	output	can	be	in	a	variety	of	formats,	including	Adobe	PDF,	print,	fax,	e-mail	and	the	Web.

Adobe	Reader—software	for	reliable	reviewing	and	printing	of	Adobe	PDF	documents	on	a	variety	of	hardware	and	operating	system	platforms;	when	used	with certain	Adobe	PDF	documents	created	with	Adobe	LiveCycle	Reader

Extensions	Server,	Adobe	Acrobat	Pro	or	Adobe	Acrobat	Pro	Extended,	Adobe	Reader	also	can	be	used	 to	enable	collaborative	workflows	 through	 the	addition	of collaboration	features	built	into	the	Adobe	PDF	file;	these	features	include	review	and	markup	tools	that	normally	are	not	present	in	the	standard	Adobe	Reader	product.

Adobe	Web	Output	Pak—a	server-based	software	application	for	document	generation;	creates	documents	in	PDF	and	HTML	for	presentation	on	the	Web	and	in Wireless	Markup	Language	for	presentation	to	a	wireless	device;	allows	users	to	personalize	and	control	the	look	of	documents	based	on	the	data	the	documents	contain.

BlazeDS—open	source	server-based	Java	remoting	and	Web	messaging	technology	that	enables	developers	to	easily	connect	to	back-end	distributed	data	and	push data	in	real-time	to	Adobe	Flex	and	Adobe	AIR	applications	for	more	responsive	RIA	experiences;	previously	available	as	part	of	Adobe	LiveCycle	Data	Services	ES, BlazeDS	technologies	is	now	freely	available	to	developers.

# Platform	Segment

Central	to	our	long-term	strategy	is	our	Adobe	Flash	Platform	which	enables	the	development	of	products	and	solutions	that	dramatically	improves	how	Web developers	and	businesses	engage	with	their	customers.	The	Adobe	Flash	Platform	includes	client	and	developer	technologies,	such	as	Adobe	Flash	Player,	Adobe	Flash Lite,	Adobe	AIR,	Adobe	Flex	and	Adobe	Flex	Builder,	and	also	encompasses	products	and	technologies	created	and	managed	in	other	Adobe	segments.

# Platform	Opportunity	and	Business	Summary

Our	Platform	Business	Unit	focuses	on	the	development,	marketing	and	licensing	of	these	Adobe	Flash	Platform	technologies.		We	have	achieved	penetration	of Adobe	Flash	Player	on	more	than	98	percent	of	Web-connected	personal	computers	–	making	it	the	most	widely	distributed	rich	client	software	in	the	world.	In	addition,	the cumulative	distribution	of	Adobe	Flash	Lite,	which	is	licensed	by	mobile	handset	and	consumer	electronic	device	manufacturers,	is	rapidly	approaching	one	billion	devices as	of	the	Fall	of	2008.

The	broad	reach	of	these	Adobe	Flash	Platform	technologies	allows	us	to	rapidly	innovate	with	our	desktop	software	and	client	runtime	solutions	–	enabling	our customers	 to	deliver	new	and	more	engaging	experiences	 to	 their	constituents	 that	 leverage	 the	 latest	advancements	 in	operating	systems,	hardware	and	rich	media technologies.

Due	to	the	success	and	frequent	electronic	downloads	of	our	client	technologies,	we	have	generated	revenue	through	OEM	relationships	with	companies	such	as Google,	where	we	include	their	technologies	as	part	of	the	download	offerings	of	our	client	technologies.		In	fiscal	2008,	this	OEM	revenue	represented	a	significant	part	of the	overall	revenue	we	reported	in	our	Platform	segment.

In	the	fourth	quarter	of	fiscal	2008,	we	released	Adobe	Flash	Player	version	10.		Building	on	the	broad	success	of	version	9,	Flash	Player	10	adds	new	capabilities	for creating	special	effects,	native	3D	transformations	and	animations.		It	also	provides	advanced	audio	processing,	graphics	processing	unit	performance	acceleration	and enhanced	text	layout	options	and	control.

In	the	fourth	quarter	of	fiscal	2008,	responsibility	for	the	development	and	marketing	of	our	mobile	client	solutions	has	been	transferred	to	our	Platform	Business Unit.		As	hundreds	of	millions	of	people	around	the	world	adopt	Internet-connected	hand-held	phones	and	devices	as	a	means	to	communicate,	collaborate	and	entertain,	as well	as	consumer	electronic	devices	such	as	digital	cameras,	game	consoles,	music	players	and	electronic	educational	toys,	we	believe	a	significant	opportunity	exists	to offer	our	Adobe	Flash	Platform	technologies	for	these	devices	to	provide	for	the	creation	and	delivery	of	rich	content,	user	interfaces	and	data	services	which	allow	users	to engage	with	information	more	easily	and	effectively.

We	achieved	record	revenue	results	and	strong	unit	adoption	of	our	client	software	on	mobile	and	consumer	electronic	devices	during	the	fiscal	year.	As	of	October 2008,	our	Flash	Lite	client	has	been	installed	on	more	than	800	million	devices	worldwide	–	on	over	430	different	mobile	handset	models	and	over	140	different	device models.	This	success	has	been	driven	by	hardware	OEM	relationships	with	companies	such	as	Nokia,	Sony/Ericsson,	LG	Electronics,	Motorola	and	Samsung.

In	addition	to	key	mobile	OEM	relationships	we	have	established,	we	provide	Flash	Lite	for	Qualcomm	BREW	on	the	Verizon	network.	This	relationship	serves	to broaden	the	Flash	Lite	ecosystem	in	the	United	States,	driven	by	the	ability	for	Verizon	subscribers	to	view	Flash	based	content	on	their	BREW	enabled	handsets.

During	the	year,	we	also	achieved	strong	unit	adoption	of	our	Flash	Lite	client	on	consumer	electronics	devices.	Customers	have	licensed	our	Flash	Lite	for distribution	on	devices	such	as	the	Nintendo	Wii	and	the	Sony	PlayStation	Portable	and	PlayStation	devices.

As	part	of	our	strategy	to	drive	broad	adoption	of	the	Adobe	Flash	Platform	on	non-PC	devices,	in	May	of	2008	we	announced	the	Open	Screen	Project.		Together with	other	industry	leaders	such	as	ARM,	BBC,	Cisco,	Intel,	Comcast,	Nokia,	Marvell,	Motorola,	MTV	Networks,	NBC	Universal,	NTT	DoCoMo,	Qualcomm,	Sony Ericsson	and	Verizon,	we	intend	to	drive	the	industry	towards	a	consistent,	rich	Internet	experience	that	enables	developers	and	designers	to	seamlessly	publish	content	and applications	across	connected	devices.		To	achieve	this	goal,	the	Open	Screen	Project	will	utilize	Adobe's	Flash	Platform	technologies	such	as	Adobe	Flash	and	Adobe	AIR as	a	foundation	for	improved	Web	browsing	and	the	delivery	of	RIAs	on	mobile	handset	and	consumer	electronic	devices.

Another	major	focus	of	our	Platform	team	is	to	broaden	the	reach	and	viability	of	the	Adobe	Flash	Platform	through	the	delivery	of	our	new	cross-platform	client named	Adobe	AIR.		Based	on	Flash,	PDF	and	HTML	technologies,	Adobe	AIR	enables	the	creation	and	delivery	of	Web-enabled	desktop	applications	that	run	outside	of	a Web	browser.		Adobe	AIR	based	applications	extend	today's	Web	browser-based	applications	to	have	the	power	and	utility	of	desktop	applications	with	capabilities	such	as access	to	the	local	file	system,	alerts	and	notifications,	and	the	ability	to	work	offline	and	then	synchronize	data	when	the	application	has	online	access	again.		Developers	of Adobe	AIR	applications	are	able	to	create	persistent,	branded	desktop	experiences	which	can	be	developed	using	standard	Web	technologies	such	as	HTML,	Ajax,	Flash and	PDF,	as	well	as	common	audio	and	video	formats.

Adoption	of	Adobe	AIR	has	been	substantial	in	its	first	six	months	of	availability	in	fiscal	2008.		As	of	January	2009,	there	were	more	than	100	million	AIR installations	along	with	more	than	one	million	downloads	of	the	AIR	SDK	developer	tools	used	to	create	these	applications.		Companies	such	as	eBay,	DirecTV,	The NASDAQ	Stock	Market,	FOX	News,	Salesforce.com,	The	New	York	Times,	AOL,	Atlantic	Records	and	the	BBC	have	already	deployed	commercial	applications	based	on Adobe	AIR.

Our	Platform	team	also	focuses	on	the	development	and	delivery	of	our	developer	solutions	such	as	Flex	Builder	and	ColdFusion.	These	solutions	ensure	reliable, secure	and	rich	application	experiences	across	the	broadest	range	of	browsers,	operating	systems	and	devices.

Our	Flex	Builder	integrated	development	environment	("IDE")	is	used	by	developers	to	create	and	deploy	rich	browser	and	Adobe	AIR	based	applications.		With	the robust	IDE	of	Flex	Builder,	as	well	as	comprehensive	charting	tools	and	components,	we	believe	it	is	the	most	efficient	means	for	developers	to	create	RIAs	that	deploy seamlessly	across	all	browsers	and	operating	systems.		With	the	release	of	Adobe	AIR	version	1	in	early	2008,	our	Flex	Builder	revenue	grew	during	the	year	as	more developers	utilized	it	to	create	Adobe	Flash	and	Adobe	AIR	based	applications.

Our	ColdFusion	product	line	provides	fast	and	easy	ways	to	build	and	deploy	powerful	Internet	applications.	Developers	can	extend	or	integrate	ColdFusion	with Java	or	.NET	applications,	connect	to	enterprise	data	and	applications,	create	and	interact	via	Web	services,	or	interface	with	SMS	on	mobile	devices	or	instant	messaging clients.	ColdFusion	can	also	be	used	for	business	reporting,	rich-forms	generation,	printable	document	generation,	full-text	search	and	graphing	and	charting—enabling customers	to	more	fully	engage	their	constituents	with	better	Web	experiences.	 	In	fiscal	2008,	our	ColdFusion	business	continued	to	perform	well	through	revenue generated	from	its	existing	customer	base	that	benefits	from	a	large	and	active	developer	community.

# Platform	Strategy

In	fiscal	2009,	we	intend	to	innovate	with	and	broadly	market	the	Adobe	Flash	Platform	to	further	the	development	of	products	and	solutions	that	improve	how businesses	engage	with	their	customers	and	employees.		As	part	of	this	strategy,	we	intend	to	release	new	versions	of	our	client	technologies,	including	enhanced	versions that	broaden	our	reach	on	more	mobile	devices	ranging	from	high-end	smart	phones	to	lower-end	feature	phones.		We	also	intend	to	release	new	versions	of	our	Adobe	AIR client	to	broaden	its	capabilities	and	we	intend	to	release	new	versions	of	Adobe	Flex	and	Adobe	Flex	Builder	to

improve	developer	productivity.		We	also	recently	announced	and	intend	to	release	Adobe	Flash	Catalyst,	a	new	professional	design	tool	for	rapidly	creating	application interfaces	and	interactive	content	without	having	to	write	or	understand	programming	code	which	we	believe	will	substantially	improve	design	and	development	workflows.

As	part	of	the	Open	Screen	Project,	we	have	announced	that	we	are	removing	the	OEM	licensing	fees	associated	with	our	Adobe	Flash	Platform	client	technologies for	mobile	and	consumer	electronic	devices	with	the	next	major	release	of	these	technologies	which	will	adversely	impact	the	revenue	run	rate	for	our	mobile	client technologies	in	fiscal	2009.

We	intend	to	build	upon	the	OEM	relationships	we	have	to	monetize	the	downloads	of	our	client	technologies	such	as	Adobe	Flash	Player,	Adobe	Reader	and	Adobe AIR.		By	leveraging	our	developer	engineering,	marketing	and	evangelism	capabilities,	we	intend	to	implement	business	models	which	balance	our	objectives	of	broad cross-platform	client	proliferation	with	this	client	monetization	strategy.

To	support	our	Adobe	Flash	Platform	initiatives,	we	intend	to	continue	our	marketing	efforts	through	developer	community	outreach	and	grassroots	evangelism.		We will	also	work	closely	with	partners	to	implement	Adobe	AIR	client	distribution	relationships	and	continue	to	grow	the	Flex	developer	base,	and	we	will	assist	partners	and customers	who	will	be	developing	key	applications	that	utilize	the	Adobe	Flash	Platform.

We	 intend	 to	 continue	 our	 focus	 in	 improving	 integration	 of	 our	 Platform	 technologies	 with	 our	 Creative	 Suite	 solutions	 so	 that	 products	 such	 as	Adobe Dreamweaver	are	able	to	provide	development	tools	for	Adobe	AIR	applications	and	products	such	as	Adobe	Photoshop,	Adobe	Illustrator	and	Adobe	Fireworks	are	able	to integrate	with	the	Adobe	Flash	Platform	more	granularly	through	defined	workflows	with	Adobe	Flash	Catalyst	and	Adobe	Flex	Builder.

Finally,	we	intend	to	deliver	new	product	capabilities	and	Web-based	services.		We	will	also	continue	to	explore	monetization	opportunities	for	our	technology platform	solutions,	as	well	as	enhance	our	ColdFusion	product	line	and	drive	upgrades	with	a	new	release.

# Platform	Products

Adobe	AIR—desktop	client	software	which	allows	developers	to	use	existing	Web	development	skills	(e.g.	HTML,	Ajax,	Flash	and	Flex)	to	build	and	deploy	RIAs on	the	desktop	and	on	non-PC	devices.

Adobe	ColdFusion—provides	a	server-scripting	environment	and	a	set	of	features	used	by	organizations	for	building	database-driven	scalable	applications	that	are accessible	through	Web	browsers,	Adobe	Flash	Player	and	Adobe	AIR;	built	on	an	open	Java	technology	architecture	and	can	be	deployed	on	third-party	Java	application servers	that	support	the	J2EE	specification.

Adobe	Flash	Catalyst	–	an	interaction	design	tool	for	prototyping	RIAs	and	enabling	design	and	development	workflows	throughout	the	application	development cycle.

Adobe	Flash	Lite	–client	software	used	in	a	wide	range	of	non-PC	devices	including	mobile	phones	and	consumer	electronic	devices;	provides	a	subset	of	Adobe Flash	Player	functionality	for	viewing	FLV	files	in	mobile	and	device	browsers.

Adobe	Flash	Player—the	most	widely	distributed	rich	client	software	on	PCs	and	consumer	electronic	devices,	Adobe	Flash	Player	provides	a	runtime	environment for	text,	graphics,	animations,	sound,	video,	application	forms	and	two-way	communications.

Adobe	Flex—a	free,	open	source	framework,	compiler	and	debugger	for	developing	RIAs	targeting	the	Adobe	Flash	Platform;	developers	use	Flex	to	compile	and debug	MXML	and	ActionScript	files	into	the	SWF	format	that	executes	in	Adobe	Flash	Player	and	Adobe	AIR.

Adobe	Flex	Builder—an	Eclipse-based	IDE	for	developing	RIAs	with	the	Adobe	Flex	framework	for	either	Adobe	Flash	Player	or	Adobe	AIR;	developers	utilize Flex	Builder	to	quickly	build	and	deploy	applications	that	are	expressive,	intuitive	and	rich	in	interactivity.

# Print	and	Publishing	Segment

Our	Print	and	Publishing	business	segment	contains	several	of	our	products	and	services	which	address	market	opportunities	ranging	from	the	diverse	publishing needs	of	technical	and	business	publishing	to	our	legacy	type	and	OEM	printing	businesses.		These	opportunities	and	the	products	we	offer	to	address	them,	are	reviewed below	in	the	following	OEM	PostScript	and	Print	and	Publishing	categories.

# OEM	PostScript	Opportunity	and	Strategy

Graphics	professionals	and	professional	publishers	require	quality,	reliability	and	efficiency	in	production	printing,	and	we	believe	our	printing	technology	provides advanced	functionality	to	meet	the	sophisticated	requirements	of	this	marketplace.	As	high-end	printing	systems	evolve	and	transition	to	fully	digital,	composite	workflows, we	believe	we	are	uniquely	positioned	to	be	a	supplier	of	software	and	technology	based	on	the	Adobe	PostScript	and	Adobe	PDF	standards	for	use	by	this	industry.	We generate	revenue	by	licensing	our	technology	to	OEMs	that	manufacture	workflow	software,	printers	and	other	output	devices.

In	fiscal	2008,	we	maintained	our	OEM	PostScript	revenue	through	continued	innovation	with	PostScript	technologies.		In	2009,	we	plan	to	continue	to	enhance PostScript	and,	along	with	PDF	enhancements,	establish	PDF	as	the	standard	for	variable	data	publishing	and	printing	work	flows.

# OEM	PostScript	Products

Adobe	 PostScript—a	 printing	 and	 imaging	 page	 description	 language	 that	 delivers	 high	 quality	 output,	 cross-platform	 compatibility	 and	 top	 performance	 for graphically-rich	printing	output	from	corporate	desktop	printers	to	high-end	publishing	printers;	gives	users	the	power	to	create	and	print	visually	rich	documents	with	total precision;	licensed	to	printing	equipment	and	workflow	software	manufacturers	for	integration	into	their	printing	products.

Adobe	PDF	Print	Engine—a	new,	next-generation	printing	platform	that	enables	complete,	end-to-end	PDF-based	workflows	using	common	PDF	technology	to generate,	preview	and	print	PDF	documents;	allows	PDF	documents	 to	be	rendered	natively	 throughout	a	workflow,	providing	performance	benefits	which	 include eliminating	the	need	to	flatten	transparent	artwork.

# Print	and	Publishing	Opportunity	and	Strategy

In	addition	to	the	market	opportunities	and	our	businesses	discussed	previously,	we	offer	a	variety	of	products	and	solutions	which	address	many	different	and	unique publishing	market	needs.	Our	Print	and	Publishing	Business	Unit	focuses	on	these	solutions	which	address	the	diverse	customer	needs	in	markets	such	as	technical	document publishing	and	communication,	business	document	publishing,	CD-ROM	publishing,	eLearning	solutions,	on-line	help	systems	and	typography.

In	fiscal	2009,	we	will	continue	to	support	these	offerings	to	meet	the	diverse	needs	of	each	product's	user	base.		In	addition,	we	believe	there	to	be	an	opportunity	to enhance	some	of	our	offerings,	particularly	in	the	technical	communication	and	eLearning	markets,	through	a	comprehensive	offering	of	several	of	our	products	to	provide	a complete	end-to-end	solution.

# Print	and	Publishing	Products

Adobe	Authorware—a	legacy	rich	media	authoring	tool	used	to	develop	caption	based	eLearning	on	Windows	and	Macintosh	based	platforms;	use	of	the	product ranges	from	creating	Web-based	tutorials	to	simulations	incorporating	audio	and	video;	applications	developed	with	Adobe	Authorware	can	be	delivered	on	the	Web,	over corporate	networks	or	on	CD-ROM.

Adobe	Captivate—enables	users	to	rapidly	create	professional	and	engaging	eLearning	content	–		including	software	simulation,	quizzes,	animation	and	multi-media –	and	deliver	the	content	in	Adobe	Flash	and	other	formats;	the	content	can	be	created	without	any	programming	or	multi-media	skills	and	can	be	published	to	CD/DVDs and	Learning	Management	Systems	used	in	training,	sales,	marketing	and		customer	support	applications;	often	used	in	combination	with	Acrobat

Connect,	Adobe	Captivate	provides	a	robust	technology	solution	to	bring	understanding	and	retention	to	end	users	of	rapid	training	and	eLearning	solutions.

Adobe	Contribute—an	easy-to-use	tool	to	update	and	publish	Web	content,	designed	for	non-technical	business	users	who	need	to	make	minor	changes	to	intranet and	Internet	Web	sites	that	conform	to	the	structure,	style,	layout	and	site	standards	setup	by	a	Web	site	administrator;	streamlines	the	Web	content	maintenance	process	and provides	Web	site	administrators	with	a	set	of	simple	content	management	functionality	to	manage	and	administer	Web	sites;	also	provides	bloggers	with	a	simple	tool	to create	and	update	their	blogs.

Adobe	Director—a	tool	for	creating	professional	multimedia	content	that	combines	images,	text,	audio	and	video	into	presentations,	interactive	experiences	and prototypes;	for	Web	sites,	it	provides	users	with	the	ability	to	deliver	multimedia	content	that	supports	three	dimensional	content	and	animations	for	use	in	various	markets, including	education,	games	and	commerce;	also	enables	the	creation	of	fixed-media	content	for	CD	titles	and	DVD	titles	in	the	entertainment,	education	and	corporate training	markets.

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

Adobe	FrameMaker—an	application	for	authoring	and	publishing	long,	structured,	content-rich	documents	including	books,	documentation,	technical	manuals	and reports;	provides	users	a	way	to	publish	their	content	to	multiple	output	formats,	including	print,	Adobe	PDF,	HTML,	XML	and	Microsoft	Word.

Adobe	JRun—a	legacy	application	server	solution	based	on	the	J2EE	specification;	integrates	with	our	development	tool	offerings	and	is	used	to	deploy	applications for	functions	such	as	online	banking	and	customer	service.

Adobe	PageMaker—software	used	to	create	high-quality	documents	simply	and	reliably	with	robust	page	layout	tools,	templates	and	stock	art.

Adobe	RoboHelp—an	easy-to-use	authoring	tool	used	by	developers	and	technical	writers	to	create	professional	help	systems	and	documentation	for	desktop	and Web-based	applications;	utilizes	support	for	HTML,	PDF	import/export,	team	authoring	capabilities,	as	well	as	JavaHelp.

Adobe	Shockwave	Player—a	rich	media	player	used	for	deploying	multimedia	content	for	use in	Internet	solutions including	education, training,	games	and commerce.

Adobe	Technical	Communication	Suite—includes	Adobe	Acrobat	Pro	Extended,	Adobe	Captivate,	Adobe	FrameMaker	and	Adobe	RoboHelp	technologies;	helps customers	improve	their	workflows,	especially	technical	communicators	who	want	a	single	solution	to	meet	their	content	creation	and	publishing	needs.

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

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

Adobe	Type	Manager—provides	powerful,	easy	management	of	all	PostScript	Type	1,	OpenType	and	TrueType	fonts.

Adobe	Type	Sets—various	collection	packages	of	Adobe's	best-selling	typefaces;	makes	it	easy	to	create	beautiful	text	for	print,	Web	and	video	projects.

FreeHand	MX—a	professional	vector	graphics	tool	designers	and	illustrators	use	to	create	high	quality	images	that	can	be	scaled;	supports	developing	images	for print,	the	Web	and	Adobe	Flash	Player.

See	Note	19	of	our	Notes	to	Consolidated	Financial	Statements	for	further	information	regarding	our	industry	segments	and	geographic	information.

# COMPETITION

The	 markets	 for	 our	 products	 are	 characterized	 by	 intense	 competition,	 evolving	 industry	 standards	 and	 business	 models,	 disruptive	 software	 and	 hardware technology	developments,	frequent	new	product	 introductions,	short	product	 life	cycles,	price	cutting	with	resulting	downward	pressure	on	gross	margins	and	price sensitivity	on	the	part	of	consumers.	Our	future	success	will	depend	on	our	ability	to	enhance	our	existing	products,	introduce	new	products	on	a	timely	and	cost-effective basis,	meet	changing	customer	needs,	extend	our	core	technology	into	new	applications	and	anticipate	and	respond	to	emerging	standards,	business	models,	software delivery	methods	and	other	technological	changes.

# Creative	Solutions

In	our	Creative	Solutions	segment,	we	offer	the	Adobe	Creative	Suite	in	multiple	editions	which	consist	of	combinations	of	several	of	our	technologies.		In	addition to	offering	the	technologies	within	the	Creative	Suite	editions,	we	also	offer	them	as	individual	software	applications.		These	products	compete	with	those	from	many companies,	including	Apple,	Corel,	Avid,	Quark,	Microsoft	and	others,	as	well	as	from	various	open	source	initiatives.

With	respect	to	Microsoft,	their	Expression	Studio	competes	with	our	Adobe	Creative	Suite	family	of	products	as	well	as	individual	Creative	Solutions	segment products.	Expression	Studio	includes	Microsoft	Expression	Design	which	competes	with	our	Adobe	Illustrator,	Adobe	Photoshop,	Adobe	Photoshop	Lightroom	and	Adobe Fireworks	products;	Microsoft	Expression	Blend	which	competes	with	our	Adobe	Flash	Professional	product;	Microsoft	Expression	Web	which	competes	with	our	Adobe Dreamweaver	product;	and	Microsoft	Expression	Media	which	provides	digital	asset	management,	basic	image	editing	and	video	encoding/compression	capabilities	and competes	with	some	aspects	of	our	video	and	hobbyist-focused	products.	To	compete	with	Adobe	Flash,	Microsoft	markets	its	Silverlight	product	and	technology	which provides	capabilities	for	the	creation	of	media	experiences	and	interactive	applications	for	the	Web	that	incorporate	video,	animation,	interactivity	and	user	interfaces.

We	believe	our	Adobe	Creative	Suite	family	of	products	competes	favorably	on	the	basis	of	features	and	functionality,	ease	of	use,	product	reliability,	price	and performance	characteristics.	The	individual	technologies	within	the	Creative	Suite	editions	also	work	well	together,	providing	broader	functionality	and	shortened	product training	time	for	the	individual	who	uses	multiple	appli​cations	to	complete	a	project.

We	also	believe	our	individual	Creative	products	compete	favorably	against	those	offered	by	our	competitors,	as	discussed	below.

Drawing	and	illustration	products	are	characterized	by	feature-rich	competition,	brand	awareness	and	price	sensitivity.	In	addition	to	competition	with	Microsoft's Expression	Design	product,	our	Adobe	Illustrator	product	faces	competition	from	companies	such	as	ACDsee,	Corel,	Mediascape,	Xara	and	the	open	source	product	called Karbon14.	We	believe	our	products	compete	favorably	due	to	high	awareness	of	their	rich	features,	especially	the	drawing	and	illustration	functionalities,	the	technical capabilities	of	the	product	and	our	ability	to	leverage	core	technologies	from	our	other	established	products.

The	demand	for	Web	page	layout	and	Web	content	creation	tools	is	constantly	evolving	and	highly	volatile.	In	addition	to	competition	with	Microsoft's	Expression Blend	and	Web	products,	we	believe	Adobe	Dreamweaver	and	Adobe	Flash	Professional	face	direct	and	indirect	competition	from	desktop	software	companies	such	as	Bare Bones	Software	and	various	proprietary	and	open	source	Web	authoring	tools.	We	also	face	competition	from	Ajax	and	Microsoft	Visual	Studio	products,	and	other integrated	development	environments	that	enable	developers	to	create	Web	applications	from	companies	such	as	BEA	Systems	(a	subsidiary	of	Oracle),	Borland	and	IBM. We	believe	our	products	compare	favorably	to	these	applications;	however,	our	market	share	may	be	constrained	by	Microsoft's	ability	to	target	its	Web	software	to	users	in markets	it	dominates.	These	target	customers	include	users	of	Microsoft	Office,	Microsoft	Windows	operating	system,	the	Microsoft	Internet	Explorer	Web	browser	and Microsoft	Visual	Studio.

The	needs	of	digital	imaging	and	video	editing	software	users	are	constantly	evolving	due	to	rapid	technology	and	hardware	advancements	in	digital	cameras,	digital video	cameras,	printers,	personal	computers,	cellular	phones	and	other	new	devices.	Our	software	offerings,	including	Adobe	Photoshop,	Adobe	Photoshop	Extended, Adobe	Photoshop	Elements,	Adobe	Photoshop	Lightroom,	Adobe	After	Effects,	Adobe	Audition,	Adobe	Soundbooth,	Adobe	Encore,	Adobe	Premiere	Elements	and	Adobe Premiere	Pro,	face	competition	from	companies	offering	similar	products.	We	also	continue	to	face	competition	from	new	emerging	products,	including	online	based services	which	compete	directly	with	our	Photoshop.com,

Photoshop	Express	and	Premiere	Express	offerings,	as	well	as	any	new	competitive	products	coming	from	the	open	source	movement.

Our	mid-range	consumer	offerings,	including	Adobe	Photoshop	Elements	and	Adobe	Premiere	Elements,	are	subject	to	intense	competition,	including	customer	price sensitivity,	competitor	brand	awareness	and	competitor	strength	 in	OEM	bundling	and	retail	distribution.	We	face	direct	and	 indirect	competition	from	a	number	of companies	 that	 market	 software	 which	 competes	 with	 ours,	 including	 ACD	 Systems,	 AI	 Soft	 (Japan),	 Apple,	 ArcSoft,	 Corel,	 i4	 (Japan),	 Google,	 Kodak,	 Nova Development,	Magix,	Microsoft,	Phase	One,	Photodex	Corporation,	Sonic,	Pinnacle,	Sony	and	Yahoo.	In	addition,	we	face	competition	from	device,	hardware	and	camera manufacturers	such	as	Apple,	Canon,	Dell,	Hewlett-Packard,	Nikon,	Sony	and	others	as	they	try	to	differentiate	their	offerings	by	bundling,	for	free,	their	own	digital imaging	software,	or	those	of	our	competitors.	Similarly,	we	face	potential	competition	from	operating	system	manufacturers	such	as	Apple	and	Microsoft	as	they	integrate hobbyist-level	digital	imaging	and	image	management	features	into	their	operating	systems.	Finally,	we	face	potential	competition	from	open	source	products,	including Gimp	for	Linux.

We	believe	we	compete	favorably	against	other	mid-range	digital	imaging,	digital	video	and	consumer-focused	image	management	software	applications	with	our Adobe	Photoshop	Elements	and	Adobe	Premiere	Elements	products	due	to	strong	consumer	awareness	of	our	brand	in	digital	imaging	and	digital	video,	our	relationships with	significant	OEMs,	positive	recommendations	for	our	products	by	market	influencers,	our	increased	focus	on	the	retail	software	channel	and	strong	feature	sets.

In	professional	digital	imaging,	software	applications	compete	based	on	product	features,	brand	awareness	and	price	sensitivity.	In	addition	to	competition	with Microsoft's	Expression	Design	product,	our	Adobe	Photoshop	and	Adobe	Photoshop	Lightroom	products	face	direct	and	indirect	competition	from	a	number	of	companies including	 Apple	 and	 Corel.	 Our	 Adobe	 Photoshop	 products	 compete	 favorably	 due	 to	 high	 awareness	 of	 the	 Photoshop	 brand	 in	 digital	 imaging,	 the	 positive recommendations	for	our	Photoshop	product	by	market	influencers,	the	features	and	technical	capabilities	of	the	product	and	our	ability	to	leverage	core	features	from	our other	established	products.

Our	Adobe	InDesign	product,	used	for	professional	page	layout,	faces	significant	competition.	The	main	competitor,	Quark,	has	a	competitive	product,	Quark XPress,	which	has	maintained	a	historically	strong	market	share	in	the	professional	page	layout	market.	Quark	also	benefits	from	an	established	industry	infrastructure	that has	been	built	around	the	use	of	their	XPress	product	in	print	shops	and	service	bureaus,	and	through	the	development	of	third-party	plug-in	products.	Barriers	to	the adoption	of	Adobe	InDesign	by	Quark	XPress	customers	include	this	infrastructure,	as	well	as	the	cost	of	conversion,	training	and	software/hardware	procurement	required to	switch	to	InDesign.	We	have	seen	an	increase	in	the	adoption	of	InDesign	software	and	we	believe	we	will	continue	to	see	market	share	gains	going	forward	due	to	a product	offering	that	contains	new	innovative	features,	improved	integration	with	our	other	products,	our	strong	brand	among	users,	positive	reviews	by	industry	experts, adoption	of	InDesign	by	major	accounts	which	are	influencers	in	their	industries	and	improved	infrastructure	support	by	the	industry	for	our	overall	solution.

Applications	for	digital	video	editing,	motion	graphics,	special	effects,	audio	creation	and	DVD	authoring	face	increasing	competition	as	video	professionals	and hobbyists	migrate	away	from	analog	video	and	audio	tools	towards	the	use	of	digital	camcorders	and	digital	video	production	on	their	computers	and	DVD	systems	for	rich media	playback.	Our	Adobe	After	Effects,	Adobe	Audition,	Adobe	Encore,		Adobe	Premiere	Pro	and	Adobe	Soundbooth	software	products,	as	well	as	the	Adobe	Production Studio	which	contains	these	products,	face	competition	from	companies	such	as	Apple,	Avid,	Canopus,	Sonic	and	Sony.	Our	Adobe	Premiere	Elements	software	product which	is	targeted	for	use	by	hobbyists,	faces	competition	from	companies	such	as	Aist,	Apple,	ArcSoft,	Avid,	Broderbund,	Corel,	Cyberlink,	Magix,	Microsoft,	Muvee	and Sony	–	as	well	as	video	editing	capabilities	found	in	operating	systems	and	other	video	editing	solutions	bundled	by	video	camcorder	manufacturers	with	their	hardware offerings.

Adobe	After	Effects	is	a	leader	in	professional	compositing	and	visual	effects	due	to	its	strong	feature	set	and	its	integration	with	our	other	products	that	helps	create a	broad	video	editing	platform	for	our	customers.	In	professional	digital	video	editing,	we	are	an	industry	leader	with	Adobe	Premiere	Pro	and	compete	favorably	due	to	our strong	feature	set,	our	OEM	relationships	and	the	integration	with	our	other	products	to	create	a	broad	digital	video	publishing	platform	for	our	customers.

With	our	Adobe	Acrobat	business,	we	continue	to	face	competition	from	Microsoft.	Their	Windows	Vista	operating	system	includes	a	proprietary	digital	rights management	technology	and	a	document	format,	called	XML	Paper	Specification	("XPS"),	which	competes	with	Adobe	PDF.	In	addition,	Microsoft's	widely	used	Office product	offers	a	feature	to	save	Microsoft	Office	documents	as	PDF	documents	through	a	freely	distributed	plug-in.	This	PDF	feature	in	Office	competes	with	Adobe Acrobat.	Microsoft	has	announced	that	it	will	add	support	for	PDF	directly	in	its	Office	products	beginning	in	2009	via	SP2	for	Office	2007.	Given	Microsoft's	market dominance,	XPS,	the	PDF	feature	in	Office	and	any	other	competitive	Microsoft	product	or	technology	that	is	bundled	as	part	of	its	Office	product	or	operating	system	or made	freely	available,	could	harm	our	overall	Adobe	Acrobat	market	opportunity.

Our	Adobe	Acrobat	product	family	also	faces	competition	in	the	PDF	file	creation	market	from	many	clone	products	marketed	by	companies	such	as	AdLib,	Active PDF,	Apple,	Global	Graphics,	Nuance,	Software995,	Sourcenext	and	others.	In	addition,	other	PDF	creation	solutions	can	be	found	at	a	low	cost,	or	for	free,	on	the	Web.

For	 customers	 that	 use	Adobe	Acrobat	 as	 part	 of	 document	 collaboration	 and	 document	 process	 management	 solutions,	 where	 electronic	 document	 delivery, exchange,	collaboration,	security	and	archival	needs	exist,	our	Acrobat	product	family	faces	competition	from	entrenched	office	applications	such	as	Microsoft	Office	and its	integration	with	their	SharePoint	product.	In	the	higher	end	of	the	electronic	document	market,	Acrobat	Pro	and	Acrobat	Pro	Extended	provide	features	which	compete with	other	creative	professional	PDF	tool	providers,	such	as	Enfocus,	Dalim	and	Zinio.	In	addition,	we	are	targeting	the	architecture,	engineering	and	construction	electronic document	collaboration	market	with	our	Acrobat	Pro	Extended	product.	The	capabilities	of	our	product	in	this	market	compete	with	some	aspects	of	Autodesk's	3D	solution.

To	address	 the	 threats	from	Microsoft	and	others,	we	are	working	 to	ensure	our	Adobe	Acrobat	applications	stay	at the	forefront	of innovation in	emerging opportunities	such	as	PDF	document	generation,	document	collaboration	and	document	process	management.

Our	Web	conferencing	solution,	Adobe	Acrobat	Connect	Pro,	faces	competition	from	many	Web	conferencing	vendors,	including	Cisco	WebEx,	Microsoft	Office Live	Meeting,	IBM	Lotus	Sametime	and	Citrix	GoToMeeting.	Cisco	WebEx	is	a	market	share	leader	and	Microsoft	has	steadily	increased	its	marketing	of	Microsoft	Office Live	Meeting.	To	address	these	and	other	smaller	competitors	in	the	Web	conferencing	space,	we	focus	on	providing	a	differentiated	and	enhanced	user	experience	through our	Adobe	Flash	Player.

The	 markets	 we	 address	 with	 our	Adobe	 LiveCycle	 Enterprise	 Suite	 are	 influenced	 by	 evolving industry	 standards,	 rapid	 software	 and	 hardware technology developments,	and	new	product	introductions	from	competitors	such	as	Microsoft	and	IBM.

Microsoft	has	already	brought	to	market	new	products	and	technologies	to	address	many	of	the	emerging	market	needs	we	focus	on	with	our	Adobe	LiveCycle	family of	products.	Microsoft	continues	to	offer	its	eForms	solution	called	InfoPath	in	the	Professional	version	of	Microsoft	Office	2007	and	has	added	Office	Forms	Services which	extends	their	forms	to	users	as	MS	Outlook	e-mail	messages	or	to	Web	browsers	rather	than	the	InfoPath	client.		They	also	continue	to	offer	their	Windows	Rights Management	Services	in	their	Windows	Server	product	which	is	designed	to	allow	corporate	networks	to	manage	and	enforce	restrictions	built	into	documents.

As	discussed	previously,	Microsoft	markets	Windows	Vista	and	Office	which	includes	a	document	format	called	XPS	which	competes	with	Adobe	PDF.	Windows Vista	also	contains	a	proprietary	digital	rights	management	technology	which	competes	with	Adobe	LiveCycle	Rights	Management	ES.	In	addition,	Microsoft's	most	recent version	of	Office	includes	an	updated	version	of	its	SharePoint	product	which	competes	with	certain	aspects	of	our	Adobe	LiveCycle	products.	Microsoft	has	also	recently delivered	 technology	 called	 Windows	 Presentation	 Foundation	 and	 Silverlight	 which	 offers	 an	 alternative	 to	 building	 RIA	 applications	 within	 the	 Microsoft	 .NET framework.

In	the	electronic	forms	solution	market,	in	addition	to	competition	from	Microsoft	Infopath	based	solutions,	we	face	competition	from	IBM	through	their	eForms solution	recently	rebranded	as	Lotus	Workplace	Forms.	Similarly,	we	face	competition	for	document	process	management	solutions	from	workflow	solution	vendors	such	as PegaSystems,	Lombardi,	Nuance	and	Ultimus.

We	believe	that	our	Adobe	LiveCycle	server	product	family	competes	favorably	against	these	companies	and	formats	in	terms	of	the	combined	benefits	of	superior functionality,	cross-platform	visual	page	fidelity/reliability,	multi-platform	capability,	file	compression,	printing	and	security	of	documents	expressed	using	Adobe	PDF.	We also	believe	that	Adobe	PDF	and	its	integration	with	XML,	combined	with	the	broad	distribution	of	Adobe	Reader	on	all	leading	hardware	platforms,	provide	a	universal multi-platform	solution	that	is	more	compelling	than	our	competitors'	offerings.

# Platform

Our	Adobe	Flash	Platform	technologies,	including	Adobe	Flash	Player	and	Adobe	AIR,	face	competition	from	Microsoft	Silverlight,	as	well	as	alternative	approaches to	building	RIAs	–	including	Google	Gears	and	JavaFX.		Our	Adobe	ColdFusion	product	family	and	our	Adobe	Flex	Builder	developer	tool	products	face	competition	from major	vendors	including	Microsoft,	IBM,	BEA	(a	subsidiary	of	Oracle)	and	Sun.	Our	ColdFusion	products	also	compete	with	several	technologies	available	today	at	no	cost including	the	PHP	and	PERL	programming	environments	that	are	available	for	the	Apache	Web	server.

Beyond	the	competitive	Microsoft	threats	previously	discussed,	vendors	such	as	Tibco,	JackBe,	Backbase	and	NexaWeb	offer	potentially	competitive	solutions	in	the RIA	market	that	we	target	with	our	open	source	Adobe	Flex	solution.		We	also	believe	RIAs	will	make	use	of	both	open	source	Ajax	frameworks	and	the	open	source	Flex framework	to	create	hybrid	RIAs	in	the	browser,	and	we	anticipate	increased	adoption	of	AIR	as	a	development	platform	for	Ajax	developers.	With	our	Flash	Media	Server solution,	we	face	competition	from	Microsoft	with	their	Windows	Media	Server	for	Windows	Media	and	Silverlight,	as	well	as	Move	Networks,	Real	Networks,	Apple	and solutions	which	utilize	HTTP	delivery	of	video	and	rich	media	content	via	Web	servers.

Our	mobile	and	device	solutions	are	influenced	by	evolving	industry	standards,	rapid	software	and	hardware	technology	developments	and	frequent	new	product	and technology	introductions	by	companies	or	open-source	initiatives	targeting	similar	opportunities.	Technologies	and	products	which	could	compete	with	Adobe	Flash	Lite include	Java,	Brew,	Scalable	Vector	Graphics,	Wireless	Application	Protocol,	Apple	Mac	OS	utilized	on	the	Apple	iPhone,	Microsoft	Windows	Mobile,	as	well	as	solutions from	the	open	source	movement,	vendors	supplying	clone	versions	of	these	products	and	technologies	and	vendors	which	choose	to	exclude	the	use	of	our	solutions	and technologies	on	their	devices.

We	believe	our	Adobe	Flash	Lite	solution	competes	favorably	against	these	technologies	and	solutions	due	to	the	distribution	of	Adobe	Flash	Player	technology	on	a broad	set	of	platforms,	including	PCs,	cellular	phones	and	consumer	electronic	devices.		We	also	believe	our	robust	programming	model	and	developer	tools	used	to	create video	output	for	the	Flash	Player	and	the	large	Flash	developer	community	and	ecosystem	which	utilize	our	tools,	are	key	assets	in	our	ability	to	effectively	compete	in	this market.		Further,	the	rich	expressiveness	of	Flash	which	provides	the	capability	to	deliver	audio,	video,	motion	graphics,	vector	graphics	and	visual	effects	and	results	in	rich user	experiences	and	interfaces	on	mobile	devices,	is	a	key	differentiation	when	compared	to	the	capabilities	of	alternate	solutions.

In	the	past	year,	the	mobile	industry	experienced	many	announcements	and	introductions	of	new	mobile	devices	and	platforms	–	and	we	expect	innovation	and	new announcements	such	as	those	seen	in	2008	to	continue	in	2009.		We	view	these	ongoing	developments,	including	the	Google	Android	project	consisting	of	a	group	of	more than	30	technology	and	mobile	companies	that	are	working	to	develop	an	open	mobile	platform,	as	new	opportunities	to	deploy	our	technologies	and	solutions.		Just	as	we maintain	a	philosophy	of	cross-platform	support	in	the	personal	computer	desktop	world	for	operating	systems	such	as	Microsoft	Windows,	Apple	Mac	OS,	Unix	and	Linux, we	expect	to	continue	to	enhance	our	support	for	a	wide	variety	of	mobile	and	consumer	electronic	platforms,	and	we	intend	to	make	our	products	and	services	available	on viable,	new	entrant	platforms	as	well.

# Print	and	Publishing

Our	Print	and	Publishing	product	line	targets	many	markets.	In	technical	authoring	and	publishing,	our	Adobe	FrameMaker	product	faces	competition	from	large- scale	electronic	publishing	systems,	XML-based	publishing	companies	such	as	PTC,	as	well	as	lower-end	desktop	publishing	products	such	as	Microsoft	Word.	Competition is	based	on	the	quality	and	features	of	products,	the	level	of	customization	and	integration	with	other	publishing	system	components,	the	number	of	hardware	platforms supported,	service	and	price.	We	believe	we	can	successfully	compete	based	upon	the	quality	and	features	of	the	Adobe	FrameMaker	product	and	our	extensive	application programming	interface.

In	desktop	publishing,	our	Adobe	PageMaker	product	faces	competition	from	other	software	products,	including	Microsoft	Publisher.	Competition	is	based	on	the quality	and	features	of	products,	ease-of-use,	printer	service	support	and	price.	We	believe	we	have	a	strong	product	and	can	successfully	compete	with	these	types	of applications	based	upon	the	quality	and	features	of	the	Adobe	PageMaker	product,	its	strong	brand	among	users	and	its	widespread	adoption	among	printer	service	bureaus.

In	printing	technologies,	we	believe	the	principal	competitive	factors	for	OEMs	in	selecting	a	page	description	language	or	a	printing	technology	are	product capabilities,	market	leadership,	reliability,	price,	support	and	engineering	development	assistance.	We	believe	that	our	competitive	advantages	include	our	technology competency,	 OEM	 customer	 relationships	 and	 our	 intellectual	 property	 portfolio.	Adobe	 PostScript	 faces	 competition	 from	 Hewlett-Packard's	 proprietary	 PCL	 page description	language	and	from	developers	of	other	page	description	languages	based	on	the	PostScript	language	standard,	including	Global	Graphics	and	Xionics.	In addition,	as	previously	discussed,	Microsoft	has	shipped	its	next	generation	operating	system	called	Windows	Vista.	It	includes	a	new	document	format	called	XPS	which competes	with	Adobe	PDF	and	our	Adobe	PostScript	technologies	and	solutions.

In	the	rapid	eLearning	authoring	market,	our	Adobe	Captivate	product	faces	competition	from	general	content	development	tools	such	as	Microsoft	PowerPoint, screen	recording	tools	such	as	Techsmith's	Camtasia	and	more	advanced	eLearning	and	software	simulation	solutions	such	as	Firefly,	Lectora	and	Articulate.	Competition	in this	market	is	based	on	speed	of	development	and	completeness	of	the	features	of	products,	ease-of-use	and	price.	We	believe	our	product	can	successfully	compete	based upon	the	strength	of	its	broad	range	of	features,	its	strong	brand	among	users	and	its	widespread	adoption	among	training	developers.

In	Web	content	management,	our	Adobe	Contribute	product	faces	competition	from	solutions	that	provide	for	the	simple	creation	of	blogs	and	"Wikis,"	as	well	as basic	 content	 publishing	 products	 such	 as	 Microsoft	 Word,	 Microsoft	 FrontPage,	 Microsoft	 Notepad,	 basic	 HTML	 editors	 like	 ezHTMLArea	 and	 ekTron,	 content management	 tools	 like	 Microsoft	 SharePoint	 and,	 large-scale	 Web	 content	 management	 systems	 from	 companies	 such	 as	 Interwoven,	 Vignette,	 IBM	 and	 Oracle. Competition	 in	 this	 market	 is	 based	 on	 usability,	 quality	 and	 features	 of	 products,	 the	 level	 of	 customization	 and	 integration	 with	 other	Web	 content	 management components,	the	integration	with	Web	design	tools,	the	number	of	hardware	platforms	supported,	service	and	price.	We	believe	we	can	successfully	compete	based	upon	the usability	and	price	of	Adobe	Contribute,	its	strong	brand	among	users	and	integration	with	other	Web	content	management	components.

In	multimedia	content	authoring,	our	Adobe	Director	product	faces	competition	from	a	variety	of	multimedia	content	authoring	tools.	Competition	is	based	on	the quality	and	features	of	products,	ease-of-use	and	price.	We	believe	we	have	a	strong	product	and	can	successfully	compete	based	upon	the	quality	and	features	of	the	Adobe Director	product,	its	strong	brand	among	users,	its	widespread	adoption	among	content	developers	and	publishers	and	the	widespread	proliferation	of	the	Shockwave	Player.

In	technical	Web	authoring	and	publishing,	our	Adobe	RoboHelp	product	faces	competition	from	large-scale	Web	publishing	systems,	XML-based	Web	publishing companies,	as	well	as	lower-end	publishing	products	such	as	Microsoft	Word.	Competition	is	based	on	the	quality	and	features	of	products,	the	level	of	customization	and integration	with	other	publishing	system	components,	the	number	of	hardware	platforms	supported,	service	and	price.	We	believe	we	can	successfully	compete	based	upon the	quality	and	features	of	the	Adobe	RoboHelp	product.

# OPERATIONS

# Marketing	and	Sales

We	market	and	distribute	our	products	through	sales	channels,	which	include	distributors,	retailers,	software	developers,	systems	integrators,	ISVs	and	VARs,	as	well as	through	OEM	and	hardware	bundle	customers.	We	also	market	and	license	our	products	directly	using	our	sales	force	and	through	our	own	Web	site	at	www.adobe.com.

We	support	our	worldwide	distribution	network	and	end	user	customers	with	 international	offices	around	 the	world,	 including	 locations	 in	Australia,	Austria, Belgium,	Brazil,	Canada,	China,	Czech	Republic,	Denmark,	Finland,	France,	Germany,	India,	Ireland,	Italy,	Japan,	Korea,	Mexico,	the	Netherlands,	Norway,	Poland, Portugal,	Romania,	Russia,		Singapore,	South	Africa,	Spain,	Sweden,	Switzerland,	Taiwan,	Turkey	and	the	United	Kingdom.

We	also	license	software	with	maintenance	and	support,	which	includes	rights	to	upgrades,	when	and	if	available,	support,	updates	and	enhancements.

The	table	below	lists	our	significant	customers,	as	a	percentage	of	net	revenue	for	fiscal	2006	through	2008.	As	listed,	our	significant	customers	are	distributors	who sell	products	across	our	various	segments.

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Ingram\tMicro | 18% | 21% | 24% |
| Tech\tData | 9% | 10% | 10% |

|  | 2008 | 2007 |
| :--- | :--- | :--- |
| Ingram\tMicro | 18% | 19% |
| Tech\tData | 8% | 10% |

# Order	Fulfillment	for	Physical	Distribution

The	 procurement	 of	 the	 various	 components	 of	 packaged	 products,	 including	 CDs	 and	 printed	 materials,	 and	 the	 assembly	 of	 packages	 for	 retail	 and	 other applications	products	is	controlled	by	our	Global	Supply	Chain	Management	operations.	We	outsource	our	order	fulfillment	activities	to	third	parties	in	the	United	States, Europe	and	Asia.

To	date,	we	have	not	experienced	significant	difficulties	in	obtaining	raw	materials	for	the	manufacture	of	our	products	or	in	the	replication	of	CDs,	printing	and assembly	of	components.	The	backlog	of	orders	from	customers,	as	of	January	16,	2009	and	January	18,	2008,	was	approximately	$6.4	million	and	$13.8	million, respectively.

# Services	and	Support

We	provide	professional	services,	technical	support	and	customer	service	to	a	wide	variety	of	customers	including	consumers,	creative	professionals	and	business users.	Our	service	and	support	revenue	consists	primarily	of	consulting	fees,	software	maintenance	and	support	fees	and	training	fees.

# Services

We	have	a	global	Professional	Services	team	dedicated	to	developing	and	implementing	solutions	for	enterprise	customers	in	key	vertical	markets	and	to	transfer technical	expertise	to	our	solution	partners.	The	Professional	Services	team	uses	a	comprehensive,	customer-focused	methodology	to	develop	high	quality	solutions,	which	in turn	deliver	a	competitive	advantage	to	our	enterprise	customers.	A	portfolio	of	technical	training	courses	is	also	available	for	desktop	and	server-based	products	to	meet	the needs	of	our	enterprise	customers	and	solution	partners.

# Support

A	significant	portion	of	our	support	revenue	is	composed	of	our	extended	enterprise	maintenance	and	support	offerings,	which	entitles	customers	to	the	right	to receive	product	upgrades	and	enhancements	during	the	term	of	the	maintenance	and	support	period,	which	is	typically	one	year.	Regional	Support	Centers	are	charged	with providing	timely,	high	quality	technical	expertise	on	Enterprise	and	Knowledge	Worker	products	and	solutions	to	meet	the	growing	needs	of	our	customers.

Our	support	revenue	also	includes	support	for	our	desktop	products.	We	offer	a	range	of	support	programs,	from	fee-based	incidents	to	annual	support	contracts. Additionally,	we	provide	extensive	self-help	and	online	technical	support	capabilities	via	the	Web	which	allows	customers	quick	and	easy	access	to	possible	solutions.	We provide	product	support	through	a	combination	of	outsourced	vendors	and	internal	support	centers.

We	also	offer	Developer	Support	to	partners	and	developer	organizations.	The	Adobe	Partner	Connection	Program	focuses	on	providing	developers	with	high-quality tools,	software	development	kits,	information	and	services.

As	a	registered	owner	of	the	current	version	of	an	Adobe	desktop	product,	customers	are	eligible	to	receive	Getting	Started	support	on	certain	matters.	Support	for some	products	and	in	some	countries	may	vary.

# Training

We	inform	customers	about	the	use	of	our	products	through	on-line	informational	services	on	our	Web	site	(www.adobe.com)	and	through	a	growing	series	of	how to	books	published	by	Adobe	Press	pursuant	to	a	joint	publishing	agreement	with	Peachpit	Press.	In	addition,	we	develop	tests	to	certify	independent	trainers	who	teach Adobe	software	classes.	We	sponsor	workshops,	work	with	professional	associations	and	user	groups,	and	conduct	regular	beta	testing	programs.

# Investments

We	own	a	limited	partnership	interest	in	Adobe	Ventures	IV	L.P.	("Adobe	Ventures")	that	has	invested	in	early	stage	companies	with	innovative	technologies.	We also	make	direct	investments	in	privately-held	companies.	We	enter	into	these	investments	with	the	intent	of	securing	financial	returns	as	well	as	for	strategic	purposes	as they	often	increase	our	knowledge	of	emerging	markets	and	technologies,	as	well	as	expand	our	opportunities	to	provide	Adobe	products	and	services.	Adobe	Ventures	is managed	by	Granite	Ventures,	an	independent	venture	capital	firm	and	sole	general	partner	of	Adobe	Ventures.

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	will	be	invested	over	the	next	three	to	five	years.

# PRODUCT	DEVELOPMENT

As	the	software	industry	is	characterized	by	rapid	technological	change,	a	continuous	high	level	of	investment	is	required	for	the	enhancement	of	existing	products and	services	and	the	development	of	new	products	and	services.	We	develop	our	software	internally	as	well	as	acquire	products	or	technology	developed	by	others	by purchasing	the	stock	or	assets	of	the	business	entity	that	held	ownership	rights	to	the	technology.	In	other	instances,	we	have	licensed	or	purchased	the	intellectual	property ownership	rights	of	programs	developed	by	others	with	license	or	technology	transfer	agreements	that	may	obligate	us	to	pay	a	flat	license	fee	or	royalties,	typically	based on	a	dollar	amount	per	unit	shipped	or	a	percentage	of	the	revenue	generated	by	those	programs.

# PRODUCT	PROTECTION

We	regard	our	software	as	proprietary	and	protect	it	under	the	laws	of	copyrights,	patents,	trademarks	and	trade	secrets.	We	protect	the	source	code	of	our	software programs	as	trade	secrets	and	make	source	code	available	to	third	parties	only	under	limited	circumstances	and	specific	security	and	confidentiality	constraints.

Our	products	are	generally	licensed	to	end	users	on	a	"right	to	use"	basis	pursuant	to	a	license	that	restricts	the	use	of	the	products	to	a	designated	number	of	devices. We	also	rely	on	copyright	laws	and	on	"shrink	wrap"	and	electronic	licenses	that	are	not	physically	signed	by	the	end	user.	Copyright	protection	may	be	unavailable	under the	laws	of	certain	countries	and	the	enforceability	of	"shrink	wrap"	and	electronic	licenses	has	not	been	conclusively	determined	in	all	jurisdictions.

Policing	unauthorized	use	of	computer	software	is	difficult	and	software	piracy	is	a	persistent	problem	for	the	software	industry.	This	problem	is	particularly	acute	in international	markets.	We	conduct	vigorous	anti-piracy	programs	directly	and	through	certain	external	software	associations.	In	addition,	we	have	activation	technology	in certain	products	to	guard	against	illegal	use	and	will	continue	to	do	so	in	certain	future	products.

# EMPLOYEES

As	of	January	16,	2009,	we	employed	7,335	people.	We	have	not	experienced	work	stoppages	and	believe	our	employee	relations	are	good.

# AVAILABLE	INFORMATION

Our	Annual	Report	on	Form	10-K,	Quarterly	Reports	on	Form	10-Q,	Current	Reports	on	Form	8-K	and	amendments	to	reports	filed	or	furnished	pursuant	to	Sections 13(a)	and	15(d)	of	the	Securities	Exchange	Act	of	1934,	as	amended,	are	available	free	of	charge	on	our	Investor	Relations	Web	site	at	www.adobe.com	as	soon	as reasonably	practicable	after	we	electronically	file	such	material	with,	or	furnish	it	to,	the	SEC.	The	information	posted	on	our	Web	site	is	not	incorporated	into	this	report.

# EXECUTIVE	OFFICERS

Adobe's	executive	officers	as	of	January	16,	2009	are	as	follows:

Mr.	Narayen	currently	serves	as	Adobe's	President	and	Chief	Executive	Officer.	Mr.	Narayen	joined	Adobe	in	January	1998	as	Vice	President	and	General	Manager of	Adobe's	engineering	technology	group.	In	January	1999,	he	was	promoted	to	Senior	Vice	President,	Worldwide	Products	and	in	March	2001	he	was	promoted	to Executive	Vice	President,	Worldwide	Product	Marketing	and	Development.	In	January	2005,	Mr.	Narayen	was	promoted	to	President	and	Chief	Operating	Officer	and	in December	2007,	he	was	appointed	Chief	Executive	Officer	of	Adobe	and	joined	the	Adobe	Board	of	Directors.	Prior	to	joining	Adobe,	Mr.	Narayen	co-founded	Pictra	Inc., a	digital	photo	sharing	software	company,	in	1996.	He	was	Director	of	Desktop	and	Collaboration	products	at	Silicon	Graphics	Inc.	and	held	various	senior	manager positions	at	Apple	Inc.	before	founding	Pictra.	Mr.	Narayen	is	also	a	director	of	Metavante	Technologies,	Inc.,	a	banking	and	payment	technology	solutions	provider.

Mr.	Garrett	joined	Adobe	in	February	2007	as	Executive	Vice	President	and	Chief	Financial	Officer.	Mr.	Garrett	served	as	Senior	Vice	President	and	Chief	Financial Officer	of	the	Software	Group	of	EMC	Corporation,	a	products,	services	and	solutions	provider	for	information	management	and	storage,	from	June	2004	to	January	2007, his	 most	 recent	 position	 since	 EMC's	 acquisition	 of	 Documentum,	 Inc.,	 an	 enterprise	 content	 management	 company,	 in	 December	 2003.	 Mr.	 Garrett	 first	 joined Documentum	as	Executive	Vice	President	and	Chief	Financial	Officer	in	1997,	holding	that	position	through	October	1999	and	then	re-joining	Documentum	as	Executive Vice	President	and	Chief	Financial	Officer	in	2002.	Mr.	Garrett	is	also	a	director	of	Informatica	Corporation,	a	provider	of	enterprise	data	integration	software	and	services.

Ms.	Cottle	joined	Adobe	in	February	2002	as	Senior	Vice	President,	General	Counsel	and	Secretary.	Prior	to	joining	Adobe,	Ms.	Cottle	served	as	General	Counsel	for Vitria	Technology,	Inc.,	a	service-oriented	business	application	software	company	from	February	2000	to	February	2002.	From	1996	to	1999,	Ms.	Cottle	served	as	Vice President,	General	Counsel	and	Secretary	of	Raychem	Corporation.

Mr.	Lynch	currently	serves	as	Adobe's	Chief	Technology	Officer	and	Senior	Vice	President	of	the	Experience	&	Technology	Organization.		Mr.	Lynch	joined	Adobe as	 Chief	 Software	Architect	 and	 Senior	 Vice	 President	 for	Adobe's	 Platform	 Business	 Unit	 through	 our	 acquisition	 of	 Macromedia,	 Inc.	 in	 December	 2005.	 	At Macromedia,	Mr.	Lynch	served	as	Chief	Software	Architect	and	President	of	Product	Development,	where	he	led	Macromedia	in	advancing	Web	software	including managing	the	initial	development	of	Macromedia	Dreamweaver	and	guiding	Flash	to	its	current	widespread	adoption	across	the	Web.	Prior	to	Macromedia,	Mr.	Lynch participated	in	a	variety	of	technical	and	management	roles	in	startups	including	Frame	Technology	and	General	Magic.

Mr.	Loiacono	joined	Adobe	in	April	2006	as	Senior	Vice	President	of	the	Creative	Solutions	Business	Unit.		Prior	to	joining	Adobe,	Mr.	Loiacono	served	as Executive	Vice	President	of	software	at	Sun	Microsystems,	Inc.,	with	responsibility	for	software	technologies	including	the	Solaris	operating	system,	Java,	Java	Enterprise System	suites,	Java	developer	tools	and	Star	Office.		Mr.	Loiacono	joined	Sun	Microsystems	in	1987	and	during	his	19	year	tenure	he	also	served	as	General	Manager	of	Sun Microsystems's	operating	platform	group,	as	well	as	Chief	Marketing	Officer.

Mr.	Tarkoff	currently	serves	as	Adobe's	Senior	Vice	President	of	Business	Productivity	Solutions.		Mr.	Tarkoff	joined	Adobe	in	April	2007	as	Senior	Vice	President of	Corporate	Development.		Prior	to	joining	Adobe,	Mr.	Tarkoff	was	Senior	Vice	President	and	General	Manager	of	the	Captiva	Software	Division	and	Senior	Vice President	of	Business	Development	and	Channels	for	the	Software	Group	of	EMC	Corporation,	a	products,	services	and	solutions	provider	for	information	management	and storage,	from	December	2003	to	April	2007.		Previously,	Mr.	Tarkoff	was	Executive	Vice	President	and	Chief	Strategy	Officer	for	Documentum,	Inc.,	an	enterprise	content management	company	and	Senior	Vice	President	of	Worldwide	Business	Development	at	Commerce	One,	a	provider	of	business-to-business	e-commerce	solutions.

Mr.	Thompson	joined	Adobe	in	January	2006	as	Senior	Vice	President,	Worldwide	Field	Operations.	Prior	to	joining	Adobe,	Mr.	Thompson	served	as	Senior	Vice President	of	Worldwide	Sales	at	Borland	Software	Corporation,	a	software	delivery	optimization	solutions	provider,	from	October	2003	to	December	2006.	Prior	to	joining Borland,	Mr.	Thompson	was	Vice	President	of	Worldwide	Sales	and	Field	Operations	for	Marimba,	Inc.,	a	provider	of	products	and	services	for	software	change	and configuration	management,	from	February	2001	to	January	2003.	From	July	2000	to	January	2001,	Mr.	Thompson	was	Vice	President	of	Worldwide	Sales	for	Calico Commerce,	Inc.,	a	provider	of	eBusiness	applications.	Prior	to	joining	Calico,	Mr.	Thompson	spent	six	years	at	Cadence	Design	Systems,	Inc.,	a	provider	of	electronics design	technologies.	While	at	Cadence,	from	January	1998	to	June	2000,	Mr.	Thompson	served	as	Senior	Vice	President,	Worldwide	Sales	and	Field	Operations	and	from April	1994	to	January	1998	as	Vice	President,	Worldwide	Professional	Services.

Mr.	Rowley	joined	Adobe	in	November	2006	as	Vice	President,	Corporate	Controller	and	Principal	Accounting	Officer.	Prior	to	joining	Adobe,	Mr.	Rowley	served as	Vice	President,	Corporate	Controller,	Treasurer	and	Principal	Accounting	Officer	at	Synopsys,	Inc.,	a	semiconductor	design	software	company,	from	December	2002	to September	2005	and	from	1999	to	December	2002,	Mr.	Rowley	served	as	Vice	President,	Corporate	Controller	and	Principal	Accounting	Officer.	From	1994	to	1999,	Mr. Rowley	served	in	several	finance-related	positions	at	Synopsys.	Mr.	Rowley	is	a	certified	public	accountant.

# ITEM	1A.		RISK	FACTORS

As	previously	discussed,	our	actual	results	could	differ	materially	from	our	forward-looking	statements.	Factors	that	might	cause	or	contribute	to	such	differences include,	but	are	not	limited	to,	those	discussed	below.	These	and	many	other	factors	described	in	this	report	could	adversely	affect	our	operations,	performance	and	financial condition.

Adverse	changes	in	general	economic	or	political	conditions	in	any	of	the	major	countries	in	which	we	do	business	could	adversely	affect	our	operating	results.

As	our	business	has	grown,	we	have	become	increasingly	subject	to	the	risks	arising	from	adverse	changes	in	domestic	and	global	economic	and	political	conditions. Uncertainty	about	future	economic	and	political	conditions	makes	it	difficult	for	us	to	forecast	operating	results	and	to	make	decisions	about	future	investments.	For example,	the	direction	and	relative	strength	of	the	global	economy	has	recently	been	increasingly	uncertain	due	to	softness	in	the	residential	real	estate	and	mortgage markets,	 volatility	 in	 fuel	 and	 other	 energy	 costs,	 difficulties	 in	 the	 financial	 services	 sector	 and	 credit	 markets,	 continuing	 geopolitical	 uncertainties	 and	 other macroeconomic	factors	affecting	spending	behavior.	If	economic	growth	in	the	United	States	and	other	countries'	economies	is	slowed,	many	customers	may	delay	or reduce	technology	purchases	or	marketing	spending.	This	could	result	in	reductions	in	sales	of	our	products,	longer	sales	cycles,	slower	adoption	of	new	technologies	and increased	price	competition.

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

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

If	we	cannot	continue	to	develop,	market	and	distribute	new	products	or	upgrades	to	existing	products	that	meet	customer	requirements,	our	operating	results	could	suffer.

The	process	of	developing	new	high	technology	products	and	enhancing	existing	products	is	complex,	costly	and	uncertain,	and	any	failure	by	us	to	anticipate customers'	changing	needs	and	emerging	technological	trends	accurately	could	significantly	harm	our	market	share	and	results	of	operations.	We	must	make	long-term investments,	develop	or	obtain	appropriate	intellectual	property	and	commit	significant	resources	before	knowing	whether	our	predictions	will	accurately	reflect	customer demand	for	our	products.	Our	inability	to	extend	our	core	technologies	into	new	applications	and	new	platforms	and	to	anticipate	or	respond	to	technological	changes	could affect	continued	market	acceptance	of	our	products	and	our	ability	 to	develop	new	products.	Additionally,	any	delay	 in	 the	development,	production,	marketing	or distribution	of	a	new	product	or	upgrade	to	an	existing	product	could	cause	a	decline	in	our	revenue,	earnings	or	stock	price	and	could	harm	our	competitive	position.

We	offer	our	desktop	application-based	products	primarily	on	Windows	and	Macintosh	platforms.	We	generally	offer	our	server-based	products	on	the	Linux platform	as	well	as	the	Windows	and	UNIX	platforms.	To	the	extent	that	there	is	a	slowdown	of	customer	purchases	of	personal	computers	on	either	the	Windows	or Macintosh	platform	or	in	general,	or	to	the	extent	that	significant	demand	arises	for	our	products	or	competitive	products	on	the	Linux	desktop	or	other	platforms	before	we choose	and	are	able	to	offer	our	products	on	these	platforms	our	business	could	be	harmed.	Additionally,	to	the	extent	that

we	have	difficulty	transitioning	product	or	version	releases	to	new	Windows	and	Macintosh	operating	systems,	or	to	the	extent	new	releases	of	operating	systems	or	other third	party	products	make	it	more	difficult	for	our	products	to	perform,	our	business	could	be	harmed.

# Introduction	of	new	products	and	business	models	by	existing	and	new	competitors	could	harm	our	competitive	position	and	results	of	operations.

The	 markets	 for	 our	 products	 are	 characterized	 by	 intense	 competition,	 evolving	 industry	 standards	 and	 business	 models,	 disruptive	 software	 and	 hardware technology	developments,	frequent	new	product	introductions,	short	product	life	cycles,	price	cutting,	with	resulting	downward	pressure	on	gross	margins,	and	price sensitivity	on	the	part	of	consumers.	Our	future	success	will	depend	on	our	ability	to	enhance	our	existing	products,	introduce	new	products	on	a	timely	and	cost-effective basis,	meet	changing	customer	needs,	extend	our	core	technology	into	new	applications,	and	anticipate	and	respond	to	emerging	standards,	business	models,	software delivery	methods	and	other	technological	changes.	For	example,	Microsoft	Windows	Vista	operating	system	which	contains	a	fixed	document	format,	XPS,	competes	with Adobe	PDF.	Additionally,	Microsoft	Office	2007,	which	offers	a	feature	to	save	Microsoft	Office	documents	as	PDF	files	through	a	freely	distributed	plug-in,	competes with	Adobe	PDF	creation	(Microsoft	has	announced	that	it	will	add	support	for	PDF	directly	in	its	Office	products	beginning	in	2009	via	SP2	for	Office	2007).	Microsoft Expression	Studio	competes	with	our	Adobe	Creative	Suite	family	of	products	and	Microsoft	Silverlight	and	Visual	Studio,	Web	development	tools	for	RIAs,	compete	with Adobe	Flash	and	Adobe	Flex.	Google	Gears	and	Sun's	JavaFX,	alternative	approaches	to	building	RIAs	compete	with	Adobe	Flash	and	Adobe	AIR.	Companies,	such	as Google,	Sun,	Apple	and	Microsoft,	may	introduce	competing	software	offerings	for	free	or	open	source	vendors	may	introduce	competitive	products.	In	addition,	recent advances	 in	 computing	 and	 communications	 technologies	 have	 made	 the	 software	 as	 a	 service	 ("SaaS")	 business	 model	 viable.	 SaaS	 allows	 companies	 to	 provide applications,	data	and	related	services	over	the	Internet.	Providers	use	primarily	advertising	or	subscription-based	revenue	models.	We	are	exploring	the	deployment	of	our own	SaaS	strategies,	but	may	not	be	able	to	develop	the	infrastructure	and	business	models	as	quickly	as	our	competitors.	If	any	of	these	competing	products	or	services achieve	widespread	acceptance,	our	operating	results	could	suffer.	In	addition,	consolidation	has	occurred	among	some	of	the	competitors	in	our	markets.	Any	further consolidations	among	our	competitors	may	result	in	stronger	competitors	and	may	therefore	harm	our	results	of	operations.	For	additional	information	regarding	our competition	and	the	risks	arising	out	of	the	competitive	environment	in	which	we	operate,	see	the	section	entitled	"Competition"	contained	in	Item	1	of	this	report.

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

We	plan	to	release	numerous	new	product	offerings	and	employ	new	software	delivery	methods	in	connection	with	our	transition	to	new	business	models.	It	is uncertain	whether	these	strategies	will	prove	successful	or	that	we	will	be	able	to	develop	the	infrastructure	and	business	models	as	quickly	as	our	competitors.	Market acceptance	of	these	new	product	and	service	offerings	will	be	dependent	on	our	ability	to	include	functionality	and	usability	in	such	releases	that	address	certain	customer requirements	with	which	we	have	limited	prior	experience	and	operating	history.	Additionally,	customer	requirements	for	open	standards	or	open	source	products	could impact	adoption	or	use	with	respect	to	some	of	our	products.	To	the	extent	we	incorrectly	estimate	customer	requirements	for	such	products	or	services	or	if	there	is	a	delay in	market	acceptance	of	such	products	or	services,	our	business	could	be	harmed.

From	time	to	time	we	open	source	certain	of	our	technology	initiatives,	provide	broader	open	access	to	certain	of	our	technology,	such	as	our	Open	Screen	Project, and	release	selected	technology	for	industry	standardization.	These	changes	may	have	negative	revenue	implications	and	make	it	easier	for	our	competitors	to	produce products	similar	to	ours.	If	we	are	unable	to	respond	to	these	competitive	threats,	our	business	could	be	harmed.

We	are	also	devoting	significant	resources	to	the	development	of	technologies	and	service	offerings	in	markets	where	we	have	a	limited	operating	history,	including the	enterprise,	government	and	mobile	and	device	markets.	In	the	enterprise	and	government	markets,	we	intend	to	increase	our	focus	on	vertical	markets	such	as	education, financial	services,	manufacturing,	and	the	architecture,	engineering	and	construction	markets	and	horizontal	markets	such	as	training	and	marketing.	These	new	offerings and	markets	require	a	considerable	investment	of	technical,	financial	and	sales	resources,	and

a	scalable	organization.	Many	of	our	competitors	may	have	advantages	over	us	due	to	their	larger	presence,	larger	developer	network,	deeper	experience	in	the	enterprise, government	and	mobile	and	device	markets,	and	greater	sales	and	marketing	resources.	In	the	mobile	and	device	markets,	our	intent	is	to	partner	with	device	makers, manufacturers	and	telecommunications	carriers	to	embed	our	technology	on	their	platforms,	and	in	the	enterprise	and	government	market	our	intent	is	to	form	strategic alliances	with	leading	enterprise	and	government	solutions	and	service	providers	to	provide	additional	resources	to	further	enable	penetration	of	such	markets.	If	we	are unable	to	successfully	enter	into	strategic	alliances	with	device	makers,	manufacturers,	telecommunication	carriers	and	leading	enterprise	and	government	solutions	and service	providers,	or	if	they	are	not	as	productive	as	we	anticipate,	our	market	penetration	may	not	proceed	as	rapidly	as	we	anticipate	and	our	results	of	operations	could	be negatively	impacted.

# Revenue	from	our	new	businesses	may	be	difficult	to	predict.

As	previously	discussed,	we	are	devoting	significant	resources	to	the	development	of	product	and	service	offerings	where	we	have	a	limited	operating	history.	This makes	it	difficult	to	predict	revenue	and	revenue	may	decline	quicker	than	anticipated.	Additionally,	we	have	a	limited	history	of	licensing	products	in	certain	markets	such as	the	government	and	enterprise	market	and	may	experience	a	number	of	factors	that	will	make	our	revenue	less	predictable,	including	longer	than	expected	sales	and implementation	cycles,	decision	to	open	source	certain	of	our	technology	initiatives,	potential	deferral	of	revenue	due	to	multiple-element	revenue	arrangements	and alternate	licensing	arrangements.	If	any	of	our	assumptions	about	revenue	from	our	new	businesses	prove	incorrect,	our	actual	results	may	vary	materially	from	those anticipated,	estimated	or	projected.

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

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

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

Although	we	defend	our	 intellectual	property	rights	and	combat	unlicensed	copying	and	use	of	software	and	 intellectual	property	rights	 through	a	variety	of techniques,	preventing	unauthorized	use	or	 infringement	of	our	rights	 is	 inherently	difficult.	We	actively	pursue	software	pirates	as	part	of	our	enforcement	of	our intellectual	property	rights,	but	we	nonetheless	lose	significant	revenue	due	to	illegal	use	of	our	software.	If	piracy	activities	increase,	it	may	further	harm	our	business.

Additionally,	we	take	significant	measures	to	protect	the	secrecy	of	our	confidential	information	and	trade	secrets,	including	our	source	code.	If	unauthorized disclosure	of	our	source	code	occurs,	we	could	potentially	lose	future	trade	secret	protection	for	that	source	code.	The	loss	of	future	trade	secret	protection	could	make	it easier	for	third	parties	to	compete	with	our	products	by	copying	functionality,	which	could	adversely	affect	our	revenue	and	operating	margins.	We	also	seek	to	protect	our confidential	information	and	trade	secrets	through	the	use	of	non-disclosure	agreements	with	our	customers,	contractors,	vendors,	and	partners.	However	there	is	a	risk	that our	confidential	information	and	trade	secrets	may	be

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

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

We	may	not	realize	the	anticipated	benefits	of	past	or	future	acquisitions,	and	integration	of	these	acquisitions	may	disrupt	our	business	and	management.

We	have	in	the	past	and	may	in	the	future	acquire	additional	companies,	products	or	technologies.	We	may	not	realize	the	anticipated	benefits	of	an	acquisition	and each	acquisition	has	numerous	risks.	These	risks	include:

· difficulty	in	assimilating	the	operations	and	personnel	of	the	acquired	company;

· difficulty	in	effectively	integrating	the	acquired	technologies	or	products	with	our	current	products	and	technologies;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

# Failure	to	manage	our	sales	and	distribution	channels	effectively	could	result	in	a	loss	of	revenue	and	harm	to	our	business.

A	significant	amount	of	our	revenue	for	application	products	is	from	two	distributors,	Ingram	Micro,	Inc.	and	Tech	Data	Corporation,	which	represented	18%	and	9% of	our	net	revenue	for	fiscal	2008,	respectively.	We	have	multiple	non-exclusive,	independently	negotiated	distribution	agreements	with	Ingram	Micro	and	Tech	Data	and their	subsidiaries	covering	our	arrangements	in	specified	countries	and	regions.	Each	of	these	contracts	has	an	independent	duration,	is	independent	of	any	other	agreement (such	as	a	master	distribution	agreement)	and	any	termination	of	one	agreement	does	not	affect	the	status	of	any	of	the	other	agreements.	In	fiscal	2008,	no	single	agreement with	these	distributors	was	responsible	for	over	10%	of	our	total	net	revenue.	If	any	one	of	our	agreements	with	these	distributors	were	terminated,	we	believe	we	could	make arrangements	with	new	or	existing	distributors	to	distribute	our	products	without	a	substantial	disruption	to	our	business;	however,	any	prolonged	delay	in	securing	a replacement	distributor	could	have	a	negative	short-term	impact	on	our	results	of	operations.

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

In	addition,	the	financial	health	of	our	distributors	and	our	continuing	relationships	with	them	are	important	to	our	success.	Some	of	these	distributors	may	be	unable to	withstand	adverse	changes	in	current	economic	conditions,	which	could	result	in	insolvency	of	certain	of	our	distributors	and/or	the	inability	of	our	distributors	to	obtain credit	to	finance	purchases	of	our	products.	In	addition,	weakness	in	the	end-user	market	could	further	negatively	affect	the	cash	flow	of	our	distributors	who	could,	in	turn, delay	paying	their	obligations	to	us,	which	would	increase	our	credit	risk	exposure.	Our	business	could	be	harmed	if	the	financial	condition	of	some	of	these	distributors substantially	weakens	and	we	were	unable	to	timely	secure	replacement	distributors.

We	also	sell	certain	of	our	products	through	our	direct	sales	force.	Risks	associated	with	this	sales	channel	include	a	longer	sales	cycle	associated	with	direct	sales efforts,	difficulty	in	hiring,	retaining	and	motivating	our	direct	sales	force,	and	substantial	amounts	of	training	for	sales	representatives,	including	regular	updates	to	cover new	and	upgraded	products.

# Catastrophic	events	may	disrupt	our	business.

We	are	a	highly	automated	business	and	rely	on	our	network	infrastructure	and	enterprise	applications,	internal	technology	systems	and	our	Web	site	for	our development,	marketing,	operational,	support,	hosted	services	and	sales	activities.	A	disruption	or	failure	of	 these	systems	 in	 the	event	of	a	major	earthquake,	fire, telecommunications	failure,	cyber-attack,	war,	 terrorist	attack,	or	other	catastrophic	event	could	cause	system	 interruptions,	reputational	harm,	delays	 in	our	product development,	breaches	of	data	security	and	loss	of	critical	data	and	could	prevent	us	from	fulfilling	our	customers'	orders.	Our	corporate	headquarters,	a	significant	portion of	our	research	and	development	activities,	our	data	centers,	and	certain	other	critical	business	operations	are	located	in	San	Jose,	California,	which	is	near	major	earthquake faults.	We	have	developed	certain	disaster	recovery	plans	and	certain	backup	systems	to	reduce	the	potentially	adverse	effect	of	such	events,	but	a	catastrophic	event	that results	in	the	destruction	or	disruption	of	any	of	our	data	centers	or	our	critical	business	or	information	technology	systems	could	severely	affect	our	ability	to	conduct normal	business	operations	and,	as	a	result,	our	future	operating	results	could	be	adversely	affected.

Net	revenue,	margin	or	earnings	shortfalls	or	the	volatility	of	the	market	generally	may	cause	the	market	price	of	our	stock	to	decline.

The	market	price	for	our	common	stock	has	experienced	significant	fluctuations	and	may	continue	to	fluctuate	significantly.	The	market	price	for	our	common	stock may	be	affected	by	a	number	of	factors,	including	shortfalls	in	our	net	revenue,	margins,	earnings	or	key	performance	metrics,	changes	in	estimates	or	recommendations	by securities	analysts,	 the	announcement	of	new	products	or	product	enhancements	by	us	or	our	competitors,	quarterly	variations	 in	our	or	our	competitors'	results	of operations,	developments	in	our	industry;	unusual	events	such	as	significant	acquisitions,	divestitures	and	litigation,	general	socio-economic,	political	or	market	conditions and	other	factors,	including	factors	unrelated	to	our	operating	performance.

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

We	generate	over	50%	of	our	total	revenue	from	sales	to	customers	outside	of	the	Americas.	Sales	to	these	customers	subject	us	to	a	number	of	risks,	including:

· foreign	currency	fluctuations;

· changes	in	government	preferences	for	software	procurement;

· international	economic,	political	and	labor	conditions;

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

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

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

· inadequate	local	infrastructure;

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

· transportation	delays;

· the	burdens	of	complying	with	a	variety	of	foreign	laws,	including	consumer	and	data	protection	laws;	and

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

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

In	addition,	approximately	43%	of	our	employees	are	located	outside	the	United	States.	This	means	we	have	exposure	to	changes	in	foreign	laws	governing	our relationships	with	our	employees,	including	wage	and	hour	laws	and	regulations,	fair	labor	standards,	unemployment	tax	rates,	workers'	compensation	rates,	citizenship requirements	and	payroll	and	other	taxes,	which	likely	would	have	a	direct	impact	on	our	operating	costs.	We	also	intend	to	expand	our	international	operations	and international	sales	and	marketing	activities.	Expansion	in	international	markets	has	required,	and	will	continue	to	require,	significant	management	attention	and	resources. We	may	be	unable	to	scale	our	infrastructure	effectively,	or	as	quickly	as	our	competitors,	in	these	markets,	which	would	cause	our	results	to	suffer.	Moreover,	local	laws and	customs	in	many	countries	differ	significantly	from	those	in	the	United	States.	We	incur	additional	legal	compliance	costs	associated	with	our	international	operations and	could	become	subject	to	legal	penalties	in	foreign	countries	if	we	do	not	comply	with	local	laws	and	regulations,	which	may	be	substantially	different	from	those	in	the United	States.	In	many	foreign	countries,	particularly	in	those	with	developing	economies,	it	is	common	to	engage	in	business	practices	that	are	prohibited	by	United	States regulations	applicable	to	us	such	as	the	Foreign	Corrupt	Practices	Act.	Although	we	implement	policies	and	procedures	designed	to	ensure	compliance	with	these	laws,	there can	be	no	assurance	that	all	of	our	employees,	contractors	and	agents,	as	well	as	those	companies	to	which	we	outsource	certain	of	our	business	operations,	including	those based	in	or	from	countries

where	practices	which	violate	such	United	States	laws	may	be	customary,	will	not	take	actions	in	violation	of	our	policies.	Any	such	violation,	even	if	prohibited	by	our policies,	could	have	an	adverse	effect	on	our	business.

# We	may	incur	losses	associated	with	currency	fluctuations	and	may	not	be	able	to	effectively	hedge	our	exposure.

Our	operating	results	are	subject	to	fluctuations	in	foreign	currency	exchange	rates.	We	attempt	to	mitigate	a	portion	of	these	risks	through	foreign	currency	hedging, based	on	our	judgment	of	the	appropriate	trade-offs	among	risk,	opportunity	and	expense.	We	have	established	a	hedging	program	to	partially	hedge	our	exposure	to	foreign currency	exchange	rate	fluctuations	primarily	for	the	Japanese	Yen	and	the	Euro.	We	regularly	review	our	hedging	program	and	make	adjustments	as	necessary	based	on	the judgment	factors	discussed	above.	Our	hedging	activities	may	not	offset	more	than	a	portion	of	the	adverse	financial	impact	resulting	from	unfavorable	movement	in foreign	currency	exchange	rates,	which	could	adversely	affect	our	financial	condition	or	results	of	operations.

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

We	prepare	our	consolidated	financial	statements	in	accordance	with	accounting	principles	generally	accepted	in	the	United	States	of	America	("GAAP").	These principles	are	subject	to	interpretation	by	the	SEC	and	various	bodies	formed	to	interpret	and	create	appropriate	accounting	principles.	A	change	in	these	principles	can	have a	significant	effect	on	our	reported	results	and	may	even	retroactively	affect	previously	reported	transactions.	Our	accounting	principles	that	recently	have	been	or	may	be affected	by	changes	in	the	accounting	principles	are	as	follows:

· software	revenue	recognition;

· accounting	for	stock-based	compensation;

· accounting	for	income	taxes;	and

· accounting	for	business	combinations	and	related	goodwill.

For	example,	in	the	first	quarter	of	fiscal	2006,	we	adopted	SFAS	No.	123	(revised	2004)	("SFAS	123R"),	"Share-Based	Payment"	which	requires	the	measurement of	all	stock-based	compensation	to	employees,	including	grants	of	employee	stock	options,	using	a	fair-value-based	method	and	the	recording	of	such	expense	in	our consolidated	statements	of	income.	The	adoption	of	SFAS	123R	has	had,	and	will	continue	to	have,	a	significant	adverse	effect	on	our	reported	financial	results.

We	also	adopted	FIN	48	in	the	first	quarter	of	fiscal	2008.	The	adoption	of	FIN	48	resulted	in	an	increase	to	both	assets	and	liabilities	in	our	condensed	consolidated balance	sheet	as	of	the	beginning	of	fiscal	2008	and	may	create	increased	volatility	in	our	future	operating	results.

In	 December	 2007,	 the	 FASB	 issued	 SFAS	 No.	 141	 (revised	 2007),	 ("SFAS	 141R"),	 "Business	 Combinations,"	 which	 changes	 the	 accounting	 for	 business combinations	including	the	measurement	of	acquirer	shares	issued	in	consideration	for	a	business	combination,	the	recognition	of	contingent	consideration,	the	accounting for	pre-acquisition	gain	and	loss	contingencies,	the	recognition	of	capitalized	in-process	research	and	development,	the	accounting	for	acquisition	related	restructuring liabilities,	the	treatment	of	acquisition	related	transaction	costs	and	the	recognition	of	changes	in	the	acquirer's	income	tax	valuation	allowance.	SFAS	141R	is	effective	for financial	statements	issued	for	fiscal	years	beginning	after	December	15,	2008.	We	are	in	the	process	of	evaluating	the	impact	of	the	pending	adoption	of	Statement	141R. We	currently	believe	that	the	adoption	of	Statement	141R	will	result	in	the	recognition	of	certain	types	of	expenses	in	our	results	of	operations	that	we	currently	capitalize pursuant	to	existing	accounting	standards	and	may	also	impact	our	financial	statements	in	other	ways.

# If	our	goodwill	or	amortizable	intangible	assets	become	impaired	we	may	be	required	to	record	a	significant	charge	to	earnings.

Under	GAAP,	we	review	our	goodwill	and	amortizable	intangible	assets	for	impairment	when	events	or	changes	in	circumstances	indicate	the	carrying	value	may	not be	recoverable.	Goodwill	is	required	to	be	tested	for	impairment	at	least	annually.	Factors	that	may	be	considered	a	change	in	circumstances	indicating	that	the	carrying value	of	our	goodwill	or	amortizable	intangible	assets	may	not	be	recoverable	include	a	decline	in	stock	price	and	market	capitalization,	future	cash	flows,	and	slower growth	rates	in	our	industry.	We	may	be	required	to	record	a	significant	charge	to	earnings	in	our	financial	statements	during	the	period	in	which	any	impairment	of	our goodwill	or	amortizable	intangible	assets	is	determined,	resulting	in	an	impact	on	our	results	of	operations.	For	example,	our	Mobile	and	Device	Solutions	business,	which will	be	reported	as	part	of	our	Platform	segment	in	fiscal	2009,	is	in	an	emerging	market	with	high	growth	potential.	We	recently	announced	the	Open	Screen	Project.	As part	of	the	project,	we	will	be	removing	the	license	fees	on	the	next	major	releases	of	Adobe	Flash	Player	and	Adobe	AIR	for	devices.	Accordingly,	we	would	expect revenue	from	this	segment	to	decrease	beginning	in	the	first	quarter	of	fiscal	2009.	Although	we	would	expect	this	decrease	to	be	offset	in	time	by	an	increased	demand	for tooling	products,	server	technologies,	hosted	services	and	applications,	if	future	revenue	or	revenue	forecasts	for	our	Platform	segment	do	not	meet	our	expectations,	we	may be	required	to	record	a	charge	to	earnings	reflecting	an	impairment	of	recorded	goodwill	or	intangible	assets.

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

We	are	a	U.S.	based	multinational	company	subject	to	tax	in	multiple	U.S.	and	foreign	tax	jurisdictions.	Unanticipated	changes	in	our	tax	rates	could	affect	our	future results	of	operations.	Our	future	effective	tax	rates	could	be	unfavorably	affected	by	changes	in,	or	interpretation	of,	tax	rules	and	regulations	in	the	jurisdictions	in	which	we do	business,	by	unanticipated	decreases	in	the	amount	of	revenue	or	earnings	in	countries	with	low	statutory	tax	rates,	by	lapses	of	the	availability	of	the	U.S.	research	and development	tax	credit,	or	by	changes	in	the	valuation	of	our	deferred	tax	assets	and	liabilities.

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

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

Much	of	our	future	success	depends	on	the	continued	service	and	availability	of	our	senior	management.	These	individuals	have	acquired	specialized	knowledge	and skills	with	respect	to	Adobe.	The	loss	of	any	of	these	individuals	could	harm	our	business.	Our	business	is	also	dependent	on	our	ability	to	retain,	hire	and	motivate	talented, highly	skilled	personnel.	Experienced	personnel	in	the	information	technology	industry	are	in	high	demand	and	competition	for	their	talents	is	intense,	especially	in	the	Bay Area,	where	many	of	our	employees	are	located.	We	have	relied	on	our	ability	to	grant	equity	compensation	as	one	mechanism	for	recruiting	and	retaining	such	highly skilled	personnel.	Recently	enacted	accounting	regulations	requiring	the	expensing	of	equity	compensation	may	impair	our	ability	to	provide	these	incentives	without incurring	significant	compensation	costs.	Additionally,	the	recent	significant	adverse	volatility	in	our	stock	price	has	resulted	in	many	employees'	stock	option	exercise prices	exceeding	the	underlying	stock's	market	value	as	well	as	deterioration	in	the	value	of	employees'	restricted	stock	units	granted,	thus	lessening	the	effectiveness	of retaining	employees	through	stock-based	awards.	If	we	are	unable	to	continue	to	successfully	attract	and	retain	key	personnel,	our	business	may	be	harmed.

# Our	investment	portfolio	may	become	impaired	by	deterioration	of	the	capital	markets.

Our	cash	equivalent	and	short-term	investment	portfolio	as	of	November	28,	2008	consisted	of	US	treasury	securities,	bonds	of	government	agencies,	obligations	of foreign	governments,	corporate	bonds	and	taxable	money	market	mutual	funds.	We	follow	an	established	investment	policy	and	set	of	guidelines	to	monitor	and	help mitigate	our	exposure	to	interest	rate	and	credit	risk.	The	policy	sets	forth	credit	quality	standards	and	limits	our	exposure	to	any	one	issuer,	as	well	as	our	maximum exposure	to	various	asset	classes.

As	a	result	of	current	adverse	financial	market	conditions,	investments	in	some	financial	instruments,	such	as	structured	investment	vehicles,	sub-prime	mortgage- backed	securities	and	collateralized	debt	obligations,	may	pose	risks	arising	from	recent	market	liquidity	and	credit	concerns.	As	of	November	28,	2008,	we	had	no	direct holdings	in	these	categories	of	investments	and	our	indirect	exposure	to	these	financial	instruments	through	our	holdings	in	money	market	mutual	funds	was	immaterial.	As of	November	28,	2008,	we	had	no	material	impairment	charges	associated	with	our	short-term	investment	portfolio	relating	to	such	adverse	financial	market	conditions. Although	we	believe	our	current	investment	portfolio	has	very	little	risk	of	material	impairment,	we	cannot	predict	future	market	conditions	or	market	liquidity	and	can provide	no	assurance	that	our	investment	portfolio	will	remain	materially	unimpaired.

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

We	have	investments	and	plan	to	continue	to	make	future	investments	in	privately-held	companies,	many	of	which	are	considered	in	the	start-up	or	development stages.	These	investments	are	inherently	risky,	as	the	market	for	the	technologies	or	products	these	companies	have	under	development	is	typically	in	the	early	stages	and may	never	materialize.	Our	investment	activities	can	impact	our	net	income.	Future	price	fluctuations	in	these	securities	and	any	significant	long-term	declines	in	value	of any	of	our	investments	could	reduce	our	net	income	in	future	periods.

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

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

# ITEM	1B.		UNRESOLVED	STAFF	COMMENTS

# None.

# ITEM	2.		PROPERTIES

The	following	table	sets	forth	the	location,	approximate	square	footage	and	use	of	each	of	the	principal	properties	used	by	Adobe	during	fiscal	2008.	We	lease	or sublease	all	of	these	properties	with	the	exception	of	our	property	in	India,	where	we	own	the	building	and	lease	the	land,	and	San	Francisco	where	we	own	the	building	and land.	All	properties	are	leased	under	operating	leases.	Such	leases	expire	at	various	times	through	2028,	with	the	exception	of	the	land	lease	that	expires	in	2091.	The	annual base	rent	expense	(including	operating	expenses,	property	taxes	and	assessments,	as	applicable)	for	all	facilities	is	currently	approximately	$86.3	million	and	is	subject	to annual	adjustments	as	well	as	changes	in	interest	rates.

* The	total	square	footage	is	346,000,	of	which	we	occupy	272,000	square	feet,	or	approximately	79%	of	this	facility;	74,000	square	feet	is	unoccupied	basement	space.

** The	total	square	footage	is	348,000,	of	which	we	occupy	81,000	square	feet,	or	approximately	23%	of	this	facility.		The	remaining	square	footage	is	subleased.

***	 The	total	square	footage	is	44,000,	of	which	we	occupy	22,000	square	feet,	or	approximately	50%	of	this	facility.		The	remaining	square	footage	is	subleased.

In	general,	all	facilities	are	in	good	condition	and	are	operating	at	an	average	capacity	of	approximately	85%.

# ITEM	3.		LEGAL	PROCEEDINGS

In	connection	with	our	anti-piracy	efforts,	conducted	both	internally	and	through	organizations	such	as	the	Business	Software	Alliance,	from	time	to	time	we undertake	litigation	against	alleged	copyright	infringers.	Such	lawsuits	may	lead	to	counter-claims	alleging	improper	use	of	litigation	or	violation	of	other	local	laws.	We believe	we	have	valid	defenses	with	respect	to	such	counter-claims;	however,	it	is	possible	that	our	consolidated	financial	position,	cash	flows	or	results	of	operations	could be	affected	in	any	particular	period	by	the	resolution	of	one	or	more	of	these	counter-claims.

From	time	to	time,	Adobe	is	subject	to	legal	proceedings,	claims	and	investigations	in	the	ordinary	course	of	business,	including	claims	of	alleged	infringement	of third-party	patents	and	other	intellectual	property	rights,	commercial,	employment	and	other	matters.	In	accordance	with	GAAP,	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.	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.

# ITEM	4.		SUBMISSION	OF	MATTERS	TO	A	VOTE	OF	SECURITY	HOLDERS

No	matters	were	submitted	to	a	vote	of	security	holders	during	the	quarter	ended	November	28,	2008.

# PART	II

# ITEM	5.		MARKET	FOR	REGISTRANT'S	COMMON	EQUITY,	RELATED	STOCKHOLDER	MATTERS	AND	ISSUER	PURCHASES	OF	EQUITY SECURITIES

Our	common	stock	is	traded	on	the	NASDAQ	Global	Select	Market	under	the	symbol	"ADBE."	On	January	16,	2009,	there	were	1,728	holders	of	record	of	our common	stock.	Because	many	of	such	shares	are	held	by	brokers	and	other	institutions	on	behalf	of	stockholders,	we	are	unable	to	estimate	the	total	number	of	stockholders represented	by	these	record	holders.

We	did	not	pay	any	cash	dividends	on	our	common	stock	during	fiscal	2008	or	fiscal	2007.	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.	The	following	table	sets	forth	the	high	and	low	sales	price per	share	of	our	common	stock	for	the	periods	indicated.

|  | High | Low |
| :--- | :--- | :--- |
| Fiscal\t2008: |  |  |
| First\tQuarter | \t$44.62 | \t$32.62 |
| Second\tQuarter | 44.06 | 30.79 |
| Third\tQuarter | 45.89 | 38.23 |
| Fourth\tQuarter | 43.14 | 20.75 |
| Fiscal\tYear | 45.89 | 20.75 |
| Fiscal\t2007: |  |  |
| First\tQuarter | \t$42.81 | \t$37.52 |
| Second\tQuarter | 44.53 | 38.52 |
| Third\tQuarter | 44.58 | 38.75 |
| Fourth\tQuarter | 48.00 | 40.82 |
| Fiscal\tYear | 48.00 | 37.52 |

# Issuer	Purchases	of	Equity	Securities

Below	is	a	summary	of	stock	repurchases	for	the	quarter	ended	November	28,	2008.	See	Note	12	of	our	Notes	to	Consolidated	Financial	Statements	for	information regarding	our	stock	repurchase	programs.

| Plan/Period^(1) | Shares<br>Repurchased^(2) | Average<br>Price	Per<br>Share | May<br>Yet	Be	Purchased<br>Under	the	Plan |  |
| :--- | :--- | :--- | :--- | :--- |
| Stock\tRepurchase\tProgram\tI |  |  |  |  |
| Beginning\tshares\tavailable\tto\tbe\trepurchased\tas\tof\tAugust\t29,\t2008 |  |  | 143,023,525 | (3) |
| August\t30—September\t26,\t2008 |  |  |  |  |
| Structured\trepurchases | 1,019,649 | \t$40.23 |  |  |
| September\t27—October\t24,\t2008\nFrom\temployees^(4) | 29 | \t$26.00 |  |  |
| Structured\trepurchases | 1,023,240 | \t$32.58 |  |  |
| Open\tmarket\trepurchases | 2,802,943 | \t$35.67 |  |  |
| October\t25—November\t28,\t2008 |  |  |  |  |
| Structured\trepurchases | 1,340,051 | \t$23.84 |  |  |
| Adjustments\tto\trepurchase\tauthority\tfor\tnet\tdilution | — |  | (3,338,382) | (5) |
| Total\tshares\trepurchased | 6,185,912 |  | (6,185,912) |  |
| Ending\tshares\tavailable\tto\tbe\trepurchased\tunder\tProgram\tI\tas\tof\tNovember\t28,\t2008 |  |  | 133,499,231 | (6) |

(1) Stock	Repurchase	Program	I

In	December	1997,	our	Board	of	Directors	authorized	Stock	Repurchase	Program	I	which	is	not	subject	to	expiration.	However,	this	repurchase	program	is	limited	to covering	net	dilution	from	stock	issuances	and	is	subject	to	business	conditions	and	cash	flow	requirements	as	determined	by	our	Board	of	Directors	from	time	to	time.

(2) All	shares	were	purchased	as	part	of	publicly	announced	plans.

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

(4) The	repurchases	from	employees	represent	shares	cancelled	when	surrendered	in	lieu	of	cash	payments	for	withholding	taxes	due.

(5) Adjustment	of	authority	to	reflect	changes	in	the	dilution	from	outstanding	shares	and	options.

(6) The	remaining	authorization	for	the	ongoing	stock	repurchase	program	is	determined	by	combining	all	stock	issuances,	net	of	any	cancelled,	surrendered	or	exchanged shares	less	all	stock	repurchases	under	the	ongoing	plan,	beginning	in	the	first	quarter	of	fiscal	1998.

# Stock	Performance	Graph*

# Five-Year	Stockholder	Return	Comparison

The	line	graph	below	compares	the	cumulative	stockholder	return	on	our	common	stock	with	the	cumulative	total	return	of	the	Standard	&	Poor's	500	Index	("S&P 500")	and	the	S&P	500	Software	&	Services	Index	for	the	five	fiscal	year	period	ending	November	28,	2008.	The	stock	price	information	shown	on	the	graph	below	is	not necessarily	indicative	of	future	price	performance.

The	following	table	and	graph	assume	that	$100.00	was	invested	on	November	28,	2003	in	our	common	stock,	the	S&P	500	Index	and	the	S&P	500	Software	& Services	Index,	with	reinvestment	of	dividends.		For	each	reported	year,	our	reported	dates	are	the	last	trading	dates	of	our	fiscal	year	which	ends	on	the	Friday	closest	to November	30.

|  | 2004 | 2005 | 2006 | 2007 | 2008 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Adobe\tSystems | \t$152.59 | \t$169.57 | \t$190.81 | \t$204.34 | \t$112.30 |
| S&amp;P\t500\tIndex | 114.56 | 123.91 | 139.40 | 150.59 | 93.22 |
| S&amp;P\t500\tSoftware\t&amp;\tServices\tIndex | 118.75 | 122.24 | 127.67 | 145.77 | 83.62 |

* The	material	in	this	report	is	not	deemed	"filed"	with	the	SEC	and	is	not	to	be	incorporated	by	reference	into	any	of	our	filing	under	the	Securities	Act	of	1933	or	the Securities	Exchange	Act	of	1934,	whether	made	before	or	after	the	date	hereof	and	irrespective	of	any	general	incorporation	language	in	any	such	filings.

# ITEM	6.		SELECTED	FINANCIAL	DATA

The	following	selected	consolidated	financial	data	(presented	in	thousands,	except	per	share	amounts	and	employee	data)	is	derived	from	our	consolidated	financial statements.	This	data	should	be	read	in	conjunction	with	the	consolidated	financial	statements	and	notes	thereto,	and	with	Item	7,	Management's	Discussion	and	Analysis	of Financial	Condition	and	Results	of	Operations.

|  | 2008 | 2007 | 2006 | 2005 | 2004 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Operations: |  |  |  |  |  |
| Revenue | \t$3,579,889 | \t$3,157,881 | \t$2,575,300 | \t$1,966,321 | \t$1,666,581 |
| Gross\tprofit | 3,217,259 | 2,803,187 | 2,282,843 | 1,853,743 | 1,562,203 |
| Income\tbefore\tincome\ttaxes | 1,078,508 | 947,190 | 679,727 | 765,776 | 608,645 |
| Net\tincome^(1) | 871,814 | 723,807 | 505,809 | 602,839 | 450,398 |
| Net\tincome\tper\tshare^(1),\t(2) |  |  |  |  |  |
| Basic | 1.62 | 1.24 | 0.85 | 1.23 | 0.94 |
| Diluted | 1.59 | 1.21 | 0.83 | 1.19 | 0.91 |
| Cash\tdividends\tdeclared\tper\tcommon\tshare | — | — | — | 0.00625 | 0.025 |
| Financial\tposition:^(3) |  |  |  |  |  |
| Cash,\tcash\tequivalents\tand\tshort-term\tinvestments | 2,019,202 | 1,993,854 | 2,280,879 | 1,700,834 | 1,313,221 |
| Working\tcapital | 1,972,504 | 1,720,441 | 2,208,688 | 1,528,915 | 1,107,458 |
| Total\tassets | 5,821,598 | 5,713,679 | 5,962,548 | 2,440,315 | 1,958,632 |
| Long-term\tdebt | 350,000 | — | — | — | — |
| Stockholders'\tequity | \t$4,410,354 | \t$4,649,982 | \t$5,151,876 | \t$1,865,164 | \t$1,423,477 |
| Additional\tdata: |  |  |  |  |  |
| Worldwide\temployees | 7,544 | 6,794 | 6,068 | 4,285 | 3,848 |

(1) In	fiscal	2008,	2007	and	2006,	net	income	and	net	income	per	share	includes	the	impact	of	SFAS	123R	stock-based	compensation	charges	as	well	as	the	integration	of Macromedia	into	our	operations	in	fiscal	2006,	neither	of	which	were	present	in	fiscal	years	2005	and	prior.	See	Notes	2	and	11	of	our	Notes	to	Consolidated	Financial Statements	for	information	regarding	our	Macromedia	acquisition	and	stock-based	compensation,	respectively.

(2) On	March	16,	2005,	our	Board	of	Directors	approved	a	two-for-one	stock	split,	in	the	form	of	a	stock	dividend,	of	our	common	stock	payable	on	May	23,	2005	to stockholders	of	record	as	of	May	2,	2005.	Per	share	data,	for	all	periods	presented,	have	been	adjusted	to	give	effect	to	this	stock	split.

(3) Information	associated	with	our	financial	position	is	as	of	the	Friday	closest	to	November	30	for	the	five	fiscal	periods	through	2008.

# ITEM	7.		MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF	FINANCIAL	CONDITION	AND	RESULTS	OF	OPERATIONS

The	following	discussion	(presented	in	millions,	except	where	indicated)	should	be	read	in	conjunction	with	our	consolidated	financial	statements	and	notes	thereto.

In	addition	to	historical	information,	this	Annual	Report	on	Form	10-K	contains	forward-looking	statements,	including	statements	regarding	product	plans,	future growth	and	market	opportunities	which	involve	risks	and	uncertainties	that	could	cause	actual	results	to	differ	materially	from	these	forward-looking	statements.	Factors that	might	cause	or	contribute	to	such	differences	include,	but	are	not	limited	to,	those	discussed	in	the	section	titled	"Risk	Factors"	in	Part	1,	Item	1A	of	this	report.	You should	carefully	review	the	risks	described	herein	and	in	other	documents	we	file	from	time	to	time	with	the	SEC,	including	the	Quarterly	Reports	on	Form	10-Q	to	be	filed in	fiscal	2009.	When	used	in	this	report,	the	words	"expects,"	"could,"	"would,"	"may,"	"anticipates,"	"intends,"	"plans,"	"believes,"	"seeks,"	"targets,"	"estimates," "looks	for,"	"looks	to"	and	similar	expressions,	as	well	as	statements	regarding	our	focus	for	the	future,	are	generally	intended	to	identify	forward-looking	statements.	You should	not	place	undue	reliance	on	these	forward-looking	statements,	which	speak	only	as	of	the	date	of	this	Annual	Report	on	Form	10-K.	We	undertake	no	obligation	to publicly	release	any	revisions	to	the	forward-looking	statements	or	reflect	events	or	circumstances	after	the	date	of	this	document.

Founded	in	1982,	Adobe	Systems	Incorporated	is	one	of	the	largest	and	most	diversified	software	companies	in	the	world.	We	offer	a	line	of	creative,	business	and mobile	software	and	services	used	by	creative	professionals,	designers,	knowledge	workers,	high-end	consumers,	OEM	partners,	developers	and	enterprises	for	creating, managing,	delivering	and	engaging	with	compelling	content	and	experiences	across	multiple	operating	systems,	devices	and	media.	We	distribute	our	products	through	a network	of	distributors	and	dealers,	VARs,	systems	integrators,	ISVs	and	OEMs,	direct	to	end	users	and	through	our	own	Web	site	at	www.adobe.com.	We	also	license	our technology	to	hardware	manufacturers,	software	developers	and	service	providers,	and	we	offer	integrated	software	solutions	to	businesses	of	all	sizes.	We	have	operations in	the	Americas,	EMEA	and	Asia.	Our	software	runs	on	personal	computers	with	Microsoft	Windows,	Apple	OS,	Linux,	UNIX	and	various	non-PC	platforms,	depending	on the	product.

# CRITICAL	ACCOUNTING	POLICIES	AND	ESTIMATES

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.

# Revenue	Recognition

We	recognize	revenue	when	all	four	revenue	recognition	criteria	have	been	met:	persuasive	evidence	of	an	arrangement	exists,	we	have	delivered	the	product	or performed	the	service,	the	fee	is	fixed	or	determinable	and	collection	is	probable.	Determining	whether	and	when	some	of	these	criteria	have	been	satisfied	often	involves assumptions	and	judgments	that	can	have	a	significant	impact	on	the	timing	and	amount	of	revenue	we	report.	For	example,	for	multiple	element	arrangements,	we	must:	(1) determine	whether	and	when	each	element	has	been	delivered;	(2)	determine	whether	undelivered	products	or

services	are	essential	to	the	functionality	of	the	delivered	products	and	services;	(3)	determine	whether	vendor-specific	objective	evidence	("VSOE")	of	fair	value	exists	for each	undelivered	element;	and	(4)	allocate	the	total	price	among	the	various	elements	we	must	deliver.	Changes	in	assumptions	or	judgments	or	changes	to	the	elements	in	a software	arrangement	could	cause	a	material	increase	or	decrease	in	the	amount	of	revenue	that	we	report	in	a	particular	period.

In	addition,	we	must	estimate	certain	royalty	revenue	amounts	due	to	the	timing	of	securing	information	from	our	customers.	While	we	believe	we	can	make	reliable estimates	regarding	these	matters,	these	estimates	are	inherently	subjective.	Accordingly,	our	assumptions	and	judgments	regarding	future	products	and	services	as	well	as our	estimates	of	royalty	revenue	could	differ	from	actual	events,	thus	materially	impacting	our	financial	position	and	results	of	operations.

Product	revenue	is	recognized	when	the	above	criteria	are	met.	We	reduce	the	revenue	recognized	for	estimated	future	returns,	price	protection	and	rebates	at	the	time the	related	revenue	is	recorded.	In	determining	our	estimate	for	returns	and	in	accordance	with	our	internal	policy	regarding	global	channel	inventory	which	is	used	to determine	the	level	of	product	held	by	our	distributors	on	which	we	have	recognized	revenue,	we	rely	upon	historical	data,	the	estimated	amount	of	product	inventory	in	our distribution	channel,	the	rate	at	which	our	product	sells	through	to	the	end	user,	product	plans	and	other	factors.	Our	estimated	provisions	for	returns	can	vary	from	what actually	occurs.	Product	returns	may	be	more	or	less	than	what	was	estimated.	The	amount	of	inventory	in	the	channel	could	be	different	than	what	is	estimated.	Our estimate	of	the	rate	of	sell	through	for	product	in	the	channel	could	be	different	than	what	actually	occurs.	There	could	be	a	delay	in	the	release	of	our	products.	These factors	and	unanticipated	changes	in	the	economic	and	industry	environment	could	make	our	return	estimates	differ	from	actual	returns,	thus	materially	impacting	our financial	position	and	results	of	operations.

We	offer	price	protection	to	our	distributors	that	allows	for	the	right	to	a	credit	if	we	permanently	reduce	the	price	of	a	software	product.	When	evaluating	the adequacy	of	the	price	protection	allowance,	we	analyze	historical	returns,	current	sell-through	of	distributor	and	retailer	inventory	of	our	products,	changes	in	customer demand	and	acceptance	of	our	products	and	other	related	factors.	In	addition,	we	monitor	the	volume	of	sales	to	our	channel	partners	and	their	inventories.	Changes	to	these assumptions	or	in	the	economic	environment	could	result	in	higher	returns	or	higher	price	protection	costs	in	subsequent	periods.

In	the	future,	actual	returns	and	price	protection	may	materially	exceed	our	estimates	as	unsold	products	in	the	distribution	channels	are	exposed	to	rapid	changes	in consumer	preferences,	market	conditions	or	technological	obsolescence	due	to	new	platforms,	product	updates	or	competing	products.	While	we	believe	we	can	make reliable	estimates	regarding	these	matters,	these	estimates	are	inherently	subjective.	Accordingly,	if	our	estimates	change,	our	returns	and	price	protection	reserves	would change,	which	would	impact	the	total	net	revenue	we	report.

Our	consulting	revenue	is	recognized	using	the	proportionate	performance	method	and	is	measured	monthly	based	on	input	measures,	such	as	on	hours	incurred	to date	compared	to	total	estimated	hours	to	complete,	with	consideration	given	to	output	measures,	such	as	contract	milestones,	when	applicable.	Accordingly,	our	estimates	of consulting	revenue	could	differ	from	actual	events	and	may	materially	impact	our	financial	position	and	results	of	operations.

# Stock-based	Compensation

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.

# Goodwill	Impairment

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.

# Accounting	for	Income	Taxes

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.

# RESULTS	OF	OPERATIONS

During	fiscal	2008,	our	software	and	technologies	continued	to	redefine	how	people	engage	with	ideas	and	information—anytime,	anywhere	and	through	virtually any	medium.		Given	our	solid	execution	during	the	year,	we	were	able	to	deliver	strong	revenue	and	earnings	growth	when	compared	to	the	previous	year.

In	our	Creative	Solutions	segment,	revenue	increased	by	nine	percent	during	fiscal	2008	as	compared	to	fiscal	2007,	based	on	continued	adoption	of	our	CS3	family of	products	during	the	first	three	quarters	of	fiscal	2008,	as	well	as	the	release	of	our	new	CS4	family	of	products	which	began	shipping	in	the	fourth	quarter	of	the	year. Consisting	 of	 six	 Creative	 Suite	 editions	 and	 thirteen	 individual	 creative	 products,	 our	 CS4	 family	 of	 products	 launch	 was	 the	 largest	 in	 our	 more	 than	 25-year history.		Although	reviews	and	market	commentary	about	our	new	CS4	family	of	products	were	overwhelmingly	positive,	we	believe	revenue	from	the	fourth	quarter	launch was	significantly	impacted	by	the	global	financial	crisis	that	is	affecting	demand	in	the	creative	professional	end	user	market.

Helping	to	drive	the	growth	we	achieved	in	our	Creative	Solutions	business	was	a	thirteen	percent	growth	with	our	professional	digital	imaging	products	during	fiscal 2008	as	compared	to	fiscal	2007.		In	addition,	we	achieved	strong	growth	in	our	Scene7	business.	Revenue	increased	by	more	than	twenty	percent	with	our	digital	imaging and	digital	video	hobbyist	markets	with	the	introduction	of	new	versions	of	our	Adobe	Photoshop	Elements	and	Adobe	Premiere	Elements	products	during	the	fourth quarter.

Business	Productivity	Solutions	achieved	greater	than	fifteen	percent	increase	in	revenue	during	fiscal	2008	as	compared	to	fiscal	2007.		This	success	was	driven	by continued	adoption	of	our	Acrobat	8	family	of	products,	as	well	as	adoption	of	its	successor,	Acrobat	9,	which	was	released	in	the	third	quarter	of	the	fiscal	year.	In	addition, our	execution	in	driving	our	enterprise	business	with	our	LiveCycle	product	family	resulted	in	more	than	a	thirty	percent	increase	in	revenue	in	this	business	during	fiscal 2008	as	compared	to	fiscal	2007,	with	revenue	exceeding	$250	million.	We	also	continued	to	grow	our	Acrobat	Connect	Pro	business	which	provides	real-time	collaboration capabilities	via	the	Web	utilizing	our	Adobe	Flash	Player.

Our	Mobile	and	Device	Solutions	segment	achieved	greater	than	100%	growth	during	fiscal	2008	as	compared	to	fiscal	2007,	due	to	the	ongoing	success	we	have	had targeting	mobile	operators,	handset	manufacturers	and	consumer	electronic	device	manufactures	with	our	Flash	Lite	technology.	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,	mobile	Internet	devices	("MIDs")	and	set	top	boxes.	As	part	of	the	project,	we	will	be	removing	some	restrictions on	the	use	of	some	of	our	technology	specifications	and	publishing	several	technology	protocols.		We	will	also	be	removing	the	license	fees	on	the	next	major	releases	of Adobe	Flash	Player	and	Adobe	AIR	for	devices.		Accordingly,	we	expect	revenue	from	Mobile	and	Device	Solutions	to	decrease	beginning	in	the	first	quarter	of	fiscal	2009. We	would	expect	this	decrease	to	be	offset	in	time	by	an	increased	demand	for	tooling	products,	server	technologies,	services	and	applications.

In	our	other	segments,	revenue	increased	by	fifteen	percent	compared	to	fiscal	2007	due	primarily	to	higher	revenue	with	our	Platform	business	and	the	sustaining	of revenue	in	our	legacy	Print	and	Publishing	business.

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Product | \t$3,396.5 | 12% \t$ | 3,019.5 | 22% \t$ | 2,484.7 |
| Percentage\tof\ttotal\trevenue | 95% |  | 96% |  | 96% |
| Services\tand\tsupport | 183.4 | 33% | 138.4 | 53% | 90.6 |
| Percentage\tof\ttotal\trevenue | 5% |  | 4% |  | 4% |
| Total\trevenue | \t$3,579.9 | 13% \t$ | 3,157.9 | 23% \t$ | 2,575.3 |

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.

# Segment	Information

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Creative\tSolutions | \t$2,072.8 | 9% \t$ | 1,899.0 | 32% | \t$1,438.0 |
| Percentage\tof\ttotal\trevenue | 58% |  | 60% |  | 56% |
| Knowledge\tWorker | 810.9 | 11% | 728.5 | 11% | 657.8 |
| Percentage\tof\ttotal\trevenue | 23% |  | 23% |  | 26% |
| Enterprise | 253.0 | 32% | 191.3 | 21% | 158.2 |
| Percentage\tof\ttotal\trevenue | 7% |  | 6% |  | 6% |
| Mobile\tand\tDevice\tSolutions | 113.1 | 115% | 52.5 | 40% | 37.5 |
| Percentage\tof\ttotal\trevenue | 3% |  | 2% |  | 1% |
| Platform | 118.5 | 46% | 80.9 | 19% | 68.1 |
| Percentage\tof\ttotal\trevenue | 3% |  | 3% |  | 3% |
| Print\tand\tPublishing | 211.6 | 3% | 205.7 | (5)% | 215.7 |
| Percentage\tof\ttotal\trevenue | 6% |  | 6% |  | 8% |
| Total\trevenue | \t$3,579.9 | 13% \t$ | 3,157.9 | 23% | \t$2,575.3 |

# Fiscal	2008	Revenue	Compared	to	Fiscal	2007	Revenue

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.

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.

# Geographic	Information

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Americas | \t$1,632.8 | 8% \t$ | 1,508.9 | 19% \t$ | 1,266.7 |
| Percentage\tof\ttotal\trevenue | 46% |  | 48% |  | 49% |
| EMEA | 1,229.2 | 20% | 1,026.4 | 33% | 770.1 |
| Percentage\tof\ttotal\trevenue | 34% |  | 32% |  | 30% |
| Asia | 717.9 | 15% | 622.6 | 16% | 538.5 |
| Percentage\tof\ttotal\trevenue | 20% |  | 20% |  | 21% |
| Total\trevenue | \t$3,579.9 | 13% \t$ | 3,157.9 | 23% \t$ | 2,575.3 |

Fiscal	2008	Revenue	by	Geography	Compared	to	Fiscal	2007	Revenue	by	Geography

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.

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.

# Product	Backlog

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.

# Cost	of	Revenue

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Product | \t$266.4 | (2)% \t$ | 270.8 | 20% \t$ | 226.5 |
| Percentage\tof\ttotal\trevenue | 7% |  | 9% |  | 9% |
| Services\tand\tsupport | 96.2 | 15% | 83.9 | 27% | 66.0 |
| Percentage\tof\ttotal\trevenue | 3% |  | 3% |  | 3% |
| Total\tcost\tof\trevenue | \t$362.6 | 2% | \t$354.7 | 21% \t$ | 292.5 |

# Product

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:

|  | %	Change<br>2008	to	2007 | %	Change<br>2007	to	2006 |
| :--- | :--- | :--- |
| Amortization\tof\tacquired\trights\tto\tuse\ttechnology | 6% | 8% |
| Royalties\tfor\tlicensed\ttechnologies | 3 | 7 |
| Localization\tcosts\trelated\tto\tour\tproduct\tlaunches | (1) | 10 |
| Excess\tand\tobsolete\tinventory | (1) | 3 |
| Amortization\tof\tpurchased\ttechnology | (10) | (11) |
| Various\tindividually\tinsignificant\titems | 1 | 3 |
| Total\tchange | (2)% | 20% |

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.

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.

# Operating	Expenses

# 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.

# Research	and	Development

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Expenses | \t$662.1 | 8% \t$ | 613.2 | 14% \t$ | 539.7 |
| Percentage\tof\ttotal\trevenue | 18% |  | 19% |  | 21% |

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:

|  | %	Change | %	Change |
| :--- | :--- | :--- |
|  | 2008\tto\t2007 | 2007\tto\t2006 |
| Compensation\tand\trelated\tbenefits\tassociated\twith\theadcount\tgrowth | 7% | 9% |
| Compensation\tassociated\twith\tincentive\tcompensation\tand\tstock-based\tcompensation | — | 5 |
| Various\tindividually\tinsignificant\titems | 1 | — |
| Total\tchange | 8% | 14% |

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.

# Sales	and	Marketing

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Expenses | \t$1,089.3 | 11% \t$ | 984.4 | 14% \t$ | 867.1 |
| Percentage\tof\ttotal\trevenue | 30% |  | 31% |  | 34% |

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:

|  | %	Change | %	Change |
| :--- | :--- | :--- |
|  | 2008\tto\t2007 | 2007\tto\t2006 |
| Compensation\tand\trelated\tbenefits\tassociated\twith\theadcount\tgrowth | 5% | 3% |
| Marketing\tspending\trelated\tto\tproduct\tlaunches\tand\toverall\tmarketing\tefforts\tto\tfurther\tincrease\trevenue | 4 | 2 |
| Compensation\tassociated\twith\tincentive\tcompensation\tand\tstock-based\tcompensation | 1 | 6 |
| Various\tindividually\tinsignificant\titems | 1 | 3 |
| Total\tchange | 11% | 14% |

# General	and	Administrative

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Expenses | \t$337.3 | 23% \t$ | 275.0 | 17% \t$ | 234.6 |
| Percentage\tof\ttotal\trevenue | 9% |  | 9% |  | 9% |

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:

|  | %	Change | %	Change |
| :--- | :--- | :--- |
|  | 2008\tto\t2007 | 2007\tto\t2006 |
| Allocation\tof\tcosts\tassociated\twith\tacquired\trights\tto\tuse\ttechnology | 6% | —% |
| Compensation\tand\trelated\tbenefits\tassociated\twith\theadcount\tgrowth | 4 | 3 |
| Charitable\tcontributions | 4 | — |
| Compensation\tassociated\twith\tincentive\tcompensation\tand\tstock-based\tcompensation | 2 | 8 |
| Professional\tand\tconsulting\tfees | 2 | 2 |
| Provision\tfor\tbad\tdebt | 2 | — |
| Depreciation\tand\tamortization | 1 | 2 |
| Various\tindividually\tinsignificant\titems | 2 | 2 |
| Total\tchange | 23% | 17% |

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.

# Restructuring	Charges

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Expenses | \t$32.1 | * | \t$0.6 | (97)% \t$ | 20.3 |
| Percentage\tof\ttotal\trevenue | 1% |  | * |  | 1% |

* Percentage	is	not	meaningful.

# Fiscal	2008	Restructuring	Charges

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.

# Amortization	of	Purchased	Intangibles	and	Incomplete	Technology

|  | Fiscal<br>2008 | %	Change<br>2008	to	2007 | Fiscal<br>2007 | %	Change<br>2007	to	2006 | Fiscal<br>2006 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Expenses | \t$68.2 | (6)% \t$ | 72.4 | 4% \t$ | 69.9 |
| Percentage\tof\ttotal\trevenue | 2% |  | 2% |  | 3% |

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.

# Non-operating	Income

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Interest\tand\tother\tincome,\tnet | \t$43.8 | (47)% \t$ | 82.7 | 23% | \t$67.3 |
| Percentage\tof\ttotal\trevenue | 1% |  | 3% |  | 3% |
| Interest\texpense | (10.0) | * | (.2) | 100% | (.1) |
| Percentage\tof\ttotal\trevenue | * |  | * |  | * |
| Investment\tgains\tand\t(losses),\tnet | 16.4 | 131% | 7.1 | (88)% | 61.2 |
| Percentage\tof\ttotal\trevenue | *% |  | *% |  | 2% |
| Total\tnon-operating\tincome | \t$50.2 | (44)% \t$ | 89.6 | (30)% \t$ | 128.4 |

# Interest	and	Other	Income,	net

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.

# Interest	Expense

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.

# Investment	Gains	and	(Losses),	net

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:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Net\tgains\t(losses)\trelated\tto\tour\tinvestments\tin\tAdobe\tVentures\tand\tcost\tmethod\tinvestments | \t$15.9 | \t$6.9 | \t$(6.5) |
| Gains\tfrom\tsale\tof\tequity\tinvestments | 5.4 | 0.2 | 67.9 |
| Write-downs\tdue\tto\tother-than-temporary\tdeclines\tin\tvalue\tof\tour\tmarketable\tequity\tsecurities | (4.9) | — | — |
| Losses\ton\tstock\twarrants | — | — | (0.2) |
| Total\tinvestment\tgains\tand\t(losses),\tnet | \t$16.4 | \t$7.1 | \t$61.2 |

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.

# Provision	for	Income	Taxes

|  | Fiscal | %	Change | Fiscal | %	Change | Fiscal |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2008\tto\t2007 | 2007 | 2007\tto\t2006 | 2006 |
| Provision | \t$206.7 | (7)% \t$ | 223.4 | 28% \t$ | 173.9 |
| Percentage\tof\ttotal\trevenue | 6% |  | 7% |  | 7% |
| Effective\ttax\trate | 19% |  | 24% |  | 26% |

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.

# LIQUIDITY	AND	CAPITAL	RESOURCES

This	data	should	be	read	in	conjunction	with	the	consolidated	statements	of	cash	flows.

|  | Fiscal | Fiscal |
| :--- | :--- | :--- |
|  | 2008 | 2007 |
| Cash,\tcash\tequivalents\tand\tshort-term\tinvestments | \t$2,019.2 | \t$1,993.9 |
| Working\tcapital | 1,972.5 | 1,720.4 |
| Stockholders'\tequity | \t$4,410.4 | \t$4,650.0 |

Summary	of	our	cash	flows	is	as	follows:

|  | Fiscal | Fiscal | Fiscal |
| :--- | :--- | :--- | :--- |
|  | 2008 | 2007 | 2006 |
| Net\tcash\tprovided\tby\toperating\tactivities | \t$1,280.7 | \t$1,441.1 | \t$900.0 |
| Net\tcash\t(used\tfor)\tprovided\tby\tinvesting\tactivities | (304.7) | 81.5 | 195.2 |
| Net\tcash\tused\tfor\tfinancing\tactivities | (1,021.6) | (1,350.4) | (747.4) |
| Effect\tof\tforeign\tcurrency\texchange\trates\ton\tcash\tand\tcash\tequivalents | (14.4) | 1.7 | 3.9 |
| Net\t(decrease)\tincrease\tin\tcash\tand\tcash\tequivalents | \t$(60.0) | \t$173.9 | \t$351.7 |

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	flows	from	operating	activities

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	increased	primarily	due	to	higher	current	tax	liabilities	related	to	overall	increased	taxable	income.

Working	capital	uses	of	cash	included	increases	in	trade	receivables	and	prepaid	expenses	and	other	current	assets	coupled	with	decreases	in	accrued	restructuring costs	and	accrued	expenses.	Trade	receivables	increased	due	to	increased	revenue.	Accrued	restructuring	decreased	due	to	payments	made	during	fiscal	2006.	Net	changes	to accrued	expenses	was	attributable	primarily	to	decreases	in	compensation	related	costs	and	other	expenses.

# Cash	flows	from	investing	activities

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.

# Cash	flows	from	financing	activities

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	cash	flows	from	operations and	our	available	credit	facility	will	be	sufficient	to	meet	our	working	capital	and	operating	resource	expenditure	requirements	for	the	next	twelve	months.	During	the	third quarter	of	fiscal	2007,	we	also	increased	our	existing	$500.0	million	credit	facility	to	$1.0	billion.	The	purpose	of	the	credit	facility	is	to	provide	backup	liquidity	for	general corporate	purposes	including	stock	repurchases.	Cash	from	operations	could	be	affected	by	various	risks	and	uncertainties,	including,	but	not	limited	to	the	risks	detailed	in Part	I,	Item	1A	titled	"Risk	Factors."	See	Note	16	of	our	Notes	to	Consolidated	Financial	Statements	for	further	information	regarding	our	credit	agreement.

We	use	professional	investment	management	firms	to	manage	a	large	portion	of	our	invested	cash.	External	investment	firms	managed,	on	average,	65%	of	our consolidated	invested	balances	during	the	fourth	quarter	of	fiscal	2008.	Within	the	U.S.,	the	portfolio	is	invested	primarily	in	money	market	funds	for	working	capital purposes.	Outside	of	the	U.S.,	our	fixed	income	portfolio	is	primarily	invested	in	U.S.	Treasury	securities.

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.

Authorization	to	repurchase	shares	to	cover	on-going	dilution	is	not	subject	to	expiration.	However,	this	repurchase	program	is	limited	to	covering	net	dilution	from stock	issuances	and	is	subject	to	business	conditions	and	cash	flow	requirements	as	determined	by	our	Board	of	Directors	from	time	to	time.

As	part	of	this	program,	on	April	17,	2005,	the	Board	of	Directors	approved	the	use	of	an	additional	$1.0	billion	for	stock	repurchases	commencing	upon	the	close	of the	Macromedia	acquisition.	This	additional	$1.0	billion	in	stock	repurchases	was	completed	by	the	third	quarter	of	fiscal	2006.

During	fiscal	2008	and	2007,	we	entered	into	several	structured	repurchase	agreements	with	large	financial	institutions,	whereupon	we	provided	 the	financial institutions	with	prepayments	of	$525.0	million	and	$1.1	billion,	respectively.	We	entered	into	these	agreements	in	order	to	take	advantage	of	repurchasing	shares	at	a guaranteed	discount	to	the	Volume	Weighted	Average	Price	("VWAP")	of	our	common	stock	over	a	specified	period	of	time.	We	only	enter	into	such	transactions	when	the discount	that	we	receive	is	higher	than	the	foregone	return	on	our	cash	prepayments	to	the	financial	institutions.	There	were	no	explicit	commissions	or	fees	on	these structured	repurchases.	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	fiscal	2008,	we	repurchased	22.4	million	shares	at	an	average	price	of	$36.26	through	structured	repurchase agreements	which	 included	prepayments	from	fiscal	2007.	During	fiscal	2007,	we	repurchased	22.0	million	shares	at	an	average	price	of	$40.04	 through	structured repurchase	agreements	which	included	prepayments	from	fiscal	2006.

During	fiscal	2008,	we	also	repurchased	3.6	million	shares	at	an	average	price	of	$36.41	in	open	market	transactions.

For	fiscal	2008	and	2007,	the	prepayments	were	classified	as	treasury	stock	on	our	balance	sheet	at	the	payment	date,	though	only	shares	physically	delivered	to	us	by November	 28,	 2008	 and	 November	 30,	 2007	 were	 excluded	 from	 the	 denominator	 in	 the	 computation	 of	 earnings	 per	 share.	All	 outstanding	 structured	 repurchase agreements	as	of	November	28,	2008	under	this	program	will	expire	on	or	before	March	19,	2009.	As	of	November	28,	2008	and	November	30,	2007,	approximately $134.7	million	and	$422.6	million,	respectively,	of	up-front	payments	remained	under	the	agreements.

See	Item	5,	Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities,	for	share	repurchases	during	the	quarter ended	November	28,	2008.

# Stock	Repurchase	Program	II

Under	this	stock	repurchase	program,	we	had	authorization	to	repurchase	an	aggregate	of	50.0	million	shares	of	our	common	stock.	During	the	third	quarter	of	fiscal 2008,	the	remaining	authorized	number	of	shares	were	repurchased.	From	the	inception	of	the	50.0	million	share	authorization	under	this	program,	we	provided	prepayments of	$1.9	billion	under	structured	share	repurchase	agreements	to	large	financial	institutions.	During	fiscal	2008,	we	repurchased	31.9	million	shares	under	these	structured agreements	at	an	average	price	of	$37.15.	During	fiscal	2007,	we	repurchased	17.7	million	shares	under	these	structured	agreements	at	an	average	price	of	$40.50	and approximately	$133.7	million	of	up-front	payments	remained	under	these	agreements	as	of	November	30,	2007.

During	fiscal	2008,	we	also	repurchased	0.5	million	shares	at	an	average	price	of	$39.79	in	open	market	transactions.

# (in	thousands,	except	average	amounts)

| Board	Approval | Repurchases | 2008 | 2008 | 2007 | 2007 | 2006 | 2006 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Date | Under\tthe\tPlan | Shares | Average | Shares | Average | Shares | Average |
| December\t1997 | From\temployees^(1) | 5 | \t$34.89 | 39 | \t$39.24 | 134 | \t$37.10 |
|  | \t Open\tmarket | 3,554 | 36.41 | — | — | 1,650 | 36.04 |
|  | Structured |  |  |  |  |  |  |
|  | repurchases^(2) | 22,418 | 36.26 | 22,012 | 40.04 | 36,792 | 34.00 |
| April\t2007 | Structured\nrepurchases^(2) | 31,859 | 37.15 | 17,684 | 40.50 | — | — |
|  | \t Open\tmarket | 456 | 39.79 | — | — | — | — |
| Total\tshares |  | 58,292 | \t$36.79 | 39,735 | \t$40.25 | 38,576 | \t$34.10 |
| Total\tcost |  | \t$2,144,400 |  | \t$1,599,214 |  | \t$1,315,317 |  |

(1) The	repurchases	from	employees	represent	shares	cancelled	when	surrendered	in	lieu	of	cash	payments	for	the	option	exercise	price	or	withholding	taxes	due.

(2) Stock	repurchase	agreements	executed	with	large	financial	institutions.	See	"Stock	Repurchase	Program	I"	and	"Stock	Repurchase	Program	II"	above.

# Off-Balance	Sheet	Arrangements	and	Aggregate	Contractual	Obligations

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.

# Contractual	Commitments

The	following	table	summarizes	our	contractual	commitments	as	of	November	28,	2008:

|  |  | Less	than |  |  | Over |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Total | 1\tyear | 1-3\tyears | 3-5\tyears | 5\tyears |
| Total\tnon-cancellable\toperating\tleases | \t$229.2 | \t$49.2 | \t$60.9 | \t$34.7 | \t$84.4 |
| Total\tpurchase\tcommitments | 145.9 | 111.1 | 15.7 | 4.6 | 14.5 |
| Total\tdebt | 350.0 | — | — | 350.0 | — |
| Total | \t$725.1 | \t$160.3 | \t$76.6 | \t$389.3 | \t$98.9 |

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.

# Royalties

We	have	certain	royalty	commitments	associated	with	the	shipment	and	licensing	of	certain	products.	Royalty	expense	is	generally	based	on	a	dollar	amount	per	unit shipped	or	a	percentage	of	the	underlying	revenue.

# Guarantees

The	lease	agreements	for	our	corporate	headquarters	provide	for	residual	value	guarantees.	Under	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.

# Indemnifications

In	the	normal	course	of	business,	we	provide	indemnifications	of	varying	scope	to	customers	against	claims	of	intellectual	property	infringement	made	by	third parties	arising	from	the	use	of	our	products.	Historically,	costs	related	to	these	indemnification	provisions	have	not	been	significant	and	we	are	unable	to	estimate	the maximum	potential	impact	of	these	indemnification	provisions	on	our	future	results	of	operations.

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

# 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.

# ITEM	7A.		QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK

All	market	risk	sensitive	instruments	were	entered	into	for	non-trading	purposes.

# Foreign	Currency	Hedging	Instruments

In	countries	outside	the	U.S.,	we	transact	business,	in	U.S.	dollars	and	in	various	other	currencies.	In	Europe	and	Japan,	transactions	that	are	denominated	in	Euro	and Yen	are	subject	to	exposure	from	movements	in	exchange	rates.	We	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.	We	may	use	foreign	exchange	option	or	forward	contracts	for Yen-	or	Euro-denominated	revenue.

Our	Japanese	operating	expenses	are	in	Yen	and	our	European	operating	expenses	are	primarily	in	Euro,	which	mitigates	a	portion	of	the	exposure	related	to	Yen	and Euro	denominated	product	revenue.	In	addition,	we	hedge	firmly	committed	transactions	using	forward	contracts.	These	contracts	do	subject	us	to	risk	of	accounting	gains and	losses;	however,	the	gains	and	losses	on	these	contracts	largely	offset	gains	and	losses	on	the	assets,	liabilities	and	transactions	being	hedged.	We	also	hedge	a percentage	of	forecasted	international	revenue	with	purchased	option	contracts	and	forward	contracts.	Our	revenue	hedging	policy	is	intended	to	help	mitigate	the	impact	on our	forecasted	revenue	due	to	foreign	currency	exchange	rate	movements.	As	of	November	28,	2008,	total	outstanding	contracts	were	$737.9	million	which	included	the notional	equivalent	of	$504.7	million	in	Euro,	$189.3	million	in	Yen	and	$43.9	million	in	other	foreign	currencies.	These	hedges	are	foreign	currency	forward	exchange contracts	which	hedged	our	balance	sheet	exposures	and	purchased	put	option	contracts	which	hedged	our	forecasted	revenue.	As	of	November	28,	2008,	all	contracts	were set	to	expire	at	various	times	through	July	2009.	The	bank	counterparties	in	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.

In	 addition,	 we	 also	 have	 long-term	 investment	 exposures	 consisting	 of	 the	 capitalization	 and	 retained	 earnings	 in	 our	 non-USD	 functional	 currency	 foreign subsidiaries.	As	of	November	28,	2008	and	November	30,	2007,	this	long-term	investment	exposure	totaled	a	notional	equivalent	of	$149.1	million	and	$119.7	million, respectively.	At	this	time,	we	do	not	hedge	these	long-term	investment	exposures.

# Economic	Hedging—Hedges	of	Forecasted	Transactions

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.	Such	cash	flow	exposures	result	from	portions of	our	forecasted	revenue	denominated	in	currencies	other	than	the	U.S.	dollar,	primarily	the	Japanese	Yen	and	the	Euro.	We	enter	into	these	foreign	exchange	contracts	to hedge	forecasted	product	licensing	revenue	in	the	normal	course	of	business	and	accordingly,	they	are	not	speculative	in	nature.

We	record	changes	in	the	intrinsic	value	of	these	cash	flow	hedges	in	accumulated	other	comprehensive	income	(loss),	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	(loss)	to	interest and	other	income	(loss)	on	the	consolidated	statement	of	income	at	that	time.	For	the	fiscal	year	ended	November	28,	2008,	there	were	no	such	net	gains	or	losses recognized	in	other	income	relating	to	hedges	of	forecasted	transactions	that	did	not	occur.

# See	Note	17	of	our	Notes	to	Consolidated	Financial	Statements	for	information	regarding	our	hedging	activities.

# Balance	Sheet	Hedging—Hedging	of	Foreign	Currency	Assets	and	Liabilities

We	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	foreign	currency	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	as	other	income	(loss).	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.	At	November	28, 2008,	the	outstanding	balance	sheet	hedging	derivatives	had	maturities	of	90	days	or	less.

A	sensitivity	analysis	was	performed	on	all	of	our	foreign	exchange	derivatives	as	of	November	28,	2008.	This	sensitivity	analysis	was	based	on	a	modeling technique	that	measures	the	hypothetical	market	value	resulting	from	a	10%	shift	in	the	value	of	exchange	rates	relative	to	the	U.S.	dollar.	For	option	contracts,	the	Black- Scholes	equation	model	was	used.	For	forward	contracts,	duration	modeling	was	used	where	hypothetical	changes	are	made	to	the	spot	rates	of	the	currency.	A	10%	increase in	the	value	of	the	U.S.	dollar	(and	a	corresponding	decrease	in	the	value	of	the	hedged	foreign	currency	asset)	would	lead	to	an	increase	in	the	fair	value	of	our	financial hedging	instruments	by	$47.3	million.	Conversely,	a	10%	decrease	in	the	value	of	the	U.S.	dollar	would	result	in	a	decrease	in	the	fair	value	of	these	financial	instruments	by $38.7	million.

We	do	not	use	derivative	financial	instruments	for	speculative	trading	purposes,	nor	do	we	hedge	our	foreign	currency	exposure	in	a	manner	that	entirely	offsets	the effects	of	changes	in	foreign	exchange	rates.

As	a	general	rule,	we	do	not	use	financial	instruments	to	hedge	local	currency	denominated	operating	expenses	in	countries	where	a	natural	hedge	exists.	For example,	in	many	countries,	revenue	from	the	local	currency	product	licenses	substantially	offsets	the	local	currency	denominated	operating	expenses.	We	assess	the	need	to utilize	financial	instruments	to	hedge	currency	exposures,	primarily	related	to	operating	expenses,	on	an	ongoing	basis.

We	regularly	review	our	hedging	program	and	may	as	part	of	this	review	determine	to	change	our	hedging	program.

# Privately-Held	Long-Term	Investments

The	privately-held	companies	in	which	we	invest,	can	still	be	considered	in	the	start-up	or	development	stages	which	are	inherently	risky.	The	technologies	or products	these	companies	have	under	development	are	typically	in	the	early	stages	and	may	never	materialize,	which	could	result	in	a	loss	of	a	substantial	part	of	our	initial investment	in	these	companies.	The	evaluation	of	privately-held	companies	is	based	on	information	that	we	request	from	these	companies	which	is	not	subject	to

the	same	disclosure	regulations	as	U.S.	publicly	traded	companies	and	as	such,	the	basis	for	these	evaluations	is	subject	to	the	timing	and	accuracy	of	the	data	received	from these	companies.

# See	Note	6	and	Note	17	for	information	regarding	our	limited	partnership	interest	in	Adobe	Ventures.

# Short-Term	Investments	and	Marketable	Equity	Securities

We	are	exposed	 to	equity	price	risk	on	our	portfolio	of	marketable	equity	securities.	As	of	November	28,	2008,	our	 total	equity	holdings	 in	publicly	 traded companies	were	valued	at	$3.0	million	compared	to	$20.8	million	at	November	30,	2007.	The	decrease	was	primarily	due	to	the	change	in	the	fair	value	of	our	equity holdings	during	fiscal	2008.

The	following	table	represents	the	potential	decrease	in	fair	values	of	our	marketable	equity	securities	as	of	November	28,	2008,	that	are	sensitive	to	changes	in	the stock	market.	Fair	value	deteriorations	of	50%,	35%	and	15%	were	selected	for	illustrative	purposes	because	none	is	more	likely	to	occur	than	another.

# Short-Term	Investments	and	Fixed	Income	Securities

At	November	28,	2008,	we	had	debt	securities	classified	as	short-term	investments	of	$1.1	billion.	Changes	in	interest	rates	could	adversely	affect	the	market	value	of these	investments.	The	table	below	separates	these	investments,	based	on	stated	maturities,	to	show	the	approximate	exposure	to	interest	rates.

A	sensitivity	analysis	was	performed	on	our	investment	portfolio	as	of	November	28,	2008.		The	analysis	is	based	on	an	estimate	of	the	hypothetical	changes	in market	value	of	the	portfolio	that	would	result	from	a	parallel	shift	in	the	yield	curve	of	various	magnitudes.		In	prior	years	the	analysis	had	been	performed	for	time	periods of	 6	 months	 and	 12	 months. In	 the	 current	 year	 we	 have	 modified	 the	 analysis	 to	 model	 the	 effect	 of	 an	 immediate	 parallel	 shift	 in	 the	 yield	 curve.	 	 This methodology	assumes	a	more	immediate	change	in	interest	rates	to	reflect	the	current	economic	environment.

The	following	tables	present	the	hypothetical	fair	values	(in	$	millions)	of	our	debt	securities	classified	as	short	term	investments	assuming	immediate	parallel	shifts in	the	yield	curve	of	50	basis	points	("BPS"),	100	BPS	and	150	BPS.		The	analysis	is	shown	as	of	November	28,	2008	and	November	30,	2007:

|  |  |  | Fair	Value |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| \t-150\tBPS | -100\tBPS | -50\tBPS | 11/28/2008 | +50\tBPS | +100\tBPS | +150\tBPS |
| \t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,145.8 | 1,142.3 | 1,136.4 | 1,129.7 | 1,123.0 | 1,116.4 | 1,109.9 |
|  |  |  | Fair\tValue |  |  |  |
| \t-150\tBPS | -100\tBPS | -50\tBPS | 11/30/2007 | +50\tBPS | +100\tBPS | +150\tBPS |
| \t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t1,034.1 | 1,031.6 | 1,029.1 | 1,026.6 | 1,024.1 | 1,021.7 | 1,019.3 |

# ITEM	8.		FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# INDEX	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

|  | Page |
| :--- | :--- |
| Consolidated\tBalance\tSheets | 68 |
| Consolidated\tStatements\tof\tIncome | 69 |
| Consolidated\tStatements\tof\tStockholders'\tEquity\tand\tComprehensive\tIncome | 70 |
| Consolidated\tStatements\tof\tCash\tFlows | 71 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 72 |
| Report\tof\tKPMG\tLLP,\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 113 |

# CONSOLIDATED	BALANCE	SHEETS

# (In	thousands,	except	per	share	data)

| ASSETS | November	28,<br>2008 | November	30,<br>2007 |
| :--- | :--- | :--- |
| Current\tassets: |  |  |
| Cash\tand\tcash\tequivalents | \t$886,450 | \t$946,422 |
| Short-term\tinvestments | 1,132,752 | 1,047,432 |
| Trade\treceivables,\tnet\tof\tallowances\tfor\tdoubtful\taccounts\tof\t$4,128\tand\t$4,398,\trespectively | 467,234 | 318,145 |
| Deferred\tincome\ttaxes | 110,713 | 171,472 |
| Prepaid\texpenses\tand\tother\tassets | 137,954 | 89,380 |
| Total\tcurrent\tassets | 2,735,103 | 2,572,851 |
| Property\tand\tequipment,\tnet | 313,037 | 289,758 |
| Goodwill | 2,134,730 | 2,148,102 |
| Purchased\tand\tother\tintangibles,\tnet | 214,960 | 367,644 |
| Investment\tin\tlease\treceivable | 207,239 | 207,239 |
| Other\tassets | 216,529 | 128,085 |
| Total\tassets | \t$5,821,598 | \t$5,713,679 |
| LIABILITIES\tAND\tSTOCKHOLDERS'\tEQUITY |  |  |
| Current\tliabilities: |  |  |
| Trade\tpayables | \t$55,840 | \t$41,724 |
| Accrued\texpenses | 399,969 | 408,579 |
| Accrued\trestructuring | 35,690 | 3,731 |
| Income\ttaxes\tpayable | 27,136 | 215,058 |
| Deferred\trevenue | 243,964 | 183,318 |
| Total\tcurrent\tliabilities | 762,599 | 852,410 |
| Long-term\tliabilities: |  |  |
| Debt | 350,000 | — |
| Deferred\trevenue | 31,356 | 25,950 |
| Accrued\trestructuring | 6,214 | 13,987 |
| Income\ttaxes\tpayable | 123,182 | — |
| Deferred\tincome\ttaxes | 117,328 | 148,943 |
| Other\tliabilities | 20,565 | 22,407 |
| Total\tliabilities | 1,411,244 | 1,063,697 |
| Commitments\tand\tcontingencies |  |  |
| Stockholders'\tequity: |  |  |
| Preferred\tstock,\t$0.0001\tpar\tvalue;\t2,000\tshares\tauthorized;\tnone\tissued | — | — |
| respectively | 61 | 61 |
| Additional\tpaid-in-capital | 2,396,819 | 2,340,969 |
| Retained\tearnings | 4,913,406 | 4,041,592 |
| Accumulated\tother\tcomprehensive\tincome | 57,222 | 27,948 |
| Treasury\tstock,\tat\tcost\t(74,723\tand\t29,425\tshares,\trespectively),\tnet\tof\tre-issuances | (2,957,154) | (1,760,588) |
| Total\tstockholders'\tequity | 4,410,354 | 4,649,982 |
| Total\tliabilities\tand\tstockholders'\tequity | \t$5,821,598 | \t$5,713,679 |

See	accompanying	Notes	to	Consolidated	Financial	Statements.

# CONSOLIDATED	STATEMENTS	OF	INCOME

|  | November	28,<br>2008 | November	30,<br>2007 | December	1,<br>2006 |
| :--- | :--- | :--- | :--- |
| Revenue: |  |  |  |
| Products | \t$3,396,542 | \t$3,019,524 | \t$2,484,710 |
| Services\tand\tsupport | 183,347 | 138,357 | 90,590 |
| Total\trevenue | 3,579,889 | 3,157,881 | 2,575,300 |
| Total\tcost\tof\trevenue: |  |  |  |
| Products | 266,389 | 270,818 | 226,506 |
| Services\tand\tsupport | 96,241 | 83,876 | 65,951 |
| Total\tcost\tof\trevenue | 362,630 | 354,694 | 292,457 |
| Gross\tprofit | 3,217,259 | 2,803,187 | 2,282,843 |
| Operating\texpenses: |  |  |  |
| Research\tand\tdevelopment | 662,057 | 613,242 | 539,684 |
| Sales\tand\tmarketing | 1,089,341 | 984,388 | 867,145 |
| General\tand\tadministrative | 337,291 | 274,982 | 234,597 |
| Restructuring\tcharges | 32,053 | 555 | 20,251 |
| Amortization\tof\tpurchased\tintangibles\tand\tincomplete\ttechnology | 68,246 | 72,435 | 69,873 |
| Total\toperating\texpenses | 2,188,988 | 1,945,602 | 1,731,550 |
| Operating\tincome | 1,028,271 | 857,585 | 551,293 |
| Non-operating\tincome\t(expense): |  |  |  |
| Interest\tand\tother\tincome,\tnet | 43,847 | 82,724 | 67,283 |
| Interest\texpense | (10,019) | (253) | (98) |
| Investment\tgains\tand\t(losses),\tnet | 16,409 | 7,134 | 61,249 |
| Total\tnon-operating\tincome,\tnet | 50,237 | 89,605 | 128,434 |
| Income\tbefore\tincome\ttaxes | 1,078,508 | 947,190 | 679,727 |
| Provision\tfor\tincome\ttaxes | 206,694 | 223,383 | 173,918 |
| Net\tincome | \t$871,814 | \t$723,807 | \t$505,809 |
| Basic\tnet\tincome\tper\tshare | \t$1.62 | \t$1.24 | \t$0.85 |
| Shares\tused\tin\tcomputing\tbasic\tincome\tper\tshare | 539,373 | 584,203 | 593,750 |
| Diluted\tnet\tincome\tper\tshare | \t$1.59 | \t$1.21 | \t$0.83 |
| Shares\tused\tin\tcomputing\tdiluted\tincome\tper\tshare | 548,553 | 598,775 | 612,222 |

# CONSOLIDATED	STATEMENTS	OF	STOCKHOLDERS'	EQUITY	AND	COMPREHENSIVE	INCOME

# 	(In	thousands)

|  | Common	Stock | Common	Stock | Additional<br>Paid-In | Retained | Other<br>Comprehensive | Treasury	Stock | Treasury	Stock |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Shares | Amount | Capital | Earnings | Income/(Loss) | Shares | Amount | Total |
| Balances\tas\tof\tDecember\t2,\t2005 | 591,528 | \t$60 | \t$1,350,692 | \t$2,838,560 | \t$(914) | (102,799) | \t$(2,324,072) | \t$1,864,326 |
| Cumulative\teffect\tof\tadjustments\tfrom\tthe |  |  |  |  |  |  |  |  |
| adoption\tof\tSAB\tNo.\t108,\tnet\tof\ttaxes | — | — | 27,422 | (26,584) | — | — | — | 838 |
| Balances\tas\tof\tDecember\t2,\t2005 | 591,528 | \t$60 | \t$1,378,114 | \t$2,811,976 | \t$(914) | (102,799) | \t$(2,324,072) | \t$1,865,164 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome | — | — | — | 505,809 | — | — | — | 505,809 |
| Other\tcomprehensive\tincome,\tnet\tof\ttaxes | — | — | — | — | 7,258 | — | — | 7,258 |
| Total\tcomprehensive\tincome,\tnet\tof\ttaxes | — | — | — | — | — | — | — | 513,067 |
| Issuance\tof\tcommon\tstock\tand\tre-issuance\tof |  |  |  |  |  |  |  |  |
| treasury\tstock\tunder\tstock\tcompensation |  |  |  |  |  |  |  |  |
| plans | 3,058 | — | (385,618) | — | — | 24,972 | 895,430 | 509,812 |
| Tax\tbenefit\tfrom\temployee\tstock\toption\tplans | — | — | 143,118 | — | — | — | — | 143,118 |
| Purchase\tof\ttreasury\tstock | — | — | — | — | — | (38,576) | (1,364,412) | (1,364,412) |
| Stock-based\tcompensation | — | — | 170,534 | — | — | — | — | 170,534 |
| Issuance\tof\tcommon\tstock,\tre-issuance\tof |  |  |  |  |  |  |  |  |
| treasury\tstock\tand\tstock\toptions\tassumed\tfor |  |  |  |  |  |  |  |  |
| acquisition | 6,248 | 1 | 1,145,462 | — | — | 102,795 | 2,169,130 | 3,314,593 |
| Balances\tat\tDecember\t1,\t2006 | 600,834 | \t$61 | \t$2,451,610 | \t$3,317,785 | \t$6,344 | (13,608) | \t$(623,924) | \t$5,151,876 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome | — | — | — | 723,807 | — | — | — | 723,807 |
| Other\tcomprehensive\tincome,\tnet\tof\ttaxes | — | — | — | — | 21,604 | — | — | 21,604 |
| Total\tcomprehensive\tincome,\tnet\tof\ttaxes | — | — | — | — | — | — | — | 745,411 |
| Re-issuance\tof\ttreasury\tstock\tunder\tstock |  |  |  |  |  |  |  |  |
| compensation\tplans | — | — | (298,776) | — | — | 23,918 | 814,863 | 516,087 |
| Tax\tbenefit\tfrom\temployee\tstock\toption\tplans | — | — | 66,966 | — | — | — | — | 66,966 |
| Purchase\tof\ttreasury\tstock | — | — | — | — | — | (39,735) | (1,951,527) | (1,951,527) |
| Stock-based\tcompensation | — | — | 149,987 | — | — | — | — | 149,987 |
| Adjustment\tto\tthe\tvaluation\tof\tMacromedia |  |  |  |  |  |  |  |  |
| assumed\toptions | — | — | (28,818) | — | — | — | — | (28,818) |
| Balances\tat\tNovember\t30,\t2007 | 600,834 | \t$61 | \t$2,340,969 | \t$4,041,592 | \t$27,948 | (29,425) | \t$(1,760,588) | \t$4,649,982 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome | — | — | — | 871,814 | — | — | — | 871,814 |
| Other\tcomprehensive\tincome,\tnet\tof\ttaxes | — | — | — | — | 29,274 | — | — | 29,274 |
| Total\tcomprehensive\tincome,\tnet\tof\ttaxes | — | — | — | — | — | — | — | 901,088 |
| Re-issuance\tof\ttreasury\tstock\tunder\tstock |  |  |  |  |  |  |  |  |
| compensation\tplans | — | — | (206,984) | — | — | 12,994 | 526,149 | 319,165 |
| Tax\tbenefit\tfrom\temployee\tstock\toption\tplans | — | — | 90,360 | — | — | — | — | 90,360 |
| Purchase\tof\ttreasury\tstock | — | — | — | — | — | (58,292) | (1,722,715) | (1,722,715) |
| Stock-based\tcompensation | — | — | 172,474 | — | — | — | — | 172,474 |
| Balances\tat\tNovember\t28,\t2008 | 600,834 | \t$61 | \t$2,396,819 | \t$4,913,406 | \t$57,222 | (74,723) | \t$(2,957,154) | \t$4,410,354 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

|  | November	28,<br>2008 | November	30,<br>2007 | December	1,<br>2006 |
| :--- | :--- | :--- | :--- |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |
| Net\tincome | \t$871,814 | \t$723,807 | \t$505,809 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation,\tamortization\tand\taccretion | 270,269 | 315,464 | 307,822 |
| Stock-based\tcompensation | 172,474 | 149,987 | 170,534 |
| Tax\tbenefit\tfrom\temployee\tstock\toption\tplans | 90,360 | 55,074 | 143,118 |
| Deferred\tincome\ttaxes | 46,584 | 58,385 | (4,264) |
| Other\tnon-cash\titems | 4,784 | (176) | 1,874 |
| Gains\ton\tsales\tof\tinvestments,\tnet\tof\timpairments | (17,377) | (6,776) | (63,593) |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation | (31,983) | (85,050) | (107,524) |
| Changes\tin\toperating\tassets\tand\tliabilities,\tnet\tof\tacquired\tassets\tand\tassumed\tliabilities: |  |  |  |
| Trade\treceivables | (153,386) | 46,332 | (92,498) |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | (5,584) | 6,418 | (7,917) |
| Trade\tpayables | 14,078 | 3,518 | 8,253 |
| Accrued\texpenses | (13,904) | 83,281 | (27,515) |
| Accrued\trestructuring | 24,330 | (13,796) | (41,091) |
| Income\ttaxes\tpayable | (57,656) | 61,448 | 27,247 |
| Deferred\trevenue | 65,879 | 43,137 | 79,690 |
| Net\tcash\tprovided\tby\toperating\tactivities | 1,280,682 | 1,441,053 | 899,945 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |
| Purchases\tof\tshort-term\tinvestments | (2,381,533) | (2,503,147) | (1,596,442) |
| Maturities\tof\tshort-term\tinvestments | 1,568,874 | 516,839 | 357,775 |
| Proceeds\tfrom\tsales\tof\tshort-term\tinvestments | 717,076 | 2,457,347 | 1,010,284 |
| Purchases\tof\tproperty\tand\tequipment | (111,792) | (132,075) | (83,250) |
| Purchases\tof\tlong-term\tinvestments\tand\tother\tassets | (124,469) | (111,939) | (28,381) |
| Investment\tin\tlease\treceivable | — | (80,439) | — |
| Cash\treceived\tfrom\tacquisitions | 674 | 1,676 | 492,758 |
| Cash\tpaid\tfor\tacquisitions | (4,258) | (77,204) | (48,351) |
| Issuance\tcosts\tfor\tcredit\tfacility | — | (856) | — |
| Proceeds\tfrom\tsale\tof\tother\tinvestments | 30,747 | 11,342 | 90,793 |
| Net\tcash\t(used\tfor)\tprovided\tby\tinvesting\tactivities | (304,681) | 81,544 | 195,186 |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |
| Purchase\tof\ttreasury\tstock | (1,722,715) | (1,951,527) | (1,364,412) |
| Proceeds\tfrom\tissuance\tof\ttreasury\tstock | 319,165 | 516,087 | 509,506 |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation | 31,983 | 85,050 | 107,524 |
| Proceeds\tfrom\tborrowings\ton\tcredit\tfacility | 800,000 | — | — |
| Repayments\tof\tborrowings\ton\tcredit\tfacility | (450,000) | — | — |
| Net\tcash\tused\tfor\tfinancing\tactivities | (1,021,567) | (1,350,390) | (747,382) |
| Effect\tof\tforeign\tcurrency\texchange\trates\ton\tcash\tand\tcash\tequivalents | (14,406) | 1,715 | 3,933 |
| Net\t(decrease)\tincrease\tin\tcash\tand\tcash\tequivalents | (59,972) | 173,922 | 351,682 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 946,422 | 772,500 | 420,818 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tyear | \t$886,450 | \t$946,422 | \t$772,500 |
| Supplemental\tdisclosures:\nCash\tpaid\tfor\tinterest | \t$9,604 | \t$— | \t$— |
| Cash\tpaid\tfor\tincome\ttaxes,\tnet\tof\trefunds | \t$126,299 | \t$55,236 | \t$36,632 |
| Non-cash\tinvesting\tand\tfinancing\tactivities:\nCommon\tand\ttreasury\tstock\tissued\tand\tstock\toptions\tassumed\tfor\tMacromedia | \t$— | \t$— | \t$3,436,725 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# (In	thousands,	except	share	and	per	share	data)

# Note	1.	Significant	Accounting	Policies

# Basis	of	Presentation

The	accompanying	consolidated	financial	statements	include	those	of	Adobe	and	its	subsidiaries,	after	elimination	of	all	intercompany	accounts	and	transactions.	We have	prepared	 the	accompanying	consolidated	financial	statements	 in	accordance	with	accounting	principles	generally	accepted	 in	 the	United	States	of	America	and pursuant	to	the	rules	and	regulations	of	the	SEC.

# Use	of	Estimates

In	the	preparation	of	financial	statements	in	accordance	with	accounting	principles	generally	accepted	in	the	United	States	of	America	and	pursuant	to	the	rules	and regulations	of	the	SEC,	we	must	make	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities	and	disclosure	of	contingent	assets	and	liabilities, at	the	date	of	the	balance	sheet	and	reported	amounts	of	revenue	and	expenses	during	the	reporting	period.	Actual	results	could	differ	from	those	estimates.

# Fiscal	Year

Our	fiscal	year	is	a	52-	or	53-week	year	that	ends	on	the	Friday	closest	to	November	30.

# Reclassification

Certain	prior	year	amounts	have	been	reclassified	to	conform	to	current	year	presentation	in	the	consolidated	balance	sheets.	Specifically,	there	was	a	reclassification totaling	$35.0	million	from	purchased	intangibles	to	long-term	and	short-term	other	assets.		See	Notes	5	and	6	for	additional	information	regarding	this	reclassification.

# Allowance	for	Doubtful	Accounts

We	maintain	an	allowance	for	doubtful	accounts	which	reflects	our	best	estimate	of	potentially	uncollectible	trade	receivables.	We	regularly	review	our	trade receivables	allowances	by	considering	such	factors	as	historical	experience,

credit-worthiness,	the	age	of	the	trade	receivable	balances	and	current	economic	conditions	that	may	affect	a	customer's	ability	to	pay	and	we	specifically	reserve	for	those deemed	uncollectible.

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t$4,398 | \t$6,798 | \t$5,376 |
| Due\tto\tacquisition | — | — | 2,105 |
| Charged\t(credited)\tto\toperating\texpenses | 4,414 | (1,367) | 1,107 |
| Preference\tclaim,\tcharged\tto\toperating\texpense | (2,000) | — | — |
| Deductions(*) | (2,684) | (1,033) | (1,790) |
| Ending\tbalance | \t$4,128 | \t$4,398 | \t$6,798 |

(*)	 Deductions	related	to	the	allowance	for	doubtful	accounts	represent	amounts	written	off	against	the	allowance,	less	recoveries.

# Foreign	Currency	Translation

We	translate	assets	and	liabilities	of	foreign	subsidiaries,	whose	functional	currency	is	their	local	currency,	at	exchange	rates	in	effect	at	the	balance	sheet	date.	We translate	revenue	and	expenses	at	the	monthly	average	exchange	rates.	We	include	accumulated	net	translation	adjustments	in	stockholders'	equity	as	a	component	of accumulated	other	comprehensive	income.

# Property	and	Equipment

We	record	property	and	equipment	at	cost	less	accumulated	depreciation	and	amortization.	Property	and	equipment	are	depreciated	using	the	straight-line	method over	their	estimated	useful	lives	ranging	from	2	to	7	years	and	up	to	35	years	for	buildings.	Leasehold	improvements	are	amortized	using	the	straight-line	method	over	the lesser	of	the	remaining	respective	lease	term	or	useful	lives.

We	capitalize	certain	costs	for	internal-use	software	incurred	during	the	application	development	stage,	in	accordance	with	American	Institute	of	Certified	Public Accountants	("AICPA")	Statement	of	Position	98-1,	"Accounting	for	the	Costs	of	Computer	Software	Developed	or	Obtained	for	Internal	Use."

# Goodwill,	Purchased	Intangibles	and	Other	Long-Lived	Assets

In	accordance	with	SFAS	No.	142	("SFAS	142"),	"Goodwill	and	Other	Intangible	Assets,"	we	review	our	goodwill	for	impairment	annually,	or	more	frequently,	if facts	and	circumstances	warrant	a	review.		We	completed	our	annual	impairment	test	in	the	second	quarter	of	fiscal	2008	and	determined	that	there	was	no	impairment.

We	evaluate	goodwill	for	impairment	by	comparing	the	fair	value	of	each	of	our	reporting	segments	to	its	carrying	value,	including	the	associated	goodwill.	To determine	the	fair	values,	we	use	the	market	approach	based	on	comparable	publicly	traded	companies	in	similar	lines	of	businesses	and	the	income	approach	based	on estimated	discounted	future	cash	flows.	Our	cash	flow	assumptions	consider	historical	and	forecasted	revenue,	operating	costs	and	other	relevant	factors.

We	evaluate	long-lived	assets,	excluding	goodwill,	for	impairment	in	accordance	with	SFAS	No.	144,	"Accounting	for	the	Impairment	or	Disposal	of	Long-Lived Assets."	SFAS	142	also	requires	that	intangible	assets	with	finite	lives	be	amortized	over	their	estimated	useful	lives	and	reviewed	for	impairment	whenever	an	impairment indicator	exists	under	SFAS	No.	144.	We	continually	monitor	events	and	changes	in	circumstances	that	could	indicate	carrying	amounts	of	our	long-lived	assets,	including our	intangible	assets	may	not	be	recoverable.	When	such	events	or	changes	in	circumstances	occur,	we	assess	recoverability	by	determining	whether	the	carrying	value	of such	assets	will	be	recovered	through	the	undiscounted	expected	future	cash	flows.	If	the	future	undiscounted	cash	flows	are	less	than	the	carrying	amount	of	these	assets, we	recognize	an	impairment	loss	based	on	the	excess	of	the	carrying	amount	over	the	fair	value	of	the	assets.	We	did	not	recognize	intangible	asset	impairment	charges	in fiscal	2008,	2007	or	2006.

Our	intangible	assets	are	amortized	over	their	estimated	useful	lives	of	1	to	13	years	as	shown	in	the	table	below.	Amortization	is	based	on	the	pattern	in	which	the economic	benefits	of	the	intangible	asset	will	be	consumed.

# Software	Development	Costs

Capitalization	of	software	development	costs	for	software	to	be	sold,	leased,	or	otherwise	marketed	begins	upon	the	establishment	of	technological	feasibility,	which is	generally	the	completion	of	a	working	prototype	that	has	been	certified	as	having	no	critical	bugs	and	is	a	release	candidate.	Amortization	begins	once	the	software	is ready	for	 its	 intended	use,	generally	based	on	 the	pattern	 in	which	 the	economic	benefits	will	be	consumed.	To	date,	software	development	costs	 incurred	between completion	of	a	working	prototype	and	general	availability	of	the	related	product	have	not	been	material.

Our	 revenue	 is	 derived	 from	 the	 licensing	 of	 software	 products,	 consulting	 and	 maintenance	 and	 support.	 Primarily,	 we	 recognize	 revenue	 pursuant	 to	 the requirements	of	AICPA	Statement	of	Position	97-2,	"Software	Revenue	Recognition"	and	any	applicable	amendments,	when	persuasive	evidence	of	an	arrangement	exists, we	have	delivered	the	product	or	performed	the	service,	the	fee	is	fixed	or	determinable	and	collection	is	probable.

# Multiple	Element	Arrangements

We	enter	into	multiple	element	revenue	arrangements	in	which	a	customer	may	purchase	a	combination	of	software,	upgrades,	maintenance	and	support,	and consulting	(multiple-element	arrangements).	When	VSOE	of	fair	value	does	not	exist	for	all	delivered	elements,	we	allocate	and	defer	revenue	for	the	undelivered	items based	on	VSOE	of	fair	value	of	the	undelivered	elements	and	recognize	the	difference	between	the	total	arrangement	fee	and	the	amount	deferred	for	the	undelivered	items as	license	revenue.

VSOE	of	fair	value	for	each	element	is	based	on	the	price	for	which	the	element	is	sold	separately.	We	determine	the	VSOE	of	fair	value	of	each	element	based	on historical	evidence	of	our	stand-alone	sales	of	these	elements	to	third	parties	or	from	the	stated	renewal	rate	for	the	elements	contained	in	the	initial	software	license arrangement.	When	VSOE	of	fair	value	does	not	exist	for	any	undelivered	element,	revenue	is	deferred	until	the	earlier	of	the	point	at	which	such	VSOE	of	fair	value	exists or	until	all	elements	of	the	arrangement	have	been	delivered.	The	only	exception	to	this	guidance	is	when	the	only	undelivered	element	is	maintenance	and	support	or	other services,	then	the	entire	arrangement	fee	is	recognized	ratably	over	the	performance	period.

# Product	Revenue

We	recognize	our	product	revenue	upon	shipment,	provided	all	other	revenue	recognition	criteria	have	been	met.	Our	desktop	application	products'	revenue	from distributors	is	subject	to	agreements	allowing	limited	rights	of	return,	rebates	and	price	protection.	Our	direct	sales	and	OEM	sales	are	also	subject	to	limited	rights	of	return. Accordingly,	we	reduce	revenue	recognized	for	estimated	future	returns,	price	protection	and	rebates	at	the	time	the	related	revenue	is	recorded.	The	estimates	for	returns	are adjusted	periodically	based	upon	historical	rates	of	returns,	inventory	levels	in	the	distribution	channel	and	other	related	factors.

We	record	the	estimated	costs	of	providing	free	technical	phone	support	to	customers	for	our	software	products.

We	recognize	OEM	licensing	revenue,	primarily	royalties,	when	OEM	partners	ship	products	incorporating	our	software,	provided	collection	of	such	revenue	is deemed	probable.	For	certain	OEM	customers,	we	must	estimate	royalty

revenue	due	to	the	timing	of	securing	customer	information.	This	estimate	is	based	on	a	combination	of	our	generated	forecasts	and	actual	historical	reporting	by	our	OEM customers.	To	 substantiate	 our	 ability	 to	 estimate	 revenue,	 we	 review	 license	 royalty	 revenue	 reports	 ultimately	 received	 from	 our	 significant	 OEM	 customers	 in comparison	to	the	amounts	estimated	in	the	prior	period.

Our	product-related	deferred	revenue	includes	maintenance	upgrade	revenue	and	customer	advances	under	OEM	license	agreements.	Our	maintenance	upgrade revenue	for	our	desktop	application	products	is	included	in	our	product	revenue	line	item	as	the	maintenance	primarily	entitles	customers	to	receive	product	upgrades.	In cases	where	we	provide	a	specified	free	upgrade	to	an	existing	product,	we	defer	the	fair	value	for	the	specified	upgrade	right	until	the	future	obligation	is	fulfilled	or	when the	right	to	the	specified	free	upgrade	expires.

# Services	and	Support	Revenue

Our	services	and	support	revenue	is	composed	of	consulting,	training	and	maintenance	and	support,	primarily	related	to	the	licensing	of	our	Enterprise	and	Mobile and	Device	Solutions	products.	Our	support	revenue	also	includes	technical	support	and	developer	support	to	partners	and	developer	organizations	related	to	our	desktop products.

Our	consulting	revenue	is	recognized	using	the	proportionate	performance	method	and	is	measured	monthly	based	on	input	measures,	such	as	hours	incurred	to	date compared	to	total	estimated	hours	to	complete,	with	consideration	given	to	output	measures,	such	as	contract	milestones	when	applicable.	Our	maintenance	and	support offerings,	 which	 entitle	 customers	 to	 receive	 product	 upgrades	 and	 enhancements	 or	 technical	 support,	 depending	 on	 the	 offering,	 are	 recognized	 ratably	 over	 the performance	period	of	the	arrangement.

# Rights	of	Return,	Rebates	and	Price	Protection

As	discussed	above,	we	offer	limited	rights	of	return,	rebates	and	price	protection	of	our	products	under	various	policies	and	programs	with	our	distributors,	resellers and/or	end	user	customers.		We	estimate	and	record	reserves	for	these	programs	as	an	offset	to	revenue.	Below	is	a	summary	of	each	of	the	general	provisions	in	our contracts:

· Distributors	are	allowed	limited	rights	of	return	of	products	purchased	during	the	previous	quarter.	In	addition,	distributors	are	allowed	to	return	products	that have	reached	the	end	of	their	lives	and	products	that	are	being	replaced	by	new	versions.

· We	offer	rebates	to	our	distributors,	resellers	and/or	end	user	customers.	The	amount	of	revenue	that	is	reduced	for	distributor	and	reseller	rebates	is	based	on actual	performance	against	objectives	set	forth	by	us	for	a	particular	reporting	period	(volume,	timely	reporting,	etc.).	If	mail-in	or	other	promotional	rebates	are offered,	the	amount	of	revenue	reduced	is	based	on	the	dollar	amount	of	the	rebate,	taking	into	consideration	an	estimated	redemption	rate	calculated	using historical	trends.

· From	time	to	time,	we	may	offer	price	protection	to	our	distributors	that	allow	for	the	right	to	a	credit	if	we	permanently	reduce	the	price	of	a	software	product. The	amount	of	revenue	that	is	reduced	for	price	protection	is	calculated	as	the	difference	between	the	old	and	new	price	of	a	software	product	on	inventory	held by	the	distributor	prior	to	the	effective	date	of	the	decrease.

On	a	quarterly	basis,	the	amount	of	revenue	that	is	reserved	for	future	returns	is	calculated	based	on	our	historical	trends	and	data	specific	to	each	reporting	period. We	review	the	actual	returns	evidenced	in	prior	quarters	as	a	percent	of	revenue	to	determine	a	historical	returns	rate.	We	then	apply	the	historical	rate	to	the	current	period revenue	as	a	basis	for	estimating	future	returns.	When	necessary,	we	also	provide	a	specific	returns	reserve	for	product	in	the	distribution	channel	in	excess	of	estimated requirements.	This	estimate	can	be	affected	by	the	amount	of	a	particular	product	in	the	channel,	the	rate	of	sell-through,	product	plans	and	other	factors.

# Revenue	Reserve

# Revenue	reserve	rollforward:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t$43,532 | \t$55,526 | \t$25,204 |
| Amount\tcharged\tto\trevenue | 153,129 | 156,761 | 97,566 |
| Actual\treturns | (145,718) | (168,755) | (67,244) |
| Ending\tbalance | \t$50,943 | \t$43,532 | \t$55,526 |

# Taxes	Collected	from	Customers

Pursuant	to	Emerging	Issues	Task	Force	("EITF")	Issue	No.	06-3,	"How	Taxes	Collected	from	Customers	and	Remitted	to	Governmental	Authorities	Should	Be Presented	in	the	Income	Statement,"	we	elected	to	net	taxes	collected	from	customers	against	those	remitted	to	government	authorities	in	our	financial	statements	consistent with	our	historical	presentation	of	this	information.

# Advertising	Expenses

Advertising	costs	are	expensed	as	incurred.	Advertising	expenses	for	fiscal	2008,	2007	and	2006	were	$67.1	million,	$45.3	million	and	$27.8	million,	respectively.

# Foreign	Currency	and	Other	Hedging	Instruments

In	countries	outside	the	U.S.,	we	transact	business	in	U.S.	dollars	and	in	various	other	currencies.	In	Europe	and	Japan,	transactions	that	are	denominated	in	Euro	and Yen	are	subject	to	exposure	from	movements	in	exchange	rates.	We	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.	We	have	foreign	exchange	option	and	forward	contracts	for	Yen- and	Euro-denominated	revenue.

We	account	for	our	derivative	instruments	as	either	assets	or	liabilities	on	the	balance	sheet	and	measure	them	at	fair	value.	Derivatives	that	are	not	defined	as	hedges in	SFAS	No.	133	("SFAS	133"),	"Accounting	for	Derivative	Instruments	and	Hedging	Activities,"	must	be	adjusted	to	fair	value	through	earnings.	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.	See	Note	17	for information	regarding	our	hedging	activities.

Gains	and	losses	from	foreign	exchange	forward	contracts	which	hedge	certain	balance	sheet	positions,	primarily	non-functional	currency	denominated	assets	and liabilities	(e.g.,	trade	receivables	and	accounts	payable)	are	recorded	each	period	as	a	component	of	other	income	in	the	consolidated	statements	of	operations.	Foreign exchange	forward	and	option	contracts	hedging	forecasted	non-functional	currency	product	licensing	revenue,	are	designated	as	cash	flow	hedges	under	SFAS	133,	with gains	and	losses	recorded	net	of	tax,	as	a	component	of	other	comprehensive	income	in	stockholders'	equity	and	reclassified	into	revenue	at	the	time	the	forecasted transactions	occur.

# Income	Taxes

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	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.	We	record	a	valuation	allowance	to	reduce	deferred	tax	assets to	an	amount	for	which	realization	is	more	likely	than	not.

In	 December	 2008,	 the	 FASB	 issued	 FASB	 Staff	 Position	 ("FSP")	 No.	 140-4	 and	 FIN	 46R-8	 ("FSP	 140-4	 and	 FIN	 46R-8"),	 "Disclosures	 by	 Public	 Entities (Enterprises)	about	Transfers	of	Financial	Assets	and	Interests	in	Variable	Interest	Entities."	FSP	140-4	and	FIN	46R-8	require	additional	disclosures	about	transfers	of financial	assets	and	involvement	with	variable	interest	entities.	The	requirements	apply	to	transferors,	sponsors,	servicers,	primary	beneficiaries	and	holders	of

significant	variable	interests	in	a	variable	interest	entity	or	qualifying	special	purpose	entity.	Disclosures	required	by	FSP	140-4	and	FIN	46R-8	are	effective	for	us	in	the first	quarter	of	fiscal	2009.	Because	FSP	140-4	and	FIN	46R-8	only	require	additional	disclosures,	the	adoption	will	not	impact	our	consolidated	financial	position,	results	of operations	or	cash	flows.

In	September	2008,	the	FASB	issued	FASB	Staff	Position	No.	133-1	and	FIN	45-4	("FSP	FAS	133-1	and	FIN	45-4"),	"Disclosures	about	Credit	Derivatives	and Certain	Guarantees:	An	Amendment	of	FASB	Statement	No.	133	and	FASB	Interpretation	No.	45;	and	Clarification	of	 the	Effective	Date	of	FASB	Statement	No. 161." 	FSP	FAS	133-1	and	FIN	45-4	amends	FASB	Statement	No.	133	("SFAS	133"),	"Accounting	for	Derivative	Instruments	and	Hedging	Activities,"	 to	require disclosures	by	sellers	of	credit	derivatives,	including	credit	derivatives	embedded	in	hybrid	instruments.		FSP	FAS	133-1	and	FIN	45-4	also	amend	FASB	Interpretation	No. 45	("FIN	45"),	"Guarantor's	Accounting	and	Disclosure	Requirements	for	Guarantees,	Including	Indirect	Guarantees	of	Indebtedness	to	Others,"	to	require	additional disclosure	about	the	current	status	of	the	payment/performance	risk	of	a	guarantee.		The	provisions	of	the	FSP	that	amend	SFAS	133	and	FIN	45	are	effective	for	reporting periods	ending	after	November	15,	2008.	FSP	FAS	133-1	and	FIN	45-4	also	clarifies	the	effective	date	in	FASB	Statement	No.	161	("SFAS	161"),	"Disclosures	about Derivative	Instruments	and	Hedging	Activities."	Disclosures	required	by	SFAS	161	are	effective	for	us	in	the	first	quarter	of	fiscal	2009.	Because	FSP	FAS	133-1	and	FIN 45-4	only	require	additional	disclosures,	the	adoption	will	not	impact	our	consolidated	financial	position,	results	of	operations	or	cash	flows.

In	April	2008,	the	FASB	issued	FSP	No.	142-3	("FSP	142-3"),	"Determination	of	the	Useful	Life	of	Intangible	Assets."		FSP	142-3	amends	the	factors	an	entity should	consider	in	developing	renewal	or	extension	assumptions	used	in	determining	the	useful	life	of	recognized	intangible	assets	under	FASB	Statement	No.	142, "Goodwill	and	Other	Intangible	Assets."		This	new	guidance	applies	prospectively	to	intangible	assets	that	are	acquired	individually	or	with	a	group	of	other	assets	in business	combinations	and	asset	acquisitions.	FSP	142-3	is	effective	for	financial	statements	issued	for	fiscal	years	and	interim	periods	beginning	after	December	15, 2008.		Early	adoption	is	prohibited.		Since	this	guidance	will	be	applied	prospectively,	on	adoption,	there	will	be	no	impact	to	our	current	consolidated	financial	statements.

In	March	2008,	the	FASB	issued	SFAS	161	which	requires	companies	with	derivative	instruments	to	disclose	information	that	should	enable	financial	statement users	to	understand	how	and	why	a	company	uses	derivative	instruments,	how	derivative	instruments	and	related	hedged	items	are	accounted	for	under	SFAS	133	and	how derivative	instruments	and	related	hedged	items	affect	a	company's	financial	position,	financial	performance	and	cash	flows.	SFAS	161	is	effective	for	us	in	the	first	quarter of	fiscal	2009.	Because	SFAS	161	only	requires	additional	disclosure,	the	adoption	will	not	impact	our	consolidated	financial	position,	results	of	operations	or	cash	flows.

In	June	2007,	the	American	Institute	of	Certified	Public	Accountants	("AICPA")	issued	Statement	of	Position	07-1	("SOP	07-1"),	"Clarification	of	the	Scope	of	the Audit	and	Accounting	Guide	Investment	Companies	and	Accounting	by	Parent	Companies	and	Equity	Method	Investors	for	Investments	in	Investment	Companies." SOP	07-1	defines	investment	companies	for	purposes	of	applying	the	related	AICPA	Audit	and	Accounting	Guide.	SOP	07-1	provides	guidance	on	whether	an	investment company's	parent	or	equity-method	investor	should	retain	investment-company	accounting	in	its	financial	statements.	SOP	07-1	would	have	been	effective	beginning	in	the first	quarter	of	fiscal	2009;	however,	in	February	2008,	the	FASB	issued	FSP	SOP	07-1-1	which	indefinitely	delayed	the	effective	date	of	SOP	07-1.

In	September	2006,	the	FASB	issued	FASB	Statement	No.	157	("SFAS	157"),	"Fair	Value	Measurements,"	which	defines	fair	value,	establishes	guidelines	for measuring	fair	value	and	expands	disclosures	regarding	fair	value	measurements.	SFAS	157	does	not	require	any	new	fair	value	measurements	but	rather	eliminates inconsistencies	in	guidance	found	in	various	prior	accounting	pronouncements	and	is	effective	for	fiscal	years	beginning	after	November	15,	2007.	In	February	2008,	the FASB	issued	FASB	FSP	157-2	which	delays	the	effective	date	of	SFAS	157	for	all	nonfinancial	assets	and	nonfinancial	liabilities,	except	those	that	are	recognized	or disclosed	at	fair	value	in	the	financial	statements	on	a	recurring	basis	(at	least	annually),	until	fiscal	years	beginning	after	November	15,	2008	and	interim	periods	within those	fiscal	years.	These	nonfinancial	items	include	assets	and	liabilities	such	as	reporting	units	measured	at	fair	value	in	a	goodwill	impairment	test	and	nonfinancial	assets acquired	and	liabilities	assumed	in	a	business	combination.	Effective	December	1,	2007,	we	adopted	SFAS	157	for	financial	assets	and	liabilities	recognized	at	fair	value	on a	recurring	basis.	The	partial	adoption	of	SFAS	157	for	financial	assets	and	liabilities	did	not	have	a	material	impact	on	our	consolidated	financial	position,	results	of operations	or	cash	flows.	Effective	November	29,	2008,	we	adopted	SFAS	157	for	all	nonfinancial	assets	and	nonfinancial

liabilities.	Since	the	adoption	of	SFAS	157	for	nonfinancial	assets	and	liabilities	will	be	applied	prospectively,	there	will	not	be	a	material	impact	on	our	consolidated financial	position,	results	of	operations	or	cash	flows	upon	adoption.

In	October	2008,	the	FASB	issued	FSP	157-3	("FSP	157-3"),	"Determining	the	Fair	Value	of	a	Financial	Asset	When	the	Market	for	That	Asset	Is	Not	Active."	FSP 157-3	clarifies	the	application	of	SFAS	No.	157	in	a	market	that	is	not	active	and	addresses	application	issues	such	as	the	use	of	internal	assumptions	when	relevant observable	data	does	not	exist,	the	use	of	observable	market	information	when	the	market	is	not	active	and	the	use	of	market	quotes	when	assessing	the	relevance	of observable	and	unobservable	data.	FSP	157-3	is	effective	for	all	periods	presented	in	accordance	with	SFAS	No.	157.	The	guidance	in	FSP	157-3	is	effective	immediately and	did	not	have	an	impact	on	the	Company	upon	adoption.	See	Note	17	for	information	and	related	disclosures	regarding	our	fair	value	measurements.

In	December	2007,	the	FASB	issued	SFAS	No.	141	(revised	2007)	("SFAS	141R"),	"Business	Combinations"	and	SFAS	No.	160	("SFAS	160"),	"Noncontrolling Interests	in	Consolidated	Financial	Statements,	an	amendment	of	Accounting	Research	Bulletin	No.	51."	SFAS	141R	will	change	how	business	acquisitions	are	accounted for	and	will	impact	financial	statements	both	on	the	acquisition	date	and	in	subsequent	periods.		SFAS	160	will	change	the	accounting	and	reporting	for	minority	interests, which	will	be	recharacterized	as	noncontrolling	interests	and	classified	as	a	component	of	equity.		SFAS	141R	and	SFAS	160	are	effective	for	us	beginning	in	the	first quarter	of	fiscal	2010.	Early	adoption	is	not	permitted.	We	are	currently	evaluating	the	impact	that	SFAS	141R	and	SFAS	160	will	have	on	our	consolidated	financial statements.

In	September	2006,	the	FASB	issued	SFAS	No.	158	("SFAS	158"),	"Employers'	Accounting	for	Defined	Benefit	Pension	and	Other	Postretirement	Plans—An Amendment	of	FASB	No.	87,	88,	106	and	132(R)."	SFAS	158	requires	that	the	funded	status	of	defined	benefit	postretirement	plans	be	recognized	on	the	company's balance	sheet	and	changes	in	the	funded	status	be	reflected	in	comprehensive	income.		In	fiscal	2007,	we	adopted	the	recognition	and	disclosure	elements	of	SFAS	158 which	did	not	have	a	material	effect	on	our	consolidated	financial	position,	results	of	operations	or	cash	flows.		In	addition,	we	will	adopt	the	measurement	elements	of SFAS	158	in	fiscal	2009.	We	do	not	expect	the	adoption	of	the	measurement	elements	to	have	a	material	impact	on	our	consolidated	financial	position,	results	of	operations or	cash	flows.

# Note	2.		Acquisitions

# Fiscal	2008	Acquisition

During	 fiscal	 2008,	 we	 completed	 one	 business	 combination	 for	 cash	 consideration	 of	 approximately	 $4.3	 million. 	This	 acquisition	 was	 not	 material to	 our consolidated	balance	sheet	and	results	of	operations.

# Fiscal	2007	Acquisitions

During	fiscal	2007,	we	completed	 two	business	combinations	and	one	asset	acquisition	for	cash	consideration	of	$77.0	million.	Both	 individually	and	 in	 the aggregate,	these	acquisitions	were	not	material	to	our	consolidated	balance	sheet	and	results	of	operations.	Related	to	the	acquisition	that	occurred	during	the	second	quarter of	fiscal	2007,	$1.5	million	of	in-process	research	and	development	was	included	in	our	amortization	of	purchased	intangibles	on	our	consolidated	statements	of	income.	See Note	5	for	information	regarding	goodwill	and	purchased	and	other	intangibles.

During	fiscal	2006,	we	completed	the	acquisition	of	Macromedia,	a	provider	of	software	technologies	that	enables	the	development	of	a	wide	range	of	Internet	and mobile	application	solutions.	The	acquisition	of	Macromedia	accelerated	our	strategy	of	delivering	an	industry-defining	technology	platform	that	provided	more	powerful solutions	for	engaging	people	with	digital	information.	The	transaction	was	accounted	for	using	the	purchase	method	of	accounting	in	accordance	with	SFAS	No.	141, "Business	Combinations."	The	results	of	operations	of	Macromedia	have	been	included	in	the	Consolidated	Statements	of	Income	beginning	on	December	3,	2005.

Assets	acquired	and	liabilities	assumed	were	recorded	at	their	fair	values	as	of	December	3,	2005.	The	total	$3.5	billion	purchase	price	is	comprised	of	the	following:

| Value	of	Adobe	stock	issued	(109	million	shares) | $3,209,121 |
| :--- | :--- |
| Fair\tvalue\tof\tstock\toptions\tassumed | 227,604 |
| Direct\ttransaction\tcosts | 29,060 |
| Restructuring\tcosts | 72,728 |
| Total\tpurchase\tprice | \t$3,538,513 |

# Purchase	Price	Allocation

The	table	below	represents	the	allocation	of	the	purchase	price	to	the	acquired	net	assets	of	Macromedia	based	on	their	estimated	fair	values	as	of	December	3,	2005 and	the	associated	estimated	useful	lives	at	that	date.	The	fair	values	assigned	to	tangible	and	intangible	assets	acquired	and	liabilities	assumed	are	based	on	estimates	and assumptions	of	management.

| assumptions	of	management. |  |  |
| :--- | :--- | :--- |
|  | Amount | Estimated\nUseful\tLife |
| Net\ttangible\tassets | \t$713,164 | N/A |
| Identifiable\tintangible\tassets: |  |  |
| Acquired\tproduct\trights | 365,500 | 4\tyears |
| Customer\tcontracts\tand\trelationships | 183,800 | 6\tyears |
| Non-competition\tagreements | 500 | 2\tyears |
| Trademarks | 130,700 | 5\tyears |
| Goodwill | 1,993,898 | N/A |
| Stock-based\tcompensation | 150,951 | 2.18\tyears† |
| Total\tpurchase\tprice | \t$3,538,513 |  |

† Estimated	weighted-average	remaining	vesting	period	as	of	December	3,	2005.

See	Note	5	for	information	regarding	subsequent	adjustments	to	the	purchase	price	allocation	for	goodwill	associated	with	Macromedia.

Net	tangible	assets—Macromedia's	tangible	assets	and	liabilities	were	reviewed	and	adjusted	to	their	fair	value	as	necessary,	including	an	increase	to	market	value	of $18.4	million	related	to	owned	land	and	a	building,	$11.5	million	related	to	an	investment	and	$21.5	million	for	receivables	related	to	future	payments	from	existing customers.	We	also	acquired	$488.4	million	in	cash	and	cash	equivalents	and	$109.8	million	in	property,	plant	and	equipment,	and	assumed	$103.2	million	in	accrued expenses	and	$186.9	million	in	deferred	tax	liabilities.

Deferred	 revenue—Macromedia's	 deferred	 revenue	 was	 derived	 from	 licenses,	 maintenance	 and	 support,	 hosting	 and	 consulting	 contracts.	 We	 recorded	 an adjustment	to	reduce	Macromedia's	carrying	value	of	deferred	revenue	by	$49.1	million	to	$14.9	million,	which	represents	our	estimate	of	the	fair	value	of	the	contractual obligations	assumed.	This	estimate	of	the	fair	value	of	deferred	revenue	is	included	in	net	tangible	assets.

Identifiable	intangible	assets—Acquired	product	rights	include	developed	and	core	technology	and	patents.	Developed	technology	relates	to	Macromedia	products across	all	of	their	product	lines	that	have	reached	technological	feasibility.	Core	technology	and	patents	represent	a	combination	of	Macromedia's	processes,	patents	and trade	secrets	developed	through	years	of	experience	in	design	and	development	of	its	products.	We	amortize	the	acquired	product	rights	based	on	the	pattern	in	which	the economic	benefits	of	the	intangible	asset	is	being	consumed.

Customer	contracts	and	relationships	represent	existing	contracts	and	the	underlying	customer	relationships.	We	amortize	these	assets	based	on	the	pattern	in	which the	economic	benefits	of	the	intangible	asset	is	being	consumed.

Trademarks	primarily	relate	to	the	Flash	trade	name	and	other	product	names	and	is	amortized	based	on	the	pattern	in	which	the	economic	benefits	of	the	intangible asset	is	being	consumed.

In-process	research	and	development—As	of	the	acquisition	date,	no	amounts	were	allocated	to	in-process	research	and	development.	In-process	research	and development	is	dependent	on	the	status	of	new	projects	on	the	date	the	acquisition	is

consummated.	 Prior	 to	 the	 acquisition	 date,	 Macromedia	 had	 released	 new	 versions	 of its	 software	 products.	Accordingly, there	 were	 no	 substantive research	 and development	projects	in	process	on	the	date	the	acquisition	was	consummated.

Goodwill—Goodwill	represents	the	excess	of	the	purchase	price	over	the	fair	value	of	the	underlying	acquired	net	tangible	and	intangible	assets.	The	factors	that contributed	to	the	recognition	of	goodwill	included	securing	buyer-specific	synergies	that	increase	revenue	and	profits	and	are	not	otherwise	available	to	a	marketplace participant,	acquiring	a	talented	workforce	and	significant	cost	savings	opportunities.

Taxes—As	part	of	our	accounting	for	the	Macromedia	acquisition,	a	portion	of	the	overall	purchase	price	was	allocated	to	goodwill	and	acquired	intangible	assets. Amortization	expense	associated	with	acquired	intangible	assets	is	not	deductible	for	tax	purposes.	Thus,	approximately	$186.9	million,	included	in	the	net	tangible	assets, was	established	as	a	deferred	tax	liability	for	the	future	amortization	of	the	intangible	assets.	In	accordance	with	SFAS	No.	109,	"Accounting	for	Income	Taxes,"	the valuation	allowance	on	Macromedia's	financial	statements	as	of	December	3,	2005	was	reduced	by	$237.8	million	to	$16.1	million,	to	the	extent	the	deferred	tax	assets	are more	likely	than	not	realizable.

Any	impairment	charges	made	in	the	future	associated	with	goodwill	will	not	be	tax	deductible	and	will	result	in	an	increased	effective	income	tax	rate	in	the	quarter the	impairment	is	recorded.

Stock-based	compensation—Stock-based	compensation	represents	the	estimated	fair	value,	measured	as	of	December	3,	2005,	of	unvested	Macromedia	stock	options and	restricted	stock	assumed.	The	fair	value	of	unvested	options	assumed	was	$146.2	million	using	the	Black	Scholes	valuation	model.	The	fair	value	of	the	unvested restricted	stock	of	$4.8	million	was	based	on	the	fair	value	of	the	underlying	shares	on	the	acquisition	date.	The	stock-based	compensation	is	being	amortized	to	expense over	the	remaining	vesting	periods	of	the	underlying	options	or	restricted	stock.	See	Note	11	for	information	regarding	amortization	of	stock-based	compensation.

In	addition	to	the	acquisition	of	Macromedia,	during	fiscal	2006,	we	completed	three	business	combinations	and	five	asset	acquisitions	for	cash	consideration	of approximately	$63.0	million.	The	impact	of	these	acquisitions	was	considered	immaterial	to	our	consolidated	financial	statements.

# 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."	These	investments	are	free	of	trading	restrictions	or	become	free	of	trading restrictions	within	one	year.	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.	Gains	are	recognized when	realized	in	our	consolidated	statements	of	income.	Losses	are	recognized	as	realized	or	when	we	have	determined	that	an	other-than-temporary	decline	in	fair	value has	occurred.	Gains	and	losses	are	determined	using	the	specific	identification	method.

Cash,	cash	equivalents	and	short-term	investments	consisted	of	the	following	as	of	November	28,	2008:

|  | Carrying<br>Value | Unrealized<br>Gains | Unrealized<br>Losses | Estimated<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Classified\tas\tcurrent\tassets: |  |  |  |  |
| Cash | \t$117,681 | \t$— | \t$— | \t$117,681 |
| Cash\tequivalents: |  |  |  |  |
| Money\tmarket\tmutual\tfunds | 682,148 | — | — | 682,148 |
| Bank\ttime\tdeposits | 40,594 | — | — | 40,594 |
| United\tStates\ttreasury\tnotes | 35,992 | 7 | — | 35,999 |
| Corporate\tbonds | 10,028 | — | — | 10,028 |
| Total\tcash\tequivalents | 768,762 | 7 | — | 768,769 |
| Total\tcash\tand\tcash\tequivalents | 886,443 | 7 | — | 886,450 |
| Short-term\tinvestments: |  |  |  |  |
| United\tStates\ttreasury\tnotes | 863,772 | 14,384 | (1) | 878,155 |
| Corporate\tbonds | 109,415 | 219 | (997) | 108,637 |
| Obligations\tof\tforeign\tgovernments | 115,316 | 811 | (33) | 116,094 |
| Bonds\tof\tgovernment\tagencies | 26,559 | 260 | — | 26,819 |
| Subtotal | 1,115,062 | 15,674 | (1,031) | 1,129,705 |
| Other\tmarketable\tequity\tsecurities | 2,773 | 274 | — | 3,047 |
| Total\tshort-term\tinvestments | 1,117,835 | 15,948 | (1,031) | 1,132,752 |
| Total\tcash,\tcash\tequivalents\tand\tshort-term\tinvestments | \t$2,004,278 | \t$15,955 | \t$(1,031) | \t$2,019,202 |

Cash,	cash	equivalents	and	short-term	investments	consisted	of	the	following	as	of	November	30,	2007:

|  | Carrying<br>Value | Unrealized<br>Gains | Unrealized<br>Losses | Estimated<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Classified\tas\tcurrent\tassets:\nCash | \t$111,702 | \t$— | \t$— | \t$111,702 |
| Cash\tequivalents: |  |  |  |  |
| Money\tmarket\tmutual\tfunds | 778,259 | — | — | 778,259 |
| Bank\ttime\tdeposits | 31,568 | — | — | 31,568 |
| United\tStates\ttreasury\tnotes | 24,884 | 9 | — | 24,893 |
| Total\tcash\tequivalents | 834,711 | 9 | — | 834,720 |
| Total\tcash\tand\tcash\tequivalents | 946,413 | 9 | — | 946,422 |
| Short-term\tinvestments: |  |  |  |  |
| State\tand\tmunicipal\tbonds | 363,738 | — | — | 363,738 |
| United\tStates\ttreasury\tnotes | 580,914 | 4,757 | — | 585,671 |
| Corporate\tbonds | 23,697 | — | — | 23,697 |
| Obligations\tof\tforeign\tgovernments | 34,760 | 204 | (3) | 34,961 |
| Bonds\tof\tgovernment\tagencies | 18,501 | 21 | — | 18,522 |
| Subtotal | 1,021,610 | 4,982 | (3) | 1,026,589 |
| Other\tmarketable\tequity\tsecurities | 6,050 | 14,793 | — | 20,843 |
| Total\tshort-term\tinvestments | 1,027,660 | 19,775 | (3) | 1,047,432 |
| Total\tcash,\tcash\tequivalents\tand\tshort-term\tinvestments | \t$1,974,073 | \t$19,784 | \t$(3) | \t$1,993,854 |

The	following	table	summarizes	the	fair	value	and	gross	unrealized	losses	related	to	available-for-sale	securities,	aggregated	by	investment	category	and	length	of time	that	individual	securities	have	been	in	a	continuous	unrealized	loss	position,	at	November	28,	2008:

|  | Less	Than	12	Months | Less	Than	12	Months | 12	Months	or	More | 12	Months	or	More | Total | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Gross |  | Gross |  | Gross |
|  |  | Unrealized |  | Unrealized |  | Unrealized |
|  | Fair\tValue | Losses | Fair\tValue | Losses | Fair\tValue | Losses |
| United\tStates\ttreasury\tnotes | \t$37,400 | \t$(1) | \t$—\t \t$— | \t$—\t \t$— | \t$37,400 | \t$(1) |
| Corporate\tbonds | 67,606 | (997) | — | — | 67,606 | (997) |
| Obligations\tof\tforeign\tgovernments | 28,033 | (33) | — | — | 28,033 | (33) |
| Total | \t$133,039 | \t$(1,031) | \t$— | \t$— | \t$133,039 | \t$(1,031) |

The	following	table	summarizes	the	cost	and	estimated	fair	value	of	debt	securities	classified	as	short-term	investments	based	on	stated	maturities.

|  | Cost | Fair	Value |
| :--- | :--- | :--- |
| Due\twithin\tone\tyear | \t$660,921 | \t$664,819 |
| Due\twithin\ttwo\tyears | 268,508 | 271,841 |
| Due\twithin\tthree\tyears | 72,187 | 73,547 |
| Due\tafter\tthree\tyears | 113,446 | 119,498 |
| Total | \t$1,115,062 | \t$1,129,705 |

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	and	ability	to	retain	our	investment	in	the	issuer	for	a	period	of	sufficient	time	to	allow	for	recovery	in	market value.	If	we	believe	that	an	other-than-temporary	decline	exists	in	one	of	these	securities,	we	write	down	these	investments	to	fair	value.	We	record	the	related	write-down	as investment	gains	and	losses	on	our	consolidated	statements	of	income	for	equity	securities	and	as	interest	and	other	income	for	debt	securities.

See	Note	6	and	Note	17	for	information	regarding	gains	and	losses	on	our	long-term	investments.

# Note	4.		Property	and	Equipment

Property	and	equipment	consisted	of	the	following	as	of	November	28,	2008	and	November	30,	2007:

|  | 2008 | 2007 |
| :--- | :--- | :--- |
| Computers\tand\tequipment | \t$331,235 | \t$264,732 |
| Furniture\tand\tfixtures | 56,253 | 55,594 |
| Capital\tprojects\tin-progress | 7,273 | 15,801 |
| Leasehold\timprovements | 133,571 | 114,139 |
| Land | 74,835 | 67,905 |
| Buildings | 62,464 | 62,464 |
|  | 665,631 | 580,635 |
| Less\taccumulated\tdepreciation\tand\tamortization. | (352,594) | (290,877) |
| Property\tand\tequipment,\tnet. | \t$313,037 | \t$289,758 |

Depreciation	and	amortization	expense	of	capital	assets	for	fiscal	2008,	2007	and	2006	was	$83.3	million,	$73.2	million	and	$67.7	million,	respectively.

# Note	5.		Goodwill	and	Purchased	and	Other	Intangibles

Below	is	our	goodwill	reported	by	business	segment,	as	of	November	28,	2008:

|  | 2007 | Acquisitions | Other | 2008 |
| :--- | :--- | :--- | :--- | :--- |
| Creative\tSolutions | \t$964,635 | \t$3,586 | \t$(12,210) | \t$956,011 |
| Knowledge\tWorker | 411,585 | — | (3,267) | 408,318 |
| Enterprise | 298,490 | — | (451) | 298,039 |
| Mobile\tand\tDevice\tSolutions | 211,882 | — | (461) | 211,421 |
| Platform | 54,215 | — | (118) | 54,097 |
| Print\tand\tPublishing | 207,295 | — | (451) | 206,844 |
| Total | \t$2,148,102 | \t$3,586 | \t$(16,958) | \t$2,134,730 |

The	column	"Other"	above	includes	net	reductions	in	goodwill	of	$9.6	million	related	to	deferred	tax	assets	associated	with	our	acquisition	of	Scene7	and	$4.2	million related	to	the	tax	reserve	associated	with	the	acquisition	of	Macromedia,	offset	in	part	by	foreign	currency	changes	and	other	individually	insignificant	tax	related	items.

# See	Note	2	for	further	information	regarding	our	acquisitions.

Below	are	our	purchased	and	other	intangible	assets,	net	reported	by	business	segment	for	fiscal	2008	and	2007:

|  | 2008 | 2007 |
| :--- | :--- | :--- |
| Creative\tSolutions | \t$107,526 | \t$186,355 |
| Knowledge\tWorker | 48,851 | 73,767 |
| Enterprise | 13,146 | 29,046 |
| Mobile\tand\tDevice\tSolutions | 18,404 | 33,324 |
| Platform | 7,844 | 8,011 |
| Print\tand\tPublishing | 19,189 | 37,141 |
| Total | \t$214,960 | \t$367,644 |

Purchased	and	other	intangible	assets	subject	to	amortization	were	as	follows	as	of	November	28,	2008:

|  |  | Accumulated |  |
| :--- | :--- | :--- | :--- |
|  | Cost | Amortization | Net |
| Purchased\ttechnology | \t$411,408 | \t$(338,608) | \t$72,800 |
| Localization | \t$23,751 | \t$(6,156) | \t$17,595 |
| Trademarks | 130,925 | (78,181) | 52,744 |
| Customer\tcontracts\tand\trelationships | 198,891 | (127,520) | 71,371 |
| Other\tintangibles | 800 | (350) | 450 |
| Total\tother\tintangible\tassets | \t$354,367 | \t$(212,207) | \t$142,160 |
| Total\tpurchased\tand\tother\tintangible\tassets | \t$765,775 | \t$(550,815) | \t$214,960 |

Purchased	and	other	intangible	assets	subject	to	amortization	were	as	follows	as	of	November	30,	2007:

|  |  | Accumulated |  |
| :--- | :--- | :--- | :--- |
|  | Cost | Amortization | Net |
| Purchased\ttechnology | \t$409,110 | \t$(250,721) | \t$158,389 |
| Localization | \t$45,854 | \t$(27,676) | \t$18,178 |
| Trademarks | 131,225 | (52,443) | 78,782 |
| Customer\tcontracts\tand\trelationships | 197,220 | (85,529) | 111,691 |
| Other\tintangibles | 800 | (196) | 604 |
| Total\tother\tintangible\tassets | \t$375,099 | \t$(165,844) | \t$209,255 |
| Total\tpurchased\tand\tother\tintangible\tassets | \t$784,209 | \t$(416,565) | \t$367,644 |

Certain	amounts	as	of	November	30,	2007	have	been	reclassified	to	conform	to	current	year	presentation	in	the	consolidated	balance	sheets.	Specifically,	we reclassified	$55.5	million	of	cost	and	$20.5	million	of	accumulated	amortization	($35.0	million,	net)	from	purchased	intangibles	to	long-term	and	short-term	other	assets associated	with	certain	technology	license	arrangements.

Amortization	expense	related	to	identifiable	intangible	assets	was	$184.4	million,	$216.3	million	and	$219.3	million	for	fiscal	2008,	2007	and	2006,	respectively.	Of the	total	amortization	expense	for	fiscal	2008,	2007	and	2006,	$116.1,	$145.4	and	$149.9	million,	respectively,	was	charged	to	cost	of	sales.	Purchased	and	other	intangible assets	are	amortized	over	their	estimated	useful	lives	of	1	to	13	years.	Amortization	expense	for	each	of	the	next	five	years	and	thereafter	is	as	follows:

| Fiscal	Year | Purchased<br>Technology | Other	Intangible<br>Assets |
| :--- | :--- | :--- |
| 2009 | \t$56,230 | \t$79,371 |
| 2010 | 8,244 | 48,685 |
| 2011 | 4,938 | 11,917 |
| 2012 | 3,388 | 1,009 |
| 2013 | — | 789 |
| Thereafter | — | 389 |
| Total\texpected\tamortization\texpense | \t$72,800 | \t$142,160 |

# Note	6.		Other	Assets

Other	assets	consisted	of	the	following	as	of	November	28,	2008	and	November	30,	2007:

|  | 2008 | 2007 |
| :--- | :--- | :--- |
| Acquired\trights\tto\tuse\ttechnology | \t$90,643 | \t$41,642 |
| Investments | 76,589 | 52,830 |
| Security\tand\tother\tdeposits | 16,087 | 6,650 |
| Prepaid\troyalties | 9,026 | 6,748 |
| Deferred\tcompensation\tplan\tassets | 7,560 | 3,145 |
| Restricted\tcash | 7,361 | 7,367 |
| Prepaid\tland\tlease | 3,185 | 3,224 |
| Prepaid\trent | 2,658 | 4,285 |
| Other | 3,420 | 2,194 |
| Total\tother\tassets | \t$216,529 | \t$128,085 |

Acquired	rights	to	use	technology	purchased	during	fiscal	2008	and	fiscal	2007	was	$100.4	million	and	$60.0	million,	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.		See	Note	15	for	further	information	regarding	our	contractual	commitments.

In	general,	acquired	rights	to	use	technology	are	amortized	over	their	estimated	useful	lives	of	5	to	15	years.

Certain	prior	year	amounts	have	been	reclassified	to	conform	to	current	year	presentation	in	the	consolidated	balance	sheets.	Specifically,	there	was	a	reclassification associated	with	certain	technology	licensing	arrangements	totaling	$35.0	million,	net	from	purchased	intangibles	of	which	$28.7	million	and	$4.7	million	were	reclassified to	acquired	rights	to	use	technology	and	long-term	prepaid	royalties,	respectively.	The	remaining	amount	was	reclassified	to	short-term	prepaid	royalties.

Included	in	investments	are	our	indirect	investments	through	our	limited	partnership	interest	in	Adobe	Ventures,	which	is	consolidated	in	accordance	with	FASB Interpretation	No.	46R,	a	revision	to	FASB	Interpretation	No.	46,	"Consolidation	of	Variable	Interest	Entities."	The	partnership	is	controlled	by	Granite	Ventures,	an independent	venture	capital	firm	and	sole	general	partner	of	Adobe	Ventures.	Adobe	Ventures	carries	its	investments	in	equity	securities	at	estimated	fair	value	and investment	gains	and	losses	are	included	in	our	consolidated	statements	of	income.	The	investments	held	by	Adobe	Ventures	at	November	28,	2008	and	November	30,	2007 are	not	publicly	traded	and,	therefore,	there	is	no	established	market	for	these	securities.	In	order	to	determine	the	fair	value	of	these	investments,	we	use	the	most	recent round	of	financing	involving	new	non-strategic	investors	or	estimates	of	current	market	value	made	by	Granite	Ventures.	It	is	our	policy	to	evaluate	the	fair	value	of	these investments	held	by	Adobe	Ventures,	as	well	as	our	direct	investments,	on	a	regular	basis.	This	evaluation	includes,	but	is	not	limited	to,	reviewing	each	company's	cash position,	financing	needs,	earnings	and	revenue	outlook,	operational	performance,	management	and	ownership	changes	and	competition.	In	the	case	of	privately-held companies,	this	evaluation	is	based	on	information	that	we	request	from	these	companies.	This	information	is	not	subject	to	the	same	disclosure	regulations	as	U.S.	publicly traded	companies	and	as	such,	the	basis	for	these	evaluations	is	subject	to	the	timing	and	the	accuracy	of	the	data	received	from	these	companies.	See	Note	17	for	further information	regarding	Adobe	Ventures.

Also	included	in	investments	are	our	direct	investments	in	privately-held	companies	accounted	for	based	on	the	cost	method	which	are	assessed	for	other-than- temporary	impairment	in	value.

The	increase	in	security	and	other	deposits	relates	primarily	to	the	purchase	of	real	property	in	Massachusetts.	We	entered	into	a	Purchase	and	Sale	Agreement, effective	May	12,	2008,	for	the	acquisition	of	real	property	located	in	Waltham,	Massachusetts.	We	will	purchase	the	property	subject	to	completion	of	construction	of	an office	building	shell	and	core,	parking	structure	and	site	improvements.	The	purchase	price	for	the	property	will	be	$44.7	million.	We	made	an	initial	deposit	of	$7.0	million to	be	held	in	escrow	until	closing	and	then	applied	to	the	purchase	price.	Closing	is	expected	to	occur	in	May	2009	and	the	remaining	balance	is	due	at	such	time.

Other	assets	include	the	fair	value,	at	inception,	of	the	residual	value	guarantee	associated	with	our	leases	on	the	buildings	we	occupy	as	part	of	our	corporate headquarters,	in	accordance	with	FIN	45.	The	lease	agreements	for	our	corporate	headquarters	provide	for	residual	value	guarantees.	Under	FIN	45,	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.

# Note	7.		Accrued	Expenses

Accrued	expenses	consisted	of	the	following	as	of	November	28,	2008	and	November	30,	2007:

|  | 2008 | 2007 |
| :--- | :--- | :--- |
| Accrued\tcompensation\tand\tbenefits | \t$177,760 | \t$205,018 |
| Taxes\tpayable | 21,760 | 24,579 |
| Sales\tand\tmarketing\tallowances | 28,127 | 21,231 |
| Other | 172,322 | 157,751 |
| Total\taccrued\texpenses | \t$399,969 | \t$408,579 |

Other	primarily	includes	general	corporate	accruals	for	corporate	marketing	programs,	local	and	regional	expenses,	charitable	contributions	and	technical	support. Other	is	also	comprised	of	deferred	rent	related	to	office	locations	with	rent	escalations,	accrued	royalties,	foreign	currency	derivatives	and	accrued	interest	on	the	credit facility.

# Note	8.		Income	Taxes

The	provision	for	income	taxes	consisted	of	the	following	for	fiscal	2008,	2007	and	2006:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Current: |  |  |  |
| United\tStates\tfederal | \t$24,179 | \t$36,614 | \t$12,419 |
| Foreign | 27,680 | 55,536 | 34,762 |
| State\tand\tlocal | 6,972 | 4,100 | 3,623 |
| Total\tcurrent | 58,831 | 96,250 | 50,804 |
| Deferred: |  |  |  |
| United\tStates\tfederal | 41,678 | 50,640 | (19,843) |
| Foreign | (9,693) | (13,480) | 2,198 |
| State\tand\tlocal | 25,518 | 23,007 | (5,383) |
| Total\tdeferred | 57,503 | 60,167 | (23,028) |
| Tax\texpense\tattributable\tto\temployee\tstock\tplans | 90,360 | 66,966 | 146,142 |
|  | \t$206,694 | \t$223,383 | \t$173,918 |

Certain	 employee	 stock	 plan	 benefits in fiscal	 2008,	 2007	 and	 2006	 associated	 with the	 acquisition	 of	 Macromedia	 reduced	 goodwill.	See	 Note	 5 for further information	regarding	our	goodwill.

Total	income	tax	expense	differs	from	the	expected	tax	expense	(computed	by	multiplying	the	United	States	federal	statutory	rate	of	35%	by	income	before	income taxes)	as	a	result	of	the	following:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Computed\t"expected"\ttax\texpense | \t$377,478 | \t$331,516 | \t$237,905 |
| State\ttax\texpense,\tnet\tof\tfederal\tbenefit | 12,700 | 8,938 | 8,768 |
| Tax-exempt\tincome | (342) | (11,123) | (12,637) |
| Tax\tcredits | (12,873) | (23,341) | (1,204) |
| Differences\tbetween\tstatutory\trate\tand\tforeign\teffective\ttax\trate | (132,470) | (84,740) | (61,067) |
| Change\tin\tdeferred\ttax\tasset\tvaluation\tallowance | (1,105) | 1,694 | (7,539) |
| FAS\t123R\tstock\tcompensation\t(net\tof\ttax\tdeduction) | 5,457 | 2,587 | 3,320 |
|  | (20,712) | — | — |
| Foreign\ttax\trefund\tfor\tfiscal\t2000\t-\t2002 | (16,351) | — | — |
| Domestic\tmanufacturing\tdeduction\tbenefit | (6,300) | (4,419) | (1,400) |
| Other,\tnet | 1,212 | 2,271 | 7,772 |
|  | \t$206,694 | \t$223,383 | \t$173,918 |

# Deferred	Tax	Assets	and	Liabilities

The	tax	effects	of	the	temporary	differences	that	gave	rise	to	significant	portions	of	the	deferred	tax	assets	and	liabilities	as	of	November	28,	2008	and	November	30, 2007	are	presented	below:

								The	deferred	tax	assets	and	liabilities	for	fiscal	2008	and	fiscal	2007	include	amounts	related	to	various	acquisitions.		The	total	change	in	deferred	tax	assets	and liabilities	in	fiscal	2008	includes	changes	that	are	recorded	to	other	comprehensive	income,	goodwill	and	retained	earnings.

We	provide	United	States	income	taxes	on	the	earnings	of	foreign	subsidiaries	unless	the	subsidiaries'	earnings	are	considered	permanently	reinvested	outside	the United	States.	To	the	extent	that	the	foreign	earnings	previously	treated	as	permanently	reinvested	are	repatriated,	the	related	United	States	tax	liability	may	be	reduced	by any	foreign	income	taxes

paid	on	these	earnings.		As	of	November	28,	2008,	the	cumulative	amount	of	earnings	upon	which	U.S.	income	taxes	have	not	been	provided	is	approximately	$1.1	billion. The	unrecognized	deferred	tax	liability	for	these	earnings	is	approximately	$342.0	million.

As	of	November	28,	2008,	we	have	net	operating	loss	carryforward	assets	of	approximately	$19.0	million	for	federal,	$7.7	million	for	state	and	$1.3	million	related	to foreign	 net	 operating	 losses.	 We	 also	 have	 federal,	 state	 and	 foreign	 tax	 credit	 carryforwards	 of	 approximately	 $8.6	 million, $10.9	 million and	 $3.5	 million, respectively.		The	net	operating	loss	carryforward	assets,	federal	tax	credits	and	foreign	tax	credits	will	expire	in	various	years	from	fiscal	2014	through	2029.	The	state	tax credit	carryforwards	can	be	carried	forward	indefinitely.		The	net	operating	loss	carryforward	assets	and	certain	credits	are	subject	to	an	annual	limitation	under	Internal Revenue	Code	Section	382,	but	are	expected	to	be	fully	realized.

In	addition,	we	have	been	tracking	certain	deferred	tax	attributes	of	$49.0	million	which	have	not	been	recorded	in	the	financial	statements	pursuant	to	SFAS	123R. These	amounts	are	no	longer	included	in	our	gross	or	net	deferred	tax	assets.	Pursuant	to	SFAS	123R,	footnote	82,	the	benefit	of	these	deferred	tax	assets	will	be	recorded	to equity	when	they	reduce	taxes	payable.

A	valuation	allowance	has	been	established	for	certain	deferred tax	assets	related to the impairment	of investments.	At the	end	of	fiscal	2008,	our	valuation allowance	was	$1.5	million.

# Adoption	of	FIN	48

	We	adopted	both	FIN	48	and	FSP	FIN	48-1	on	December	1,	2007.	The	adoption	of	FIN	48	resulted	in	an	increase	of	$3.9	million	to	both	assets	and	unrecognized tax	benefits	in	our	consolidated	balance	sheet	as	of	the	beginning	of	fiscal	2008.	Upon	adoption,	the	gross	liability	for	unrecognized	tax	benefits	at	December	1,	2007	was $218.4	million,	exclusive	of	interest	and	penalties.	The	total	amount	of	gross	FIN	48	liabilities	included	$57.7	million	that	relates	to	certain	tax	attributes	from	acquired companies,	including	Macromedia.	These	liabilities	from	acquired	companies	are	not	recorded	on	our	balance	sheet	because	they	are	related	to	positions	that	have	not	yet been	claimed	on	our	income	tax	returns.

	We	have	historically	presented	our	estimated	liability	for	unrecognized	tax	benefits	as	a	current	liability.	FIN	48	requires	liabilities	for	unrecognized	tax	benefits	to be	classified	based	on	whether	a	payment	is	expected	to	be	made	within	the	next	12	months.	That	is,	amounts	expected	to	be	paid	within	the	next	12	months	are	to	be classified	as	a	current	liability	and	all	other	amounts	are	to	be	classified	as	a	non-current	liability.	As	a	result	of	adopting	FIN	48,	we	reclassified	$197.7	million	from	current income	taxes	payable	to	long-term	income	taxes	payable,	including	accrued	interest	on	the	balance.

	We	have	historically	presented	our	estimated	state,	local	and	interest	liabilities	net	of	the	estimated	benefit	we	expect	to	receive	from	deducting	such	payments	on future	tax	returns	(i.e.,	on	a	"net"	basis).	FIN	48	requires	this	estimated	benefit	to	be	classified	as	a	deferred	tax	asset	instead	of	a	reduction	of	the	overall	liability	(i.e.,	on	a "gross"	basis).	Thus,	we	recognized	additional	deferred	income	tax	assets	of	$3.9	million	to	present	the	unrecognized	tax	benefits	as	gross	amounts	on	our	consolidated balance	sheet.

	Our	policy	to	classify	interest	and	penalties	on	unrecognized	tax	benefits	as	income	tax	expense	did	not	change	upon	the	adoption	of	FIN	48.	As	of	December	1, 2007,	the	combined	amount	of	accrued	interest	and	penalties	related	to	tax	positions	taken	on	our	tax	returns	and	included	in	non-current	income	taxes	payable	was approximately	$42.8	million.

# Summary	FIN	48	Changes

         	During	fiscal	2008,	our	aggregate	changes	in	our	total	gross	amount	of	unrecognized	tax	benefits	are	summarized	as	follows:

| During	fiscal	2008,	our	aggregate	changes	in	our	total	gross	amount	of	unrecognized	tax	benefits	are	summarized	as	follows: |  |
| :--- | :--- |
| Beginning\tbalance\tas\tof\tDecember\t1,\t2007 | $201,808 |
| Gross\tincreases\tin\tunrecognized\ttax\tbenefits\t–\tprior\tyear\ttax\tpositions | 14,009 |
| Gross\tincreases\tin\tunrecognized\ttax\tbenefits\t–\tcurrent\tyear\ttax\tpositions | 11,350 |
| Settlements\twith\ttaxing\tauthorities | (81,213) |
| Lapse\tof\tstatute\tof\tlimitations | (3,512) |
| Foreign\texchange\tgains\tand\tlosses | (2,893) |
| Ending\tbalance\tas\tof\tNovember\t28,\t2008 | $139,549 |

	The	gross	liability	for	unrecognized	tax	benefits	at	November	28,	2008	of	$139.5	million	is	exclusive	of	interest	and	penalties.	If	the	total	FIN	48	gross	liability	for unrecognized	tax	benefits	at	November	28,	2008	were	recognized	in	the	future,	the	following	amounts,	net	of	an	estimated	$12.9	million	benefit	related	to	deducting	such payments	on	future	tax	returns,	would	result:	$57.7	million	of	unrecognized	tax	benefits	would	decrease	the	effective	tax	rate	and	$68.9	million	would	decrease	goodwill.

	As	of	November	28,	2008,	the	combined	amount	of	accrued	interest	and	penalties	related	to	tax	positions	taken	on	our	tax	returns	and	included	in	non-current income	taxes	payable	was	approximately	$15.3	million.

	We	file	income	tax	returns	in	the	U.S.	on	a	federal	basis	and	in	many	U.S.	state	and	foreign	jurisdictions.	We	are	subject	to	the	continual	examination	of	our income	tax	returns	by	the	IRS	and	other	domestic	and	foreign	tax	authorities.	Our	major	tax	jurisdictions	are	the	U.S.,	Ireland	and	California.	For	California,	Ireland	and	the U.S.,	the	earliest	fiscal	years	open	for	examination	are	2001,	2002	and	2005,	respectively.

	In	August	2008,	a	U.S.	income	tax	examination	covering	our	fiscal	years	2001	through	2004	was	completed.	Our	accrued	tax	and	interest	related	to	these	years	was $100.0	million	and	was	previously	reported	in	long-term	income	taxes	payable.	In	conjunction	with	this	resolution,	we	requested	and	received	approval	from	the	IRS	to repatriate	certain	foreign	earnings	in	a	tax-free	manner,	which	resulted	in	a	reduction	of	our	long-term	deferred	income	tax	liability	of	$57.8	million.	Together,	these liabilities	on	our	balance	sheet	decreased	by	$157.8	million.	Also	in	August	2008,	we	paid	$80.0	million	in	conjunction	with	the	aforementioned	resolution,	credited additional	paid-in-capital	for	$41.3	million	due	to	our	use	of	certain	tax	attributes	related	to	stock	option	deductions,	including	a	portion	of	certain	deferred	tax	assets	not recorded	in	our	financial	statements	pursuant	to	SFAS	123R	and	made	other	individually	immaterial	adjustments	to	our	tax	balances	totaling	$15.8	million.	A	net	income statement	tax	benefit	in	the	third	quarter	of	fiscal	2008	of	$20.7	million	resulted.

	The	accounting	treatment	related	to	certain	unrecognized	tax	benefits	from	acquired	companies,	including	Macromedia,	will	change	when	SFAS	141R	becomes effective.		SFAS	141R	will	be	effective	in	the	first	quarter	of	our	fiscal	year	2010.	At	such	time,	any	changes	to	the	recognition	or	measurement	of	these	unrecognized	tax benefits	will	be	recorded	through	income	tax	expense,	where	currently	the	accounting	treatment	would	require	any	adjustment	to	be	recognized	through	the	purchase	price	as an	adjustment	to	goodwill.

	The	timing	of	the	resolution	of	income	tax	examinations	is	highly	uncertain	and	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	in	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.

# Note	9.		Restructuring

In	fiscal	2008,	we	recorded	restructuring	charges	totaling	$32.1	million	of	which	$29.2	related	to	fiscal	2008	restructuring	charges	and	$2.9	million	related	to changes	in	estimates	associated	with	pre-existing	facilities	accruals	for	the	Macromedia	acquisition.	These	restructuring	charges	are	included	in	our	consolidated	statements of	income.

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	the	560	full-time	positions	globally.	As	of	November	28,	2008,	$0.4	million	was	paid.	The remaining	accrual	for	these	restructuring	charges	is	expected	to	be	substantially	paid	during	fiscal	2009.	Charges	associated	with	these	ongoing	termination	benefits	were recorded	in	accordance	with	SFAS	No.	112,	"Employers'	Accounting	for	Postemployment	Benefits."

# Macromedia	Acquisition

In	the	first	quarter	of	fiscal	2006,	pursuant	to	the	Board	of	Directors'	approval,	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.	Pursuant	to EITF	Issue	No.	95-3,	"Recognition	of	Liabilities	in	Connection	with	a	Purchase	Business	Combination,"	all	restructuring	charges	related	to	the	Macromedia	acquisition	are recognized	as	a	part	of	the	purchase	price	allocation.	See	Note	2	for	information	regarding	the	Macromedia	acquisition.

Macromedia	Merger	Restructuring	Charges—The	following	table	sets	forth	a	summary	of	Macromedia	restructuring	activity,	including	any	costs	incurred	during fiscal	2007	and	2008	and	the	cumulative	costs	incurred	through	November	28,	2008	for	each	major	type	of	cost	associated	with	the	restructuring	plan:

|  |  |  |  |  | Total	Costs | Expected |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | November\t30, | Cash |  | November\t28, | Incurred\tTo | To\tBe |
|  | 2007 | Payments | Adjustments | 2008 | Date | Incurred |
| Termination\tbenefits | \t$—\t \t$—\t \t$—\t \t$— | \t$—\t \t$—\t \t$—\t \t$— | \t$—\t \t$—\t \t$—\t \t$— | \t$—\t \t$—\t \t$—\t \t$— | \t$26,976 | \t$26,976 |
| Cost\tof\tclosing\tredundant\tfacilities | 16,283 | (7,187) | 3,072 | 12,168 | 30,148 | 42,316 |
| Cost\tof\tcontract\ttermination | — | — | — | — | 3,238 | 3,238 |
| Other | 1,435 | (147) | (311) | 977 | 1,379 | 2,356 |
| Total | \t$17,718 | \t$(7,334) | \t$2,761 | \t$13,145 | \t$61,741 | \t$74,886 |

Included	in	the	adjustments	column	is	a	change	to	previous	estimates,	recorded	as	a	current	period	expense,	associated	with	closing	redundant	facilities	as	a	result	of the	Macromedia	acquisition	as	well	as	the	net	effect	of	foreign	currency	changes.	Accrued	restructuring	charges	of	$13.1	million	at	November	28,	2008	includes	$6.9 million	 recorded	 in	 accrued	 restructuring,	 current	 and	 $6.2	 million,	 related	 to	 long-term	 facilities	 obligations,	 recorded	 in	 accrued	 restructuring,	 non-current	 in	 the accompanying	consolidated	balance	sheets.	We	expect	to	pay	these	liabilities	through	fiscal	2011.

The	following	table	sets	forth	a	summary	of	Macromedia	restructuring	activity,	including	any	costs	incurred	during	fiscal	2006	and	2007	for	each	major	type	of	cost associated	with	the	restructuring	plan:

|  | December	1, | Cash |  | November	30, |
| :--- | :--- | :--- | :--- | :--- |
|  | 2006 | Payments | Adjustments | 2007 |
| Termination\tbenefits | \t$1,002 | \t$(370) | \t$(632) | \t$— |
| Cost\tof\tclosing\tredundant\tfacilities | 28,934 | (12,052) | (599) | 16,283 |
| Cost\tof\tcontract\ttermination | 46 | (8) | (38) | — |
| Other | 1,444 | 1 | (10) | 1,435 |
| Total | \t$31,426 | \t$(12,429) | \t$(1,279) | \t$17,718 |

Accrued	restructuring	charges	of	$17.7	million	at	November	30,	2007	included	$3.7	million	recorded	in	accrued	restructuring,	current	and	$14.0	million,	related	to long-term	facilities	obligations,	recorded	in	accrued	restructuring,	non-current	in	the	accompanying	consolidated	balance	sheets.

The	following	table	sets	forth	a	summary	of	Macromedia	restructuring	activity	for	the	fiscal	year	ended	December	1,		2006:

|  | Initial |  |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Restructuring\nCharges | Cash\nPayments | Adjustments | December\t1,\n2006 |
| Termination\tbenefits | \t$26,608 | \t$(26,459) | \t$853 | \t$1,002 |
| Cost\tof\tclosing\tredundant\tfacilities | 32,083 | (10,547) | 7,398 | 28,934 |
| Cost\tof\tcontract\ttermination | 3,969 | (3,224) | (699) | 46 |
| Other | 2,500 | (1,072) | 16 | 1,444 |
| Total | \t$65,160 | \t$(41,302) | \t$7,568 | \t$31,426 |

At	December	1,	2006,	accrued	restructuring	charges	of	$31.4	million	included	$9.8	million	recorded	in	accrued	restructuring,	current	and	$21.6	million,	related	to long-term	facilities	obligations,	recorded	in	accrued	restructuring,	non-current	in	the	accompanying	consolidated	balance	sheets.

Adobe	Restructuring	Charges—In	connection	with the	worldwide	restructuring	plan,	we	recognized	costs	related	 to	(i) termination	benefits	for	former	Adobe employees	whose	positions	were	eliminated,	(ii)	the	closure	of	Adobe	facilities	and	(iii)	the	cancellation	of	certain	contracts	held	by	Adobe.

The	following	table	sets	forth	a	summary	of	the	Adobe	restructuring	activity	for	the	fiscal	year	ended	November	30,	2007:

|  | December	1,<br>2006 | Cash<br>Payments | Adjustments | November	30,<br>2007 |
| :--- | :--- | :--- | :--- | :--- |
| Termination\tbenefits | \t$179 | \t$(37) | \t$(142) | \t$— |
| Cost\tof\tclosing\tredundant\tfacilities | 467 | (387) | (80) | — |
| Total | \t$646 | \t$(424) | \t$(222) | \t$— |

As	 of	 November	 30,	 2007,	 we	 had	 no	 remaining	 accrued	 restructuring	 charges	 associated	 with	Adobe restructuring	 activity recorded in the	 accompanying consolidated	balance	sheets.	Total	costs	under	the	plan	incurred	and	expected	to	be

incurred	were	$19.5	million	and	$19.0	million,	respectively.	The	world	wide	consolidation	of	facilities	was	completed	in	fiscal	2007.

The	following	table	sets	forth	a	summary	of	the	Adobe	restructuring	activity	for	the	fiscal	year	ended	December	1,	2006:

|  | Initial<br>Restructuring<br>Charges | Cash<br>Payments | Adjustments | December	1,<br>2006 |
| :--- | :--- | :--- | :--- | :--- |
| Termination\tbenefits | \t$18,879 | \t$(18,597) | \t$(103) | \t$179 |
| Cost\tof\tclosing\tredundant\tfacilities | — | (479) | 946 | 467 |
| Cost\tof\tcontract\ttermination | 105 | (11) | (94) | — |
| Total | \t$18,984 | \t$(19,087) | \t$749 | \t$646 |

Accrued	restructuring	charges	as	of	December	1,	2006	included	$0.3	million	recorded	in	accrued	restructuring,	current	and	$0.3	million,	related	to	long-term facilities	obligations	recorded	in	accrued	restructuring,	non-current	in	the	accompanying	consolidated	balance	sheets.

# Note	10.		Benefit	Plans

# Pretax	Savings	Plan

In	 1987,	 we	 adopted	 an	 Employee	 Investment	 Plan,	 qualified	 under	 Section	 401(k)	 of	 the	 Internal	 Revenue	 Code,	 which	 is	 a	 pretax	 savings	 plan	 covering substantially	all	of	our	United	States	employees.	Under	the	plan,	eligible	employees	may	contribute	up	to	65%	of	their	pretax	salary,	subject	to	the	Internal	Revenue	Service annual	contribution	limits.	In	fiscal	2008,	we	matched	50%	of	the	first	6%	of	the	employee's	contribution.	We	contributed	$16.6	million,	$14.5	million	and	$11.2	million	in fiscal	2008,	2007	and	2006,	respectively.	We	can	terminate	matching	contributions	at	our	discretion.

# Profit	Sharing	Plan

We	have	a	profit	sharing	plan	that	provides	for	profit	sharing	payments	to	all	eligible	employees	following	each	quarter	in	which	we	achieve	at	least	80%	of	our budgeted	earnings	for	the	quarter.	The	plan,	as	well	as	the	annual	operating	budget	on	which	the	plan	is	based,	is	approved	by	our	Board	of	Directors.	We	contributed	$73.8 million,	$67.6	million	and	$51.9	million	to	the	plan	in	fiscal	2008,	2007	and	2006,	respectively.

# Deferred	Compensation	Plan

On	September	21,	2006,	the	Board	of	Directors	approved	the	Adobe	Systems	Incorporated	Deferred	Compensation	Plan,	effective	December	2,	2006	(the	"Deferred Compensation	Plan").	The	Deferred	Compensation	Plan	is	an	unfunded,	non-qualified,	deferred	compensation	arrangement	under	which	certain	executives	and	members	of the	Board	of	Directors	are	able	to	defer	a	portion	of	their	annual	compensation.	Participants	may	elect	to	contribute	up	to	75%	of	their	base	salary	and	100%	of	other specified	compensation,	including	commissions,	bonuses,	performance-based	and	time-based	restricted	stock	units,	and	directors'	fees.	Participants	are	able	to	elect	the payment	of	benefits	to	begin	on	a	specified	date	at	least	three	years	after	the	end	of	the	plan	year	in	which	the	election	is	made	in	the	form	of	a	lump	sum	or	annual installments	over	five,	ten	or	fifteen	years.	Upon	termination	of	a	participant's	employment	with	Adobe,	such	participant	will	receive	a	distribution	in	the	form	of	a	lump sum	payment.	All	distributions	will	be	made	in	cash,	except	for	deferred	performance-based	and	time-based	restricted	stock	units	which	will	be	settled	in	stock.	As	of November	28,	2008	and	November	30,	2007,	the	invested	amounts	under	the	Deferred	Compensation	Plan	total	$7.6	million	and	$3.1	million,	respectively	and	were recorded	as	long-term	other	assets	on	our	balance	sheet.	As	of	November	28,	2008	and	November	30,	2007,	we	recorded	$7.6	million	and	$3.1	million,	respectively,	as long-term	liabilities	to	recognize	undistributed	deferred	compensation	due	to	employees.

# Note	11.		Stock-based	Compensation

We	have	the	following	stock-based	compensation	plans	and	programs	as	described	below.

# Stock	Option	Plans

Our	stock	option	program	is	a	long-term	retention	program	that	is	intended	to	attract,	retain	and	provide	incentives	for	talented	employees,	officers	and	directors,	and	to align	stockholder	and	employee	interests.	Currently,	we	grant	options	from	the	(i)	2003	Equity	Incentive	Plan,	as	amended	("2003	Plan"),	and	the	2005	Equity	Incentive Assumption	Plan	("2005	Assumption	Plan").	These	plans	are	collectively	referred	to	in	the	following	discussion	as	"the	Plans."	Under	the	Plans,	options	can	be	granted	to all	employees,	including	executive	officers,	outside	consultants	and	non-employee	directors.	The	Plans	will	continue	until	the	earlier	of	(i)	termination	by	the	Board	or (ii)	the	date	on	which	all	of	the	shares	available	for	issuance	under	the	plan	have	been	issued	and	restrictions	on	issued	shares	have	lapsed.	Option	vesting	periods	are generally	three	to	four	years	for	all	of	the	Plans.	Options	granted	under	the	Plans	generally	expire	seven	years	from	the	effective	date	of	grant	for	employees	and	outside consultants	and	ten	years	from	the	effective	date	of	grant	for	non-employee	directors.

As	of	November	28,	2008,	we	had	reserved	94.7	million	and	1.8	million	shares	of	common	stock	for	issuance	under	our	2003	Plan	and	2005	Assumption	Plan, respectively.	As	of	November	28,	2008,	we	had	42.7	million	and	1.6	million	shares	available	for	grant	under	our	2003	Plan	and	2005	Assumption	Plan,	respectively.

# Employee	Stock	Purchase	Plan

Our	1997	Employee	Stock	Purchase	Plan	("ESPP")	allows	eligible	employee	participants	to	purchase	shares	of	our	common	stock	at	a	discount	through	payroll deductions.	The	ESPP	consists	of	a	twenty-four	month	offering	period	with	four	six-month	purchase	periods	in	each	offering	period.	Employees	purchase	shares	in	each purchase	period	at	85%	of	the	market	value	of	our	common	stock	at	either	the	beginning	of	the	offering	period	or	the	end	of	the	purchase	period,	whichever	price	is	lower. The	ESPP	will	continue	until	the	earlier	of	(i)	termination	by	the	Board	or	(ii)	the	date	on	which	all	of	the	shares	available	for	issuance	under	the	plan	have	been	issued.

As	of	November	28,	2008,	we	had	reserved	76.0	million	shares	of	our	common	stock	for	issuance	under	the	ESPP	and	approximately	15.6	million	shares	remain available	for	future	issuance.

# Restricted	Stock	Plan

We	 grant	 restricted	 stock	 awards	 and	 performance	 awards	 to	 officers	 and	 key	 employees	 under	 our	Amended	 1994	 Performance	 and	 Restricted	 Stock	 Plan ("Restricted	Stock	Plan").	We	can	also	grant	restricted	stock	units	to	all	eligible	employees	under	the	Restricted	Stock	Plan.	Restricted	stock	issued	under	the	Restricted Stock	Plan	generally	vests	annually	over	four	years.

As	of	November	28,	2008,	we	had	reserved	16.0	million	shares	of	our	common	stock	for	issuance	under	the	Restricted	Stock	Plan	and	approximately	0.5	million shares	were	available	for	grant.

# Performance	Share	Programs

Effective	January	24,	2008,	the	Executive	Compensation	Committee	adopted	the	2008	Performance	Share	Program	("2008	Program").	The	purpose	of	the	2008 Program	is	to	align	key	management	and	senior	leadership	with	stockholders'	interests	and	to	retain	key	employees.	The	measurement	period	for	the	2008	Program	is	our fiscal	2008	year.	All	members	of	our	executive	management	and	other	key	senior	leaders	are	participating	in	the	2008	Program.	Awards	granted	under	the	2008	Program were	granted	in	the	form	of	performance	shares	pursuant	to	the	terms	of	our	2003	Plan.	If	pre-determined	performance	goals	are	met,	shares	of	stock	will	be	granted	to	the recipient,	with	25%	vesting	on	the	later	of	the	date	of	certification	of	achievement	or	the	first	anniversary	date	of	the	grant	and	the	remaining	75%	vest	evenly	on	the following	three	annual	anniversary	dates	of	the	grant,	contingent	upon	the	recipient's	continued	service	to	Adobe.	Participants	in	the	2008	Program	have	the	ability	to receive	up	to	200%	of	the	target	number	of	shares	originally	granted.

# Issuance	of	Shares

Upon	exercise	of	stock	options	or	vesting	of	restricted	stock	and	performance	shares,	we	will	issue	treasury	stock.	If	treasury	stock	is	not	available,	common	stock will	be	issued.	In	order	to	minimize	the	impact	of	on-going	dilution	from

exercises	of	stock	options	and	vesting	of	restricted	stock	and	performance	shares,	we	instituted	a	stock	repurchase	program.	See	Note	12	for	information	regarding	our	stock repurchase	programs.

# Valuation	of	Stock-Based	Compensation

Stock-based	compensation	cost	is	measured	at	the	grant	date	based	on	the	fair	value	of	the	award.	We	currently	use	the	Black-Scholes	option	pricing	model	to determine	the	fair	value	of	stock	options	and	ESPP	shares.	The	determination	of	the	fair	value	of	stock-based	payment	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,	a	risk-free	interest	rate	and	any	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 that	we	use	in	the	option	valuation	model	on	zero-coupon	yields	implied	by	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	valuation	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.

The	assumptions	used	to	value	our	option	grants	were	as	follows:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Expected\tterm\t(in\tyears) | 2.3\t–\t4.7 | 3.5\t–\t4.8 | 3.7 |
| Volatility | 32\t–\t60% | 30\t–\t39% | 30\t–\t37% |
| Risk-free\tinterest\trate | 1.70\t–\t3.50% | 3.60\t–\t5.10% | 4.30\t–\t5.20% |

The	expected	term	of	ESPP	shares	is	the	average	of	the	remaining	purchase	periods	under	each	offering	period.	The	assumptions	used	to	value	employee	stock purchase	rights	were	as	follows:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Expected\tterm\t(in\tyears) | 0.5\t–\t2.0 | 0.5\t–\t2.0 | 1.3 |
| Volatility | 30\t–\t36% | 30\t–\t33% | 30\t–\t35% |
| Risk-free\tinterest\trate | 2.12\t–\t3.29% | 4.79\t–\t5.11% | 4.32\t–\t5.26% |

We	recognize	the	estimated	compensation	cost	of	restricted	stock	awards	and	restricted	stock	units,	net	of	estimated	forfeitures,	over	the	vesting	term.	The	estimated compensation	cost	is	based	on	the	fair	value	of	our	common	stock	on	the	date	of	grant.

We	recognize	the	estimated	compensation	cost	of	performance	shares,	net	of	estimated	forfeitures.	The	awards	are	earned	upon	attainment	of	identified	performance goals,	some	of	which	contain	discretionary	metrics.	As	such,	these	awards	are	re-valued	based	on	our	traded	stock	price	at	the	end	of	each	reporting	period.	If	the	discretion is	removed,	the	award	will	be	classified	as	a	fixed	equity	award.	The	fair	value	of	the	awards	will	be	based	on	the	measurement	date,	which	is	the	date	the	award	becomes fixed.	The	awards	will	be	subsequently	amortized	over	the	remaining	performance	period.

Effective	April	1,	2007,	the	government	of	India	implemented	a	new	fringe	benefit	tax	that	applies	to	equity	awards	granted	to	our	employees	in	India.	We	incur	a fringe	benefit	tax	liability	at	the	time	the	award	is	exercised	or	released.	In	accordance	with	the	laws	in	India,	we	have	elected	to	recover,	from	the	employee,	the	fringe benefit	tax	paid	in	connection	with	the	applicable	award.	Recovery	of	the	fringe	benefit	tax	from	the	employee	is	treated	as	a	component	of	the	exercise	price	and	as	such, impacts	the	fair	value	of	the	awards	and	the	related	stock-based	compensation.	We	have	elected	to	use	a	binomial	option	pricing	model	that	incorporates	the	Black-Scholes option	pricing	model	to	calculate	the	fair	value	of	stock-

based	awards	issued	in	India	under	amended	equity	award	agreements.	The	assumptions	used	in	the	valuation	of	equity	awards	in	India	are	the	same	as	those	used	for	all	of our	equity	awards	as	noted	above.	The	recovery	of	fringe	benefit	tax	is	recorded	as	stock-based	compensation	cost	in	our	consolidated	statements	of	income.

# Summary	of	Stock	Options

The	following	table	sets	forth	the	summary	of	option	activity	under	our	stock	option	program	for	fiscal	years	2008,	2007	and	2006:

|  |  | Weighted |
| :--- | :--- | :--- |
|  |  | Average |
|  | Number\tof | Exercise |
|  | Shares | Price |
| December\t2,\t2005 | 65,251 | \t$21.76 |
| Granted | 12,017 | 28.71 |
| Exercised | (25,873) | 17.73 |
| Cancelled | (4,807) | 25.33 |
| Due\tto\tacquisition | 15,143 | — |
| December\t1,\t2006 | 61,731 | \t$24.19 |
| Granted | 10,084 | 40.36 |
| Exercised | (21,368) | 21.18 |
| Cancelled | (2,705) | 33.18 |
| November\t30,\t2007 | 47,742 | \t$28.47 |
| Granted | 5,462 | 35.08 |
| Exercised | (9,983) | 25.45 |
| Cancelled | (2,517) | 35.34 |
| November\t28,\t2008 | 40,704 | \t$29.67 |

The	total	intrinsic	value	of	options	exercised	during	fiscal	2008,	2007	and	2006	was	$142.4	million,	$463.6	million	and	$440.0	million,	respectively.	The	intrinsic value	is	calculated	as	the	difference	between	the	market	value	on	the	date	of	exercise	and	the	exercise	price	of	the	shares.

Information	regarding	the	stock	options	outstanding	at	November	28,	2008,	November	30,	2007	and	December	1,	2006	is	summarized	below.

|  | Number	of<br>Shares | Weighted<br>Average<br>Exercise<br>Price | Average<br>Remaining<br>Contractual<br>Life | Aggregate<br>Intrinsic	Value*<br>(millions) |
| :--- | :--- | :--- | :--- | :--- |
| As\tof\tNovember\t28,\t2008 |  |  |  |  |
| Shares\toutstanding | 40,704 | \t$29.67 | 4.00\tyears | \t$76.1 |
| Shares\tvested\tand\texpected\tto\tvest | 38,975 | \t$29.36 | 3.87\tyears | \t$76.1 |
| Shares\texercisable | 28,034 | \t$26.61 | 3.28\tyears | \t$76.1 |
| As\tof\tNovember\t30,\t2007 |  |  |  |  |
| Shares\toutstanding | 47,742 | \t$28.47 | 4.36\tyears | \t$654.2 |
| Shares\tvested\tand\texpected\tto\tvest | 43,067 | \t$27.68 | 4.19\tyears | \t$623.8 |
| Shares\texercisable | 29,387 | \t$23.77 | 3.38\tyears | \t$539.8 |
| As\tof\tDecember\t1,\t2006 |  |  |  |  |
| Shares\toutstanding | 61,731 | \t$24.19 | 4.44\tyears | \t$936.8 |
| Shares\tvested\tand\texpected\tto\tvest | 58,713 | \t$23.82 | 3.80\tyears | \t$912.7 |
| Shares\texercisable | 38,944 | \t$20.58 | 3.39\tyears | \t$731.0 |

* The	intrinsic	value	is	calculated	as	the	difference	between	the	market	value	as	of	end	of	the	fiscal	year	and	the	exercise	price	of	the	shares.	As	reported	by	the	NASDAQ Global	Select	Market,	the		market	values	as	of	November	28,	2008,	November	30,	2007	and	December	1,	2006	were	$23.16,	$42.14	and	$39.35,	respectively.

All	stock	options	granted	to	current	executive	officers	are	made	after	a	review	by	and	with	the	approval	of	the	Executive	Compensation	Committee	of	the	Board	of Directors.

The	Directors	Plan	(and	starting	in	fiscal	2008,	the	2003	Plan)	provides	for	the	granting	of	nonqualified	stock	options	to	non-employee	directors.	Option	grants	are limited	to	25,000	shares	per	person	in	each	fiscal	year,	except	for	a	new	non-employee	director	to	whom	50,000	shares	are	granted	upon	election	as	a	director.	Options granted	under	the	Directors	Plan	have	a	ten-year	term.	Options	granted	prior	to	March	28,	2006	are	exercisable	and	vest	over	three	years:	25%	on	the	day	preceding	each	of our	next	two	annual	meetings	of	stockholders	and	50%	on	the	day	preceding	our	third	annual	meeting	of	stockholders	after	the	grant	of	the	option.	Options	granted	on	or after	March	28,	2006	vest	over	four	years:	25%	on	the	day	preceding	each	of	our	next	four	annual	meetings.	The	exercise	price	of	the	options	that	are	issued	is	equal	to	the fair	market	value	of	our	common	stock	on	the	date	of	grant.

Options	granted	to	directors	for	fiscal	2008,	2007	and	2006	are	as	follows:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Options\tgranted\tto\texisting\tdirectors | 250 | 250 | 200 |
| Exercise\tprice | \t$37.09 | \t$42.61 | \t$35.95 |
| Options\tgranted\tto\tnew\tdirectors | — | — | 50 |
| Exercise\tprice | \t$—\t \t$— | \t$—\t \t$— | \t$35.25 |

# Summary	of	Employee	Stock	Purchase	Shares

The	weighted	average	fair	value	of	employee	stock	purchase	shares	granted	during	fiscal	2008,	2007	and	2006	was	$9.56,	$12.03	and	$8.09,	respectively.	Employees purchased	2.4	million	shares,	2.6	million	shares	and	2.1	million	shares,

respectively,	for	fiscal	2008,	2007	and	2006.	The	intrinsic	value	of	shares	purchased	during	fiscal	2008,	2007	and	2006	was	$25.0	million,	$39.8	million	and	$18.6	million, respectively.	The	intrinsic	value	is	calculated	as	the	difference	between	the	market	value	on	the	date	of	purchase	and	the	purchase	price	of	the	shares.

# Summary	of	Restricted	Stock

Restricted	stock	award	activity	for	fiscal	2008,	2007	and	2006	is	as	follows:

|  | 2008 | 2008 | 2007 | 2007 | 2006 | 2006 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Weighted |  | Weighted |  | Weighted |
|  |  | Average |  | Average |  | Average |
|  | Non-vested\nShares | Grant\tDate\nFair\tValue | Non-vested\nShares | Grant\tDate\nFair\tValue | Non-vested\nShares | Grant\tDate\nFair\tValue |
| Beginning\tbalance | 21 | \t$36.41 | 501 | \t$9.17 | 428 | \t$6.68 |
| Awarded | — | — | 5 | 40.03 | 9 | 39.47 |
| Released | (15) | 34.94 | (92) | 29.32 | (302) | 22.03 |
| Forfeited | (2) | 39.95 | (393) | 4.77 | (48) | 25.53 |
| Due\tto\tacquisition | — | — | — | — | 414 | 22.35 |
| Ending\tbalance | 4 | 39.31 | 21 | 36.41 | 501 | 9.17 |
|  |  | $$$ | $$$ | $$$ | $$$ |  |

The	total	fair	value	of	restricted	stock	awards	vested	during	fiscal	2008,	2007	and	2006	was	$0.5	million,	$0.7	million	and	$0.3	million,	respectively.

Restricted	stock	awards	are	considered	outstanding	at	the	time	of	grant,	as	the	stock	award	holders	are	entitled	to	dividends	and	voting	rights.	Unvested	restricted stock	awards	are	not	considered	outstanding	in	the	computation	of	basic	earnings	per	share.

Restricted	stock	unit	activity	for	fiscal	2008	and	2007	is	as	follows:

|  | 2008 | 2007 |
| :--- | :--- | :--- |
| Beginning\tbalance | 1,701 | — |
| Awarded | 3,177 | 1,771 |
| Released | (422) | — |
| Forfeited | (195) | (70) |
| Ending\tbalance | 4,261 | 1,701 |

We	did	not	grant	restricted	stock	units	in	fiscal	2006.	The	total	fair	value	of	restricted	stock	units	vested	during	fiscal	2008	was	$14.4	million.

Information	regarding	restricted	stock	units	outstanding	at	the	end	of	fiscal	2008	and	2007	is	summarized	below.

|  | Number	of<br>Shares | Weighted	Average	Remaining<br>Contractual	Life | Intrinsic	Value*<br>(millions) |
| :--- | :--- | :--- | :--- |
| 2008 |  |  |  |
| Shares\toutstanding | 4,261 | 1.73\tyears | $98.7 |
| Shares\tvested\tand\texpected\tto\tvest | 3,351 | 1.52\tyears | $77.6 |
| 2007 |  |  |  |
| Shares\toutstanding | 1,701 | 1.88\tyears | $71.7 |
| Shares\tvested\tand\texpected\tto\tvest | 1,309 | 1.65\tyears | $55.2 |

* The	intrinsic	value	is	calculated	as	the	market	value	as	of	end	of	the	fiscal	year.	As	reported	by	the	NASDAQ	Global	Select	Market,	the		market	values	as	of	November 28,	2008	and	November	30,	2007	were	$23.16	and	$42.14,	respectively.

# Summary	of	Performance	Shares

The	following	table	sets	forth	the	summary	of	performance	share	activity	under	our	2008	Program	for	fiscal	2008.

|  | Shares | Shares	Eligible |
| :--- | :--- | :--- |
|  | Granted | to\tReceive |
| Beginning\tbalance | — | — |
| Awarded | 941 | 1,883 |
| Forfeited | (116) | (232) |
| Ending\tbalance | 825 | 1,651 |

The	actual	performance	achievement	of	participants	in	the	2008	Program	will	be	approved	by	the	Executive	Compensation	Committee	in	the	first	quarter	of	fiscal 2009.

In	the	first	quarter	of	fiscal	2008,	the	Executive	Compensation	Committee	certified	the	actual	performance	achievement	of	participants	in	the	2006	Performance Share	Program	("2006	Program")	and	the	2007	Performance	Share	Program	("2007	Program").	Based	upon	the	achievement	of	goals	outlined	in	the	2006	Program	and	2007 Program,	participants	had	the	ability	to	receive	up	to	150%	and	200%,	respectively,	of	the	target	number	of	shares	originally	granted.	Actual	performance	resulted	in participants	achieving	approximately	105%	of	target	or	0.3	million	shares	for	the	2006	Program	and	200%	of	target	or	0.7	million	shares	for	the	2007	Program.	Shares awarded	under	the	2006	Program	vested	100%	and	were	released	in	the	first	quarter	of	fiscal	2008.	Shares	under	the	2007	Program	vested	25%	in	the	first	quarter	of	fiscal 2008	and	the	remaining	75%	vest	evenly	on	the	following	three	annual	anniversary	dates	of	the	grant,	contingent	upon	the	recipient's	continued	service	to	Adobe.

The	following	table	sets	forth	the	summary	of	performance	share	activity	under	our	programs,	based	upon	share	awards	actually	achieved,	during	fiscal	2008:

The	total	fair	value	of	performance	awards	vested	during	fiscal	2008	was	$16.7	million.

Information	regarding	performance	awards	achieved	and	outstanding	at	November	28,	2008	is	as	follows:

|  | Number	of<br>Shares | Remaining<br>Contractual	Life | Intrinsic	Value*<br>(millions) |
| :--- | :--- | :--- | :--- |
| 2008 |  |  |  |
| Shares\toutstanding | 383 | 1.20\tyears | $8.9 |
| Shares\tvested\tand\texpected\tto\tvest | 323 | 1.10\tyears | $7.4 |

* The	intrinsic	value	is	calculated	as	the	market	value	as	of	end	of	the	fiscal	year.	As	reported	by	the	NASDAQ	Global	Select	Market,	the		market	value	as	of	November 28,	2008	was	$23.16.

# Compensation	Costs

	With	the	exception	of	performance	shares,	stock-based	compensation	expense	is	recognized	on	a	straight-line	basis	over	the	requisite	service	period	of	the	entire award,	which	is	generally	the	vesting	period.	For	performance	shares,	expense	is	recognized	on	a	straight-line	basis	over	the	requisite	service	period	for	each	vesting	portion of	the	award.

	As	of	November	28,	2008,	there	was	$259.5	million	of	unrecognized	compensation	cost,	adjusted	for	estimated	forfeitures,	related	to	non-vested	stock-based awards	which	will	be	recognized	over	a	weighted	average	period	of	2.5	years.	Total	unrecognized	compensation	cost	will	be	adjusted	for	future	changes	in	estimated forfeitures.

Total	stock-based	compensation	costs	that	have	been	included	in	our	consolidated	statements	of	income	are	as	follows:

* During	fiscal	2008,	we	recorded	$2.9	million	associated	with	cash	recoveries	of	fringe	benefit	tax	from	employees	in	India.

# Note	12.		Stockholders'	Equity

In	the	second	quarter	of	fiscal	2006,	we	concluded	a	voluntary	review	of	our	executive	officer	grants	from	1997	to	2006	and	uncovered	no	improper	grants	to executive	officers.		In	the	fourth	quarter	of	fiscal	2006,	we	concluded	a	second	voluntary	review,	focused	principally	on	grants	to	non-executive	employees	from	1997	to 2006.	Preliminary	results	of	 this	 internal	review	suggested	 that	certain	annual	grants	may	have	had	 improper	grant	dates.	The	Board	of	Directors	formed	a	Special Committee	of	outside	Directors	to	undertake	a	broader	review	of	these	annual	non-executive	employee	option	grants.	The	Special	Committee	enlisted	the	assistance	of independent	legal	counsel	and	an	independent	accounting	firm.	The	Special	Committee	uncovered	no	fraud	or	intentional	wrongdoing.	The	Special	Committee	did	find certain	instances	relating	to	grants	made	to	employees	where	the	list	of	employees	and/or	shares	allocated	to	them	was	not	sufficiently	definitive	for	the

grant	to	be	deemed	final	as	of	the	reported	grant	date.	In	other	instances,	the	Special	Committee	found	that	adjustments	were	made	to	some	employee	grants	after	the	grant date	without	a	corresponding	change	to	the	measurement	date.	These	errors	resulted	in	an	understatement	of	stock-based	compensation	in	1998	through	2005.

Historically,	we	have	evaluated	uncorrected	differences	utilizing	 the	rollover	approach.	We	believe	 the	 impact	of	 these	stock-based	compensation	errors	were immaterial	to	prior	fiscal	years	under	the	rollover	method.	However,	under	SAB	No.	108	("SAB	108"),	"Considering	the	Effects	of	Prior	Year	Misstatements	When Quantifying	Misstatements	in	Current	Year	Financial	Statements,"	which	we	were	required	to	adopt	for	the	year	ended	December	1,	2006,	we	must	assess	materiality	using both	the	rollover	method	and	the	iron-curtain	method.	Under	the	iron-curtain	method,	the	cumulative	stock	option	errors	are	material	to	our	fiscal	2006	financial	statements and,	therefore,	we	recorded	an	adjustment	to	our	opening	fiscal	2006	retained	earnings	balance	in	the	amount	of	$26.6	million	in	accordance	with	the	implementation guidance	in	SAB	108.	The	total	cumulative	impact	is	as	follows:

The	impact	on	retained	earnings	is	comprised	of	the	following	amounts:

| Retained	Earnings | 1998-2002 | 2003 | 2004 | 2005 | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Stock\tcompensation\texpense | \t$(21,800) | \t$(10,420) | \t$(2,959) | \t$(230) | \t$(35,409) |
| Tax\teffect | 5,484 | 2,558 | 726 | 57 | 8,825 |
| Total,\tnet\tof\ttax | \t$(16,316) | \t$(7,862) | \t$(2,233) | \t$(173) | \t$(26,584) |
| Income\tbefore\ttaxes | \t$1,577,480 | \t$380,492 | \t$608,645 | \t$765,776 |  |
| Percent\tof\tincome\tbefore\ttaxes | (1)% | (3)% | 0% | 0% |  |

# Stockholder	Rights	Plan

Our	Stockholder	Rights	Plan	is	intended	to	protect	stockholders	from	unfair	or	coercive	takeover	practices.	In	accordance	with	this	plan,	the	Board	of	Directors declared	a	dividend	distribution	of	one	common	stock	purchase	right	on	each	outstanding	share	of	our	common	stock	held	as	of	July	24,	1990	and	on	each	share	of	common stock	issued	by	Adobe	thereafter.	In	July	2000,	the	Stockholder	Rights	Plan	was	amended	to	extend	it	for	ten	years	so	that	each	right	entitles	the	holder	to	purchase	one	unit of	Series	A	Preferred	Stock,	which	is	equal	to	1/1000	share	of	Series	A	Preferred	Stock,	par	value	$0.0001	per	share,	at	a	price	of	$700	per	unit.	As	adjusted	for	our	2000 and	2005	stock	splits	each	in	the	form	of	a	dividend,	each	share	of	common	stock	now	entitles	the	holder	to	one-quarter	of	such	a	purchase	right.	Each	whole	right	still entitles	the	registered	holder	to	purchase	from	Adobe	a	unit	of	preferred	stock	at	$700.	The	rights	become	exercisable	in	certain	circumstances,	including	upon	an	entity's acquiring	or	announcing	the	intention	to	acquire	beneficial	ownership	of	15%	or	more	of	our	common	stock	without	the	approval	of	the	Board	of	Directors	or	upon	our being	acquired	by	any	person	in	a	merger	or	business	combination	transaction.	The	rights	are	redeemable	by	Adobe	prior	to	exercise	at	$0.01	per	right	and	expire	on	July	23, 2010.

As	part	of	this	program,	on	April	17,	2005,	the	Board	of	Directors	approved	the	use	of	an	additional	$1.0	billion	for	stock	repurchase	commencing	upon	the	close	of the	Macromedia	acquisition.	This	additional	$1.0	billion	in	stock	repurchases	was	completed	by	the	third	quarter	of	fiscal	2006.

Under	this	stock	repurchase	program,	we	had	authorization	to	repurchase	an	aggregate	of	50.0	million	shares	of	our	common	stock.	During	the	third	quarter	of	fiscal 2008,	the	remaining	authorized	number	of	shares	were	repurchased.	From	the	inception	of	the	50.0	million	share	authorization	under	this	program,	we	provided	prepayments of	$1.9	billion	under	structured	share	repurchase	agreements	to	large	financial	institutions.	During	fiscal	2008,	we	provided	prepayments	of	$1.0	billion	and	repurchased 31.9	million	shares	under	these	structured	agreements	at	an	average	price	of	$37.15.	During	fiscal	2007,	we	provided	prepayments	of	$850.0	million	under	structured	share repurchase	agreements	to	large	financial	institutions.	During	fiscal	2007,	we	repurchased	17.7	million	shares	under	these	structured	agreements	at	an	average	price	of	$40.50 and	approximately	$133.7	million	of	up-front	payments	remained	under	these	agreements	as	of	November	30,	2007.

# Note	13.		Other	Comprehensive	Income	(Loss)

The	following	table	sets	forth	the	activity	for	each	component	of	other	comprehensive	income	(loss)	for	fiscal	2008,	2007	and	2006:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t$27,948 | \t$6,344 | \t$(914) |
| Derivative\tinstruments: |  |  |  |
| Unrealized\tgain\t(loss)\ton\tderivative\tinstruments | 28,471 | (6,046) | 285 |
| Reclassification\tadjustment\tfor\tgains\t(losses)\ton\tderivative\tinstruments\trecognized\tduring\tthe\tperiod | 13,248 | 5,510 | (5,035) |
| Subtotal\tderivative\tinstruments | 41,719 | (536) | (4,750) |
| Available-for-sale\tsecurities: |  |  |  |
| Unrealized\t(loss)\tgain\ton\tavailable-for-sale\tsecurities,\tnet\tof\ttaxes | (3,102) | 14,570 | 7,210 |
| Reclassification\tadjustment\tfor\tgains\ton\tavailable-for-sale\tsecurities\trecognized\tduring\tthe\tperiod | 1,559 | 2,000 | 865 |
| Subtotal\tavailable-for-sale\tsecurities | (1,543) | 16,570 | 8,075 |
| Foreign\tcurrency\ttranslation\tadjustments | (10,902) | 5,570 | 3,933 |
| Other\tcomprehensive\tincome | 29,274 | 21,604 | 7,258 |
| Ending\tbalance | \t$57,222 | \t$27,948 | \t$6,344 |

Taxes	related	 to	unrealized	gains	and	 losses	on	available-for-sale	securities	for	fiscal	2008,	2007	and	2006	were	$1.0	million,	$2.4	million	and	$2.6	million, respectively.		Taxes	related	to	derivative	instruments	were	zero	for	all	fiscal	years.

The	following	table	sets	forth	the	components	of	foreign	currency	translation	adjustments	for	fiscal	2008,	2007	and	2006:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t$10,471 | \t$4,901 | \t$968 |
| Foreign\tcurrency\ttranslation\tadjustments | (19,461) | 9,269 | 3,933 |
| Income\ttax\teffect\trelating\tto\ttranslation\tadjustments\tfor\tundistributed\tforeign\tearnings | 8,559 | (3,699) | — |
| Ending\tbalance | \t$(431) | \t$10,471 | \t$4,901 |

# Note	14.		Net	Income	Per	Share

Basic	net	income	per	share	is	computed	using	the	weighted	average	number	of	common	shares	outstanding	for	the	period,	excluding	unvested	restricted	stock. Diluted	net	income	per	share	is	based	upon	the	weighted	average	common	shares	outstanding	for	the	period	plus	dilutive	potential	common	shares,	including	unvested restricted	stock	and	stock	options	using	the	treasury	stock	method.

The	following	table	sets	forth	the	computation	of	basic	and	diluted	net	income	per	share	for	fiscal	2008,	2007	and	2006:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Net\tincome | \t$871,814 | \t$723,807 | \t$505,809 |
| Shares\tused\tto\tcompute\tbasic\tnet\tincome\tper\tshare | 539,373 | 584,203 | 593,750 |
| Dilutive\tpotential\tcommon\tshares: |  |  |  |
| Unvested\trestricted\tstock | 1,107 | 13 | 85 |
| Stock\toptions | 8,073 | 14,559 | 18,387 |
| Shares\tused\tto\tcompute\tdiluted\tnet\tincome\tper\tshare | 548,553 | 598,775 | 612,222 |
| Basic\tnet\tincome\tper\tshare | \t$1.62 | \t$1.24 | \t$0.85 |
| Diluted\tnet\tincome\tper\tshare | \t$1.59 | \t$1.21 | \t$0.83 |

For	fiscal	2008,	2007	and	2006,	options	to	purchase	approximately	16.5	million,	10.4	million	and	17.7	million	shares,	respectively,	of	common	stock	with	exercise prices	greater	than	the	annual	average	fair	market	value	of	our	stock	of	$37.07,	$41.77	and	$35.32,	respectively,	were	not	included	in	the	calculation	because	the	effect would	have	been	anti-dilutive.

# Note	15.		Commitments	and	Contingencies

# Lease	Commitments

We	lease	certain	of	our	facilities	and	some	of	our	equipment	under	non-cancellable	operating	lease	arrangements	that	expire	at	various	dates	through	2028.	We	also have	one	land	lease	that	expires	in	2091.	Rent	expense	includes	base	contractual	rent	and	variable	costs	such	as	building	expenses,	utilities,	taxes,	insurance	and	equipment rental.	Rent	expense	and	sublease	income	for	these	leases	for	fiscal	2006	through	fiscal	2008	were	as	follows:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Rent\texpense | \t$101,202 | \t$90,553 | \t$74,629 |
| Less:\tsublease\tincome | 11,421 | 9,406 | 3,556 |
| Net\trent\texpense | \t$89,781 | \t$81,147 | \t$71,073 |

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	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	consolidated	balance	sheet.	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	November	28,	2008,	we	were in	compliance	with	all	covenants.	In	the	case	of	a	default,	the	lessor	may	demand	we	purchase	the	buildings	for	an	amount	equal	to	the	lease	balance,	or	require	that	we remarket	or	relinquish	the	buildings.	Both	leases	qualify	for	operating	lease	accounting	treatment	under	SFAS	No.	13,	"Accounting	for	Leases"	and,	as	such,	the	buildings and	the	related	obligations	are	not	included	on	our	consolidated	balance	sheet.	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.

Following	is	a	table	for	future	minimum	lease	payments	under	non-cancellable	operating	leases	and	future	minimum	sublease	income	under	non-cancellable	subleases for	each	of	the	next	five	years	and	thereafter.	The	table	includes	commitments	related	to	our	restructured	facilities.	See	Note	9	for	information	regarding	our	restructuring charges.

|  | Future | Future |
| :--- | :--- | :--- |
|  | Minimum | Minimum |
|  | Lease | Sublease |
| Fiscal\tYear | Payments | Income |
| 2009 | \t$49,207 | \t$9,943 |
| 2010 | 34,950 | 6,063 |
| 2011 | 25,996 | 1,154 |
| 2012 | 19,174 | 80 |
| 2013 | 15,498 | — |
| Thereafter | 84,334 | — |
| Total | \t$229,159 | \t$17,240 |

The	lease	agreements	for	our	corporate	headquarters	provide	for	residual	value	guarantees	as	noted	above.		Under	FIN	45,	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,	for	both	leases,	remaining	in	other	long-term	liabilities	and	prepaid	rent	was	$2.6	million.

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.	Royalty	expense,	which	was	recorded	under	our	cost	of	products	revenue	on	our	consolidated	statements	of	income,	was approximately	$47.8	million,	$37.4	million	and	$19.1	million	in	fiscal	2008,	2007	and	2006,	respectively.

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 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.

# Legal	Proceedings

From	time	to	time,	Adobe	is	subject	to	legal	proceedings,	claims	and	investigations	in	the	ordinary	course	of	business,	including	claims	of	alleged	infringement	of third-party	patents	and	other	intellectual	property	rights,	commercial,	employment	and	other	matters.	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.	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	16.		Credit	Agreement

In	August	2007,	we	entered	into	the	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	the	Second	Amendment	to	the	Credit	Agreement	dated	February	26,	2008,	which	extended	the	maturity	date	of	the	facility	by	one year	to	February	16,	2013.	The	facility	would	terminate	at	this	date	if	no	additional	extensions	have	been	requested	and	granted.	All	other	terms	and	conditions	remain	the same.

The	facility	contains	a	financial	covenant	requiring	us	not	to	exceed	a	certain	maximum	leverage	ratio.	At	the	Company's	option,	borrowings	under	the	facility	accrue interest	based	on	either	the	LIBOR	for	one,	two,	three	or	six	months,	or	longer	periods	with	bank	consent,	plus	a	margin	according	to	a	pricing	grid	tied	to	this	financial covenant,	or	a	base	rate.	The	margin	is	set	at	rates	between	0.20%	and	0.475%.	Commitment	fees	are	payable	on	the	facility	at	rates	between	0.05%	and	0.15%	per	year based	on	the	same	pricing	grid.	The	facility	is	available	to	provide	loans	to	us	and	certain	of	our	subsidiaries	for	general	corporate	purposes.	As	of	November	28,	2008	and November	 30,	 2007,	 the	 amount	 outstanding	 under	 this	 credit	 facility	 was	 $350.0	 million	 and	 zero,	 respectively,	 which	 is	 included	 in	 long-term	 liabilities	 on	 our consolidated	balance	sheet.	As	of	November	28,	2008,	we	were	in	compliance	with	all	of	the	covenants.

# Note	17.		Financial	Instruments

# Fair	Value	of	Financial	Instruments

We	measure	certain	financial	assets	and	liabilities	at	fair	value	on	a	recurring	basis,	including	cash	equivalents,	available-for-sale	fixed	income	and	equity	securities, other	equity	securities	and	foreign	currency	derivatives.	The	fair	value	of	these	financial	assets	and	liabilities	was	determined	using	the	following	inputs	at	November	28, 2008:

|  | Total | Quoted	Prices<br>in<br>Active	Markets<br>for<br>Identical	Assets<br>(Level	1) | Significant<br>Other<br>Observable<br>Inputs<br>(Level	2) | Significant<br>Unobservable<br>Inputs<br>(Level	3) |
| :--- | :--- | :--- | :--- | :--- |
| Assets: |  |  |  |  |
| Money\tmarket\tfunds\tand\tovernight\tdeposits^(1) | \t$722,742 | \t$722,742 | \t$—\t \t$— | \t$—\t \t$— |
| Fixed\tincome\tavailable-for-sale\tsecurities^(2) | 1,175,732 | — | 1,175,732 | — |
| Equity\tavailable-for-sale\tsecurities^(3) | 3,047 | 3,047 | — | — |
| Investments\tof\tlimited\tpartnership^(4) | 39,004 | 251 | — | 38,753 |
| Foreign\tcurrency\tderivatives^(5) | 49,848 | — | 49,848 | — |
| Deferred\tcompensation\tplan\tassets^(6) |  |  |  |  |
| Money\tmarket\tfunds | \t$704 | \t$704 | \t$—\t \t$— | \t$—\t \t$— |
| Equity\tand\tfixed\tincome\tmutual\tfunds | 6,856 | — | 6,856 | — |
| Subtotal\tfor\tdeferred\tcompensation\tplan\tassets | \t$7,560 | \t$704 | \t$6,856 | \t$— |
| Total | \t$1,997,933 | \t$726,744 | \t$1,232,436 | \t$38,753 |
| Liabilities:\nForeign\tcurrency\tderivatives^(7) | 1,739 | — | 1,739 | — |
| Total | \t$1,739 | \t$— | \t$1,739 | \t$— |

(1) Included	in	cash	and	cash	equivalents	on	our	consolidated	balance	sheet.

(2) Included	in	either	cash	and	cash	equivalents	or	short-term	investments	on	our	consolidated	balance	sheet.

(3) Included	in	short-term	investments	on	our	consolidated	balance	sheet.

(4) Included	in	other	assets	on	our	consolidated	balance	sheet.

(5) Included	in	prepaid	expenses	and	other	assets	on	our	consolidated	balance	sheet.

(7) Included	in	accrued	expenses	on	our	consolidated	balance	sheet.

Fixed	income	available-for-sale	securities	include	United	States	treasury	securities	(78%	of	total),	corporate	bonds	(10%	of	total),	obligations	of	foreign	governments (10%	of	total)	and	obligations	of	multi-lateral	government	agencies	(2%	of	total).

The	Level	1	investments	of	limited	partnership	relate	to	investments	in	publicly-traded	companies	and	the	Level	3	investments	relate	to	investments	in	privately-held companies.	The	investments	of	limited	partnership	relate	to	our	interest	in	Adobe	Ventures	which	was	$39.0	million	and	$30.6	million	as	of	November	28,	2008	and November	30,	2007,	respectively.	The	change	in	this	asset	balance	relates	primarily	to	investment	gains	included	in	earnings	during	the	fiscal	year	ended	November	28, 2008.	All	other	activity	during	the	quarter	was	insignificant	both	individually	and	in	the	aggregate.

The	following	table	summarizes	the	net	realized	and	unrealized	gains	and	losses	from	our	investments	for	fiscal	2008,	2007	and	2006.

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Net\tgains\t(losses)\trelated\tto\tour\tinvestments\tin\tAdobe\tVentures\tand\tcost\tmethod\tinvestments | \t$15,853 | \t$6,951 | \t$(6,487) |
| Write-downs\tdue\tto\tother-than-temporary\tdeclines\tin\tvalue\tof\tour\tmarketable\tequity\tsecurities | (4,895) | — | — |
| Losses\ton\tstock\twarrants | (6) | (21) | (226) |
| Other\tinvestment\tgains | 5,457 | 204 | 67,962 |
| Total\tinvestment\tgains\tand\t(losses),\tnet | \t$16,409 | \t$7,134 | \t$61,249 |

During	fiscal	2008,	investment	gains	increased	as	compared	to	fiscal	2007	due	primarily	to	realized	and	unrealized	gains	from	our	direct	and	Adobe	Ventures investments	of	$9.8	million	and	$6.0	million,	respectively.		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	were	higher	in	fiscal 2006	when	compared	to	fiscal	2007	due	to	this	sale	of	our	investment	in	Atom	Entertainment,	Inc.	As	a	result	of	the	sale,	we	received	$82.3	million	in	cash.	Our	carrying value	was	$13.2	million	at	the	date	of	sale.	See	Note	6	for	further	information	regarding	our	long-term	investments	and	Adobe	Ventures.

Foreign	currency	derivatives	include	option	and	forward	foreign	exchange	contracts	primarily	for	the	Japanese	Yen	and	the	Euro.

# Hedge	Accounting

In	accordance	with	SFAS	133,	we	recognize	derivative	instruments	and	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.

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.	Such	cash	flow	exposures	result	from	portions	of	our	forecasted	revenue	denominated	in	currencies	other	than	the	U.S.	dollar,	primarily	the	Japanese	Yen and	the	Euro.	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	forecasted	product	licensing	revenue	in	the	normal	course	of	business	and	accordingly,	they	are not	speculative	in	nature.

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	until	the	forecasted	transaction	occurs.

The	following	is	a	summary	of	the	existing	gains	that	are	currently	included	in	accumulated	other	comprehensive	income.	These	amounts	represent	the	fair	value	of our	cash	flow	hedge	contracts	that	were	still	open	as	of	the	periods	below.

|  |  | Accumulated |  |
| :--- | :--- | :--- | :--- |
|  |  | Other\tComprehensive\nIncome |  |
|  |  | Fiscal\tYears |  |
| Gain\ton\thedges\tof\tforecasted\ttransactions: | 2008 | 2007 | 2006 |
| Net\tunrealized\tgain\tremaining\tin\tother\taccumulated\tcomprehensive\tincome,\tnet\tof\ttax | \t$41,750 | \t$31 | \t$567 |

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,	 the	 related	 hedge	 gains	 and	 losses	 on	 the	 cash	 flow	 hedge	 are	 reclassified	 from	 accumulated	 other comprehensive	income	(loss)	to	interest	and	other	income	(loss)	on	the	consolidated	statement	of	income	at	that	time.	For	fiscal	2008,	2007	and	2006	there	were	no	such gains	or	losses	recognized	in	other	income	relating	to	hedges	of	forecasted	transactions	that	did	not	occur.

Pursuant	to	SFAS	133,	we	evaluate	hedge	effectiveness	at	the	inception	of	the	hedge	prospectively	as	well	as	retrospectively	and	record	any	ineffective	portion	of	the hedging	instruments	in	other	income	on	the	consolidated	income	statement.	The	net	gain	(loss)	recognized	in	other	income	for	cash	flow	hedges	due	to	hedge	ineffectiveness was	insignificant	for	fiscal	2008,	2007	and	2006.	The	time	value	of	purchased	derivative	instruments	is	recorded	in	other	income.

A	summary	of	the	amounts	included	on	the	consolidated	income	statement	due	to	occurrence	of	the	hedged	transaction	and	or	time	value	degradation	on	open	hedge transactions	is	as	follows:

|  | 2008 | 2008 | 2007 | 2007 | 2006 | 2006 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Revenue | Other\nIncome\n(Loss) | Revenue | Other\nIncome\n(Loss) | Revenue | Other\nIncome\n(Loss) |
| Gain\t(loss)\ton\tcompleted\thedge\ttransactions: |  |  |  |  |  |  |
| Net\trealized\tgain\treclassified\tfrom\tother |  |  |  |  |  |  |
| accumulated\tcomprehensive\tincome\tto |  |  |  |  |  |  |
| revenue | \t$13,248 | \t$— | \t$5,510 | \t$— | \t$5,035 | \t$— |
| Net\trealized\tloss\tfrom\tthe\tcost\tof\tpurchased |  |  |  |  |  |  |
| options | — | (13,593) | — | (12,875) | — | (8,873) |
| (Loss)\tgain\ton\topen\thedge\ttransactions: |  |  |  |  |  |  |
| Net\tunrealized\t(loss)\tgain\tfrom\tthe\ttime\tvalue |  |  |  |  |  |  |
| on\topen\tcash\tflow\thedge\ttransactions | — | (2,051) | — | 765 | — | (3,913) |
|  | \t$13,248 | \t$(15,644) | \t$5,510 | \t$(12,110) | \t$5,035 | \t$(12,786) |

We	hedge	our	net	recognized	foreign	currency	assets	and	liabilities	with	forward	foreign	exchange	contracts	to	reduce	the	risk	that	our	earnings	and	cash	flows	will be	adversely	affected	by	changes	in	foreign	currency	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	as	other	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.	As	of	November	28,	2008, total	notional	amounts	of	outstanding	contracts	were	$216.7	million	which	included	the	notional	equivalent	of	$134.7	million	in	Euro,	$38.1	million	in	Yen	and	$43.9 million	in	other	foreign	currencies.	At	November	28,	2008,	the	outstanding	balance	sheet	hedging	derivatives	had	maturities	of	90	days	or	less.

Net	gains	(losses)	recognized	in	other	income	relating	to	balance	sheet	hedging	for	fiscal	2008,	2007	and	2006	were	as	follows:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| (Loss)\tgain\ton\tforeign\tcurrency\tassets\tand\tliabilities: |  |  |  |
| Net\trealized\t(loss)\tgain\trecognized\tin\tother\tincome | \t$(7,738) | \t$13,388 | \t$11,046 |
| Net\tunrealized\tgain\t(loss)\trecognized\tin\tother\tincome\trelated\tto\tinstruments\toutstanding | 5,223 | (4,035) | 4,721 |
|  | (2,515) | 9,353 | 15,767 |
| (Loss)\tgain\ton\thedges\tof\tforeign\tcurrency\tassets\tand\tliabilities: |  |  |  |
| Net\trealized\tloss\trecognized\tin\tother\tincome | (3,255) | (8,394) | (4,179) |
| Net\tunrealized\tgain\t(loss)\trecognized\tin\tother\tincome | 3,920 | 1,887 | (6,879) |
|  | 665 | (6,507) | (11,058) |
| Net\t(loss)\tgain\trecognized\tin\tother\tincome | \t$(1,850) | \t$2,846 | \t$4,709 |

# Concentration	of	Risk

Financial	instruments	that	potentially	subject	us	to	concentrations	of	credit	risk	are	short-term	investments,	primarily	fixed-income	securities,	structured	repurchase transactions,	derivatives,	hedging	foreign	currency	and	interest	rate	risk	and	trade	receivables.

Our	investment	portfolio	consists	of	investment-grade	securities	diversified	among	security	types,	industries	and	issuers.	Our	cash	and	investments	are	held	and managed	by	recognized	financial	institutions	that	follow	our	investment	policy.	Our	policy	limits	the	amount	of	credit	exposure	to	any	one	security	issue	or	issuer	and	we believe	no	significant	concentration	of	credit	risk	exists	with	respect	to	these	investments.

We	mitigate	concentration	of	risk	related	to	foreign	currency	hedges	as	well	as	interest	rate	hedges	through	a	policy	that	establishes	counterparty	limits.	We	also	have minimum	rating	requirements	for	all	bank	counterparties.	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.

Credit	risk	in	receivables	is	limited	to	OEM	partners,	dealers	and	distributors	of	hardware	and	software	products	to	the	retail	market,	and	to	customers	whereby	we license	software	directly.	A	credit	review	is	completed	for	our	new	distributors,	dealers	and	OEM	partners.	We	also	perform	ongoing	credit	evaluations	of	our	customers' financial	condition	and	require	letters	of	credit	or	other	guarantees,	whenever	deemed	necessary.	The	credit	limit	given	to	the	customer	is	based	on	our	risk	assessment	of their	ability	to	pay,	country	risk	and	other	factors	and	is	not	contingent	on	the	resale	of	the	product	or	on	the	collection	of	payments	from	their	customers.	We	also	purchase credit	insurance	to	mitigate	credit	risk	in	some	foreign	markets	where	we	believe	it	is	warranted.	If	we	license	our	software	to	a	customer	where	we	have	a	reason	to	believe the	customer's	ability	to	pay	is	not	probable,	due	to	country	risk	or	credit	risk,	we	will	not	recognize	the	revenue.	We	will	revert	to	recognizing	the	revenue	on	a	cash	basis, assuming	all	other	criteria	for	revenue	recognition	has	been	met.	See	Note	19	for	information	regarding	our	significant	customers.

We	derive	a	significant	portion	of	our	OEM	PostScript	and	Other	licensing	revenue	from	a	small	number	of	OEM	partners.	Our	OEM	partners	on	occasion	seek	to renegotiate	their	royalty	arrangements.	We	evaluate	these	requests	on	a	case-by-case	basis.	If	an	agreement	is	not	reached,	a	customer	may	decide	to	pursue	other	options, which	could	result	in	lower	licensing	revenue	for	us.

# Note	18.		Non-Operating	Income	(Expense)

Non-operating	income	(expense)	for	fiscal	2008,	2007	and	2006	includes	the	following:

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Interest\tand\tother\tincome,\tnet: |  |  |  |
| Interest\tincome | \t$57,588 | \t$92,794 | \t$74,783 |
| Foreign\texchange\tlosses | (17,494) | (9,264) | (8,077) |
| Fixed\tincome\tinvestment\tgains\tand\t(losses),\tnet | 1,660 | (2,576) | (1,098) |
| Other | 2,093 | 1,770 | 1,675 |
| Interest\tand\tother\tincome,\tnet | \t$43,847 | \t$82,724 | \t$67,283 |
| Interest\texpense | \t$(10,019) | \t$(253) | \t$(98) |
| Investment\tgains\tand\t(losses),\tnet: |  |  |  |
| Realized\tinvestment\tgains | \t$18,398 | \t$9,308 | \t$76,239 |
| Unrealized\tinvestment\tgains | 7,803 | 5,265 | 3,352 |
| Realized\tinvestment\tlosses | (1,417) | (2,236) | (2,389) |
| Unrealized\tinvestment\tlosses | (8,375) | (5,203) | (15,953) |
| Investment\tgains\tand\t(losses),\tnet | \t$16,409 | \t$7,134 | \t$61,249 |
| Total\tnon-operating\tincome,\tnet | \t$50,237 | \t$89,605 | \t$128,434 |

# Note	19.		Industry	Segment,	Geographic	Information	and	Significant	Customers

We	have	the	following	segments:	Creative	Solutions,	Knowledge	Worker,	Enterprise,	Mobile	and	Device	Solutions,	Platform	and	Print	and	Publishing.	Our	Creative Solutions	segment	focuses	on	delivering	a	complete	professional	line	of	integrated	tools	for	a	full	range	of	creative	and	developer	tasks	to	an	extended	set	of	customers.	The Knowledge	Worker	segment	focuses	on	the	needs	of	knowledge	worker	customers,	providing	essential	applications	and	services	to	help	them	share	information	and collaborate.	This	segment	contains	revenue	generated	by	Acrobat	Connect	and	our	Acrobat	family	of	products.	Our	Enterprise	segment	provides	server-based	enterprise interaction	solutions	that	automate	people-centric	processes	and	contains	revenue	generated	by	our	LiveCycle	line	of	products.	The	Mobile	and	Device	Solutions	segment provides	solutions	that	deliver	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.

Effective	in	the	first	quarter	of	fiscal	2008,	to	better	align	our	engineering	and	marketing	efforts,	we	merged	our	Knowledge	Worker	segment	with	our	Enterprise segment	 (formerly	 "Enterprise	 and	 Developer	 Solutions")	 to	 form	 our	 new	 Business	 Productivity	 Solutions.	 However,	 under	 the	 requirements	 of	 SFAS	 No.	 131, ("SFAS	131"),	"Disclosures	about	Segments	of	an	Enterprise	and	Related	Information,"	Knowledge	Worker	and	Enterprise	are	separate	reportable	segments.	In	addition, we	moved	responsibility	for	Flex	Builder,	Flex	SDK	and	our	ColdFusion	product	line	to	our	Platform	segment	from	our	Enterprise	segment.	The	prior	year	information	in the	table	below	has	also	been	updated	to	reflect	this	product	movement.

The	accounting	policies	of	the	operating	segments	are	the	same	as	those	described	in	the	summary	of	significant	accounting	policies.	With	the	exception	of	goodwill and	intangible	assets,	we	do	not	identify	or	allocate	our	assets	by	the	operating	segments.

With	the	exception	of	goodwill	and	intangible	assets,	we	do	not	identify	or	allocate	our	assets	by	the	operating	segments.

|  | Creative<br>Solutions | Knowledge<br>Worker | Enterprise | Device<br>Solutions | Platform | Print	and<br>Publishing | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Fiscal\t2008 |  |  |  |  |  |  |  |
| Revenue | \t$2,072,835 | \t$810,883 | \t$252,976 | \t$113,071 | \t$118,487 | \t$211,637 | \t$3,579,889 |
| Cost\tof\trevenue | 160,560 | 53,282 | 75,539 | 24,069 | 20,275 | 28,905 | 362,630 |
| Gross\tprofit | \t$1,912,275 | \t$757,601 | \t$177,437 | \t$89,002 | \t$98,212 | \t$182,732 | \t$3,217,259 |
| Gross\tprofit\tas\ta |  |  |  |  |  |  |  |
| percentage\tof |  |  |  |  |  |  |  |
| revenue | 92% | 93% | 70% | 79% | 83% | 86% | 90% |
| Fiscal\t2007 |  |  |  |  |  |  |  |
| Revenue | \t$1,898,924 | \t$728,528 | \t$191,317 | \t$52,510 | \t$80,870 | \t$205,732 | \t$3,157,881 |
| Cost\tof\trevenue | 147,161 | 57,683 | 68,932 | 31,274 | 12,813 | 36,831 | 354,694 |
| Gross\tprofit | \t$1,751,763 | \t$670,845 | \t$122,385 | \t$21,236 | \t$68,057 | \t$168,901 | \t$2,803,187 |
| Gross\tprofit\tas\ta |  |  |  |  |  |  |  |
| percentage\tof |  |  |  |  |  |  |  |
| revenue | 92% | 92% | 64% | 40% | 84% | 82% | 89% |
| Fiscal\t2006 |  |  |  |  |  |  |  |
| Revenue | \t$1,437,908 | \t$657,813 | \t$158,170 | \t$37,505 | \t$68,130 | \t$215,774 | \t$2,575,300 |
| Cost\tof\trevenue | 138,437 | 36,992 | 53,933 | 22,185 | 14,029 | 26,881 | 292,457 |
| Gross\tprofit | \t$1,299,471 | \t$620,821 | \t$104,237 | \t$15,320 | \t$54,101 | $188,893 | \t$2,282,843 |
| Gross\tprofit\tas\ta |  |  |  |  |  |  |  |
| percentage\tof |  |  |  |  |  |  |  |
| revenue | 90% | 94% | 66% | 41% | 79% | 88% | 89% |

The	table	below	lists	our	revenue	and	property	and	equipment,	net	of	accumulated	depreciation,	by	geographic	area	for	fiscal	2008,	2007	and	2006.	With	the exception	of	property	and	equipment,	we	do	not	identify	or	allocate	our	assets	by	geographic	area.

| Revenue | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Americas: |  |  |  |
| United\tStates | \t$1,473,319 | \t$1,379,028 | \t$1,157,708 |
| Other | 159,507 | 129,776 | 109,068 |
| Total\tAmericas | 1,632,826 | 1,508,804 | 1,266,776 |
| EMEA | 1,229,161 | 1,026,455 | 770,060 |
| Asia: |  |  |  |
| Japan | 450,799 | 407,344 | 354,029 |
| Other | 267,103 | 215,278 | 184,435 |
| Total\tAsia | 717,902 | 622,622 | 538,464 |
| Total\trevenue | \t$3,579,889 | \t$3,157,881 | \t$2,575,300 |

| Property	and	Equipment | 2008 | 2007 |
| :--- | :--- | :--- |
| Americas: |  |  |
| United\tStates | \t$252,434 | \t$228,263 |
| Other | 9,154 | 15,364 |
| Total\tAmericas | 261,588 | 243,627 |
| EMEA | 29,887 | 27,035 |
| Asia: |  |  |
| India | 15,242 | 11,633 |
| Other | 6,320 | 7,463 |
| Total\tAsia | 21,562 | 19,096 |
| Total\tproperty\tand\tequipment | \t$313,037 | \t$289,758 |

# Significant	Customers

|  | 2008 | 2007 |
| :--- | :--- | :--- |
| Ingram\tMicro | 18% | 19% |
| Tech\tData | 8% | 10% |

# Note	20.		Selected	Quarterly	Financial	Data	(unaudited)

|  |  | Quarter	Ended |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | February\t29 | May\t30 | August\t29 | November\t28 |
| Revenue | \t$890,445 | \t$886,886 | \t$887,257 | \t$915,301 |
| Gross\tprofit | 807,970 | 804,020 | 776,406 | 828,863 |
| Income\tbefore\tincome\ttaxes | 295,644 | 278,006 | 228,514 | 276,344 |
| Net\tincome | 219,379 | 214,910 | 191,608 | 245,917 |
| Basic\tnet\tincome\tper\tshare | 0.39 | 0.40 | 0.36 | 0.47 |
| Diluted\tnet\tincome\tper\tshare | 0.38 | 0.40 | 0.35 | 0.46 |

|  |  | 2007 |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | Quarter\tEnded |  |  |
|  | March\t2 | June\t1 | August\t31 | November\t30 |
| Revenue | \t$649,407 | \t$745,577 | \t$851,686 | \t$911,211 |
| Gross\tprofit | 577,144 | 654,363 | 759,065 | 812,615 |
| Income\tbefore\tincome\ttaxes | 174,402 | 205,116 | 276,995 | 290,677 |
| Net\tincome | 143,851 | 152,505 | 205,243 | 222,208 |
| Basic\tnet\tincome\tper\tshare | 0.24 | 0.26 | 0.35 | 0.39 |
| Diluted\tnet\tincome\tper\tshare | 0.24 | 0.25 | 0.34 | 0.38 |

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

# The	Board	of	Directors	and	Stockholders

We	have	audited	the	accompanying	consolidated	balance	sheets	of	Adobe	Systems	Incorporated	and	subsidiaries	as	of	November	28,	2008	and	November	30,	2007, and	the	related	consolidated	statements	of	income,	stockholders'	equity	and	comprehensive	income,	and	cash	flows	for	each	of	the	years	in	the	three-year	period	ended November	28,	2008.	We	also	have	audited	Adobe	Systems	Incorporated's	internal	control	over	financial	reporting	as	of	November	28,	2008,	based	on	criteria	established	in Internal	Control	-	Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).	Adobe	System	Incorporated's management	is	responsible	for	these	consolidated	financial	statements,	for	maintaining	effective	internal	control	over	financial	reporting,	and	for	its	assessment	of	the effectiveness	 of	 internal	 control	 over	 financial	 reporting,	 included	 in	 the	 accompanying	 Management's	Annual	 Report	 on	 Internal	 Control	 over	 Financial	 Reporting appearing	under	Item	9A.	Our	responsibility	is	to	express	an	opinion	on	these	consolidated	financial	statements	and	an	opinion	on	the	Company's	internal	control	over financial	reporting	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan and	perform	the	audits	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement	and	whether	effective	internal	control	over financial	reporting	was	maintained	in	all	material	respects.	Our	audits	of	the	consolidated	financial	statements	included	examining,	on	a	test	basis,	evidence	supporting	the amounts	and	disclosures	in	the	financial	statements,	assessing	the	accounting	principles	used	and	significant	estimates	made	by	management,	and	evaluating	the	overall financial	statement	presentation.	Our	audit	of	internal	control	over	financial	reporting	included	obtaining	an	understanding	of	internal	control	over	financial	reporting, assessing	the	risk	that	a	material	weakness	exists,	and	testing	and	evaluating	the	design	and	operating	effectiveness	of	internal	control	based	on	the	assessed	risk.	Our	audits also	included	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinions.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial	reporting includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in	accordance	with generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of	management	and directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or	disposition	of	the	company's assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	 of	 its	 inherent	 limitations,	 internal	 control	 over	 financial	 reporting	 may	 not	 prevent	 or	 detect	 misstatements.	Also,	 projections	 of	 any	 evaluation	 of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the policies	or	procedures	may	deteriorate.

In	our	opinion,	the	consolidated	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	financial	position	of	Adobe	Systems	Incorporated and	subsidiaries	as	of	November	28,	2008	and	November	30,	2007,	and	the	results	of	its	operations	and	its	cash	flows	for	each	of	the	years	in	the	three-year	period	ended November	28,	2008,	in	conformity	with	U.S.	generally	accepted	accounting	principles.	Also	in	our	opinion,	Adobe	Systems	Incorporated	maintained,	in	all	material respects,	effective	internal	control	over	financial	reporting	as	of	November	28,	2008,	based	on	criteria	established	in	Internal	Control	-	Integrated	Framework	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).

As	discussed	in	Note	8	and	Note	12	to	the	consolidated	financial	statements,	the	Company	changed	its	method	of	accounting	for	uncertainty	in	income	taxes	in	fiscal 2008	and	quantifying	errors	in	fiscal	2006,	resulting	from	the	adoption	of	new	accounting	pronouncements.

/s/KPMG	LLP

Mountain	View,	California

# ITEM	9.		CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS	ON	ACCOUNTING	AND	FINANCIAL	DISCLOSURE

# ITEM	9A.		CONTROLS	AND	PROCEDURES

# Disclosure	Controls	and	Procedures

Our	management	has	evaluated,	under	the	supervision	and	with	the	participation	of	our	Chief	Executive	Officer	and	Chief	Financial	Officer,	the	effectiveness	of	our disclosure	controls	and	procedures	as	of	November	28,	2008.	Based	on	their	evaluation	as	of	November	28,	2008,	our	Chief	Executive	Officer	and	Chief	Financial	Officer have	concluded	that	our	disclosure	controls	and	procedures	(as	defined	in	Rules	13a-15(e)	and	15d-15(e)	under	the	Securities	Exchange	Act	of	1934,	as	amended)	were effective	at	the	reasonable	assurance	level	to	ensure	that	the	information	required	to	be	disclosed	by	us	in	this	Annual	Report	on	Form	10-K	was	(i)	recorded,	processed, summarized	and	reported	within	the	time	periods	specified	in	the	SEC's	rules	and	regulations	and	(ii)	accumulated	and	communicated	to	our	management,	including	our Chief	Executive	Officer	and	Chief	Financial	Officer,	to	allow	timely	decisions	regarding	required	disclosure.

Our	management,	including	our	Chief	Executive	Officer	and	Chief	Financial	Officer,	does	not	expect	that	our	disclosure	controls	and	procedures	or	our	internal controls	over	financial	reporting	will	prevent	all	error	and	all	fraud.	A	control	system,	no	matter	how	well	conceived	and	operated,	can	provide	only	reasonable,	not absolute,	assurance	that	the	objectives	of	the	control	system	are	met.	Further,	the	design	of	a	control	system	must	reflect	the	fact	that	there	are	resource	constraints	and	the benefits	of	controls	must	be	considered	relative	to	their	costs.	Because	of	the	inherent	limitations	in	all	control	systems,	no	evaluation	of	controls	can	provide	absolute assurance	that	all	control	issues	and	instances	of	fraud,	if	any,	within	Adobe	have	been	detected.

# Management's	Annual	Report	on	Internal	Control	over	Financial	Reporting

Our	management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting	(as	defined	in	Rule	13a-15(f)	under	the	Securities Exchange	Act	of	1934,	as	amended).	Our	management	assessed	the	effectiveness	of	our	internal	control	over	financial	reporting	as	of	November	28,	2008.	In	making	this assessment,	our	management	used	the	criteria	set	forth	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	("COSO")	in	Internal	 Control- Integrated	Framework.	Our	management	has	concluded	that,	as	of	November	28,	2008,	our	internal	control	over	financial	reporting	is	effective	based	on	these	criteria.

# Changes	in	Internal	Control	over	Financial	Reporting

There	were	no	changes	in	our	internal	control	over	financial	reporting	during	the	quarter	ended	November	28,	2008	that	have	materially	affected,	or	are	reasonably likely	to	materially	affect	our	internal	control	over	financial	reporting.

# ITEM	9B.		OTHER	INFORMATION

# PART	III

# ITEM	10.		DIRECTORS,	EXECUTIVE	OFFICERS	AND	CORPORATE	GOVERNANCE

The	information	required	by	Item	10	of	Form	10-K	with	respect	to	Item	401	of	Regulation	S-K	regarding	our	directors	is	incorporated	herein	by	reference	from	the information	contained	in	the	section	entitled	"Proposal	1	–	Election	of	Directors"	in	our	definitive	Proxy	Statement	we	will	deliver	to	our	stockholders	in	connection	with	our Annual	Meeting	of	Stockholders	to	be	held	on	April	1,	2009.	For	information	with	respect	to	our	executive	officers,	see	"Executive	Officers"	at	the	end	of	Part	I,	Item	1	of this	report.

The	 information	required	by	Item	10	of	Form	10-K	with	respect	 to	Item	405	of	Regulation	S-K	regarding	section	16(a)	 beneficial	 ownership	 compliance	 is incorporated	by	reference	from	the	information	contained	in	the	section	entitled	"Section	16(a)	Beneficial	Ownership	Reporting	Compliance"	in	our	definitive	Proxy Statement	we	will	deliver	to	our	stockholders	in	connection	with	our	Annual	Meeting	of	Stockholders	to	be	held	on	April	1,	2009.

The	information	required	by	Item	10	of	Form	10-K	with	respect	to	Item	406	of	Regulation	S-K	regarding	code	of	ethics	is	incorporated	by	reference	from	the information	contained	in	the	section	entitled	"Code	of	Ethics"	in	our	definitive	Proxy	Statement	we	will	deliver	to	our	stockholders	in	connection	with	our	Annual	Meeting of	Stockholders	to	be	held	on	April	1,	2009.

The	information	required	by	Item	10	of	Form	10-K	with	respect	to	Item	407(c)(3),	407(d)(4)	and	407(d)(5)	is	incorporated	by	reference	from	the	information contained	in	the	sections	entitled	"Proposal	1-	Election	of	Directors"	and	report	of	the	"Audit	Committee"	in	our	definitive	Proxy	Statement	we	will	deliver	to	our stockholders	in	connection	with	our	Annual	Meeting	of	Stockholders	to	be	held	on	April	1,	2009.

# ITEM	11.		EXECUTIVE	COMPENSATION

You	will	find	 this	 information	 in	 the	sections	captioned	"Compensation	Discussion	and	Analysis,"	"Executive	Compensation	Committee	Report,"	"Executive Compensation,"	"Director	Compensation"	and	"Compensation	Committee	Interlocks	and	Insider	Participation"	in	the	Proxy	Statement	we	will	deliver	to	our	stockholders	in connection	with	our	Annual	Meeting	of	Stockholders	to	be	held	on	April	1,	2009.	We	are	incorporating	the	information	contained	in	that	section	of	our	Proxy	Statement here	by	reference.

# ITEM	12.		SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL	OWNERS	AND	MANAGEMENT	AND	RELATED	STOCKHOLDER	MATTERS

You	will	find	this	information	in	the	sections	captioned	"Security	Ownership	of	Certain	Beneficial	Owners	and	Management"	and	"Equity	Compensation	Plan Information"	in	the	Proxy	Statement	we	will	deliver	to	our	stockholders	in	connection	with	our	Annual	Meeting	of	Stockholders	to	be	held	on	April	1,	2009.	We	are incorporating	the	information	contained	in	that	section	here	by	reference.

# ITEM	13.		CERTAIN	RELATIONSHIPS	AND	RELATED	TRANSACTIONS,	AND	DIRECTOR	INDEPENDENCE

You	will	find	this	information	in	the	sections	captioned	"Transactions	with	Related	Persons"	and	"Proposal	1—Election	of	Directors—Independence	of	Directors"	in the	Proxy	Statement	we	will	deliver	to	our	stockholders	in	connection	with	our	Annual	Meeting	of	Stockholders	to	be	held	on	April	1,	2009.	We	are	incorporating	the information	contained	in	that	section	here	by	reference.

# ITEM	14.		PRINCIPAL	ACCOUNTING	FEES	AND	SERVICES

You	will	find	this	information	in	the	sections	captioned	"Principal	Accounting	Fees	and	Services"	and	"Audit	Committee	Pre-Approval	of	Services	Performed	by	Our Independent	Registered	Public	Accountants"	in	the	Proxy	Statement	we	will	deliver	to	our	stockholders	in	connection	with	our	Annual	Meeting	of	Stockholders	to	be	held on	April	1,	2009.	We	are	incorporating	the	information	contained	in	that	section	here	by	reference.

# PART	IV

# ITEM	15.		EXHIBITS,	FINANCIAL	STATEMENT	SCHEDULES

1.		Financial	Statements.		See	"Index	to	Consolidated	Financial	Statements"	in	Part	II,	Item	8	of	this	Form	10-K.

2.		Exhibits.		The	exhibits	listed	in	the	accompanying	"Index	to	Exhibits"	are	filed	or	incorporated	by	reference	as	part	of	this	Form	10-K.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by	the undersigned,	thereunto	duly	authorized,	on	January	23,	2009.

By: /s/	Mark	Garrett

Mark	Garrett,

Executive	Vice	President	and	Chief	Financial	Officer	(Principal	Financial Officer)

# POWER	OF	ATTORNEY

KNOW	ALL	PERSONS	BY	THESE	PRESENTS,	that	each	person	whose	signature	appears	below	constitutes	and	appoints	Shantanu	Narayen	and	Mark	Garrett,	and each	or	any	one	of	them,	his	or	her	lawful	attorneys-in-fact	and	agents,	for	such	person	in	any	and	all	capacities,	to	sign	any	and	all	amendments	to	this	report	and	to	file	the same,	with	all	exhibits	thereto	and	other	documents	in	connection	therewith,	with	the	Securities	and	Exchange	Commission,	hereby	ratifying	and	confirming	all	that	either	of said	attorneys-in-fact	and	agent,	or	substitute	or	substitutes,	may	do	or	cause	to	be	done	by	virtue	hereof.

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	registrant	and	in	the capacities	and	on	the	dates	indicated.

# SUMMARY	OF	TRADEMARKS

The	following	trademarks	of	Adobe	Systems	Incorporated	or	its	subsidiaries,	which	may	be	registered	in	the	United	States	and/or	other	countries,	are	referenced	in	this Form	10-K:

Adobe Acrobat Acrobat	Connect ActionScript Adobe	AIR Adobe	Audition Adobe	OnLocation Adobe	Premiere Adobe	Type	Manager After	Effects AIR Authorware Buzzword Captivate ColdFusion Contribute Creative	Suite Director Dreamweaver DV	Rack Encore Fireworks Flash Flash	Cast Flash	Catalyst Flash	Lite Flex Flex	Builder Font	Folio FrameMaker FreeHand Illustrator InCopy InDesign JRun Kuler Lightroom LiveCycle Macromedia MXML Ovation PageMaker Photoshop PostScript Reader RoboHelp Scene	7 Shockwave Soundbooth Ultra Version	Cue Visual	Communicator Vlog	It!

All	other	trademarks	are	the	property	of	their	respective	owners.

| Exhibit |  |  | Incorporated	by	Reference** | Incorporated	by	Reference** | Incorporated	by	Reference** | Filed |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Number |  | Exhibit\tDescription | Form | Date | Number | Herewith |
|  | 3.1 | Amended\tand\tRestated\tBylaws | 8-K | 1/13/09 | 3.1 |  |
|  | 3.2 | Restated\tCertificate\tof\tIncorporation\tof | 10-Q | 7/16/01 | 3.6 |  |
|  |  | Adobe\tSystems\tIncorporated |  |  |  |  |
|  | 3.2.1 | Certificate\tof\tCorrection\tof\tRestated | 10-Q | 4/11/03 | 3.6.1 |  |
|  |  | Certificate\tof\tIncorporation\tof\tAdobe |  |  |  |  |
|  |  | Systems\tIncorporated |  |  |  |  |
|  | 3.3 | Certificate\tof\tDesignation\tof\tSeries\tA | 10-Q | 7/08/03 | 3.3 |  |
|  |  | Preferred\tStock\tof\tAdobe\tSystems |  |  |  |  |
|  |  | Incorporated |  |  |  |  |
|  | 4.1 | Fourth\tAmended\tand\tRestated\tRights | 8-K | 7/03/00 | 1 |  |
|  |  | Agreement\tbetween\tAdobe\tSystems |  |  |  |  |
|  |  | Incorporated\tand\tComputershare\tInvestor |  |  |  |  |
|  |  | Services,\tLLC |  |  |  |  |
|  | 4.1.1 | Amendment\tNo.\t1\tto\tFourth\tAmended\tand | 8-A/2G/A | 5/23/03 | 7 |  |
|  |  | Restated\tRights\tAgreement\tbetween |  |  |  |  |
|  |  | Adobe\tSystems\tIncorporated\tand |  |  |  |  |
|  |  | Computershare\tInvestor\tServices,\tLLC |  |  |  |  |
|  | 10.1 | 1984\tStock\tOption\tPlan,\tas\tamended* | 10-Q | 7/02/93 | 10.1.6 |  |
|  | 10.2 | Amended\t1994\tPerformance\tand | 10-Q | 4/4/08 | 10.2 |  |
|  |  | Restricted\tStock\tPlan* |  |  |  |  |
|  | 10.3 | Form\tof\tRestricted\tStock\tAgreement\tused |  |  |  | X |
|  |  | in\tconnection\twith\tthe\tAmended\t1994 |  |  |  |  |
|  |  | Performance\tand\tRestricted\tStock\tPlan* |  |  |  |  |
|  | 10.4 | 1994\tStock\tOption\tPlan,\tas\tamended* | S-8 | 5/30/97 | 10.40 |  |
|  | 10.5 | 1997\tEmployee\tStock\tPurchase\tPlan,\tas | 10-K | 1/24/08 | 10.5 |  |

| Exhibit |  |  | Incorporated	by	Reference** | Incorporated	by	Reference** | Incorporated	by	Reference** | Filed |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Number |  | Exhibit\tDescription | Form | Date | Number | Herewith |
|  | 10.17 | Lease\tAgreement\tby\tand\tbetween\tAllaire | 10-K | 3/30/00 | 10.23 |  |
|  |  | Corporation\tand\tEOP\tRiverside |  |  |  |  |
|  |  | Project\tLLC\tdated\tNovember\t23,\t1999 |  |  |  |  |
|  | 10.18 | First\tAmendment\tto\tLease\tAgreement\tby | 10-Q | 8/14/00 | 10.3 |  |
|  |  | and\tbetween\tAllaire\tCorporation\tand\tEOP |  |  |  |  |
|  |  | Riverside\tProject\tLLC\tdated\tMay\t31,\t2000 |  |  |  |  |
|  | 10.19 | Form\tof\tRestricted\tStock\tUnit\tAgreement |  |  |  | X |
|  |  | used\tin\tconnection\twith\tthe\tAmended\t1994 |  |  |  |  |
|  |  | Performance\tand\tRestricted\tStock\tPlan* |  |  |  |  |
|  | 10.20 | Form\tof\tRestricted\tStock\tUnit\tAgreement |  |  |  | X |
|  |  | used\tin\tconnection\twith\tthe\t2003\tEquity |  |  |  |  |
|  |  | Incentive\tPlan* |  |  |  |  |
|  | 10.21 | Form\tof\tRestricted\tStock\tAgreement\tused | 10-Q | 10/07/04 | 10.11 |  |
|  |  | in\tconnection\twith\tthe\t2003\tEquity |  |  |  |  |
|  |  | Incentive\tPlan* |  |  |  |  |
|  | 10.22 | 2008\tExecutive\tOfficer\tAnnual\tIncentive | 8-K | 1/30/08 | 10.4 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.23 | 2005\tEquity\tIncentive\tAssumption\tPlan, | 10-Q | 4/4/08 | 10.23 |  |
|  |  | as\tamended* |  |  |  |  |
|  | 10.24 | Form\tof\tStock\tOption\tAgreement\tused\tin | 10-Q | 4/4/08 | 10.24 |  |
|  |  | connection\twith\tthe\t2005\tEquity\tIncentive |  |  |  |  |
|  |  | Assumption\tPlan* |  |  |  |  |
|  | 10.25 | Allaire\tCorporation\t1997\tStock\tIncentive | S-8 | 03/27/01 | 4.06 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.26 | Allaire\tCorporation\t1998\tStock\tIncentive | S-8 | 03/27/01 | 4.07 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.27 | Allaire\tCorporation\t2000\tStock\tIncentive | S-8 | 03/27/01 | 4.08 |  |

| Number |  | Exhibit	Description | Form | Date | Number | Herewith |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 10.28 | Andromedia,\tInc.\t1996\tStock\tOption\tPlan* | S-8 | 12/07/99 | 4.07 |  |
|  | 10.29 | Andromedia,\tInc.\t1997\tStock\tOption\tPlan* | S-8 | 12/07/99 | 4.08 |  |
|  | 10.30 | Andromedia,\tInc.\t1999\tStock\tPlan* | S-8 | 12/07/99 | 4.09 |  |
|  | 10.31 | ESI\tSoftware,\tInc.\t1996\tEquity\tIncentive | S-8 | 10/18/99 | 4.08 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.32 | eHelp\tCorporation\t1999\tEquity\tIncentive | S-8 | 12/29/03 | 4.08 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.33 | Blue\tSky\tSoftware\tCorporation\t1996 | S-8 | 12/29/03 | 4.07 |  |
|  |  | Stock\tOption\tPlan* |  |  |  |  |
|  | 10.34 | Bright\tTiger\tTechnologies,\tInc.\t1996 | S-8 | 03/27/01 | 4.11 |  |
|  |  | Stock\tOption\tPlan* |  |  |  |  |
|  | 10.35 | Live\tSoftware,\tInc.\t1999\tStock | S-8 | 03/27/01 | 4.10 |  |
|  |  | Option/Stock\tIssuance\tPlan* |  |  |  |  |
|  | 10.36 | Macromedia,\tInc.\t1999\tStock\tOption | S-8 | 08/17/00 | 4.07 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.37 | Macromedia,\tInc.\t1992\tEquity\tIncentive | 10-Q | 08/03/01 | 10.01 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.38 | Macromedia,\tInc.\t2002\tEquity\tIncentive | S-8 | 08/10/05 | 4.08 |  |
|  |  | Plan* |  |  |  |  |
|  | 10.39 | Form\tof\tMacromedia,\tInc.\tStock\tOption | S-8 | 08/10/05 | 4.09 |  |
|  |  | Agreement* |  |  |  |  |
|  | 10.40 | Middlesoft,\tInc.\t1999\tStock\tOption\tPlan* | S-8 | 08/17/00 | 4.09 |  |
|  | 10.41 | Form\tof\tMacromedia,\tInc.\tRevised\tNon- | S-8 | 11/23/04 | 4.10 |  |

| Exhibit |  |  | Incorporated	by	Reference** | Incorporated	by	Reference** | Incorporated	by	Reference** | Filed |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Number |  | Exhibit\tDescription | Form | Date | Number | Herewith |
|  | 10.42 | Form\tof\tMacromedia,\tInc.\tRestricted | 10-Q | 2/08/05 | 10.01 |  |
|  |  | Stock\tPurchase\tAgreement* |  |  |  |  |
|  | 10.43 | Adobe\tSystems\tIncorporated\tForm\tof | 8-K | 1/30/08 | 10.1 |  |
|  |  | Performance\tShare\tProgram\tpursuant\tto |  |  |  |  |
|  |  | the\t2003\tEquity\tIncentive\tPlan* |  |  |  |  |
|  | 10.44 | Form\tof\tAward\tGrant\tNotice\tand | 8-K | 1/30/08 | 10.2 |  |
|  |  | Performance\tShare\tAward\tAgreement |  |  |  |  |
|  |  | used\tin\tconnection\twith\tgrants\tunder\tthe |  |  |  |  |
|  |  | Adobe\tSystems\tIncorporated\t2008 |  |  |  |  |
|  |  | Performance\tShare\tProgram\tpursuant\tto |  |  |  |  |
|  |  | the\t2003\tEquity\tIncentive\tPlan* |  |  |  |  |
|  | 10.45 | 2008\tAward\tCalculation\tMethodology | 8-K | 1/30/08 | 10.3 |  |
|  |  | Exhibit\tA\tto\tthe\t2008\tPerformance\tShare |  |  |  |  |
|  |  | Program\tpursuant\tto\tthe\t2003\tEquity |  |  |  |  |
|  |  | Incentive\tPlan* |  |  |  |  |
|  | 10.46 | Adobe\tSystems\tIncorporated\tDeferred | 10-K | 1/24/08 | 10.52 |  |
|  |  | Compensation\tPlan* |  |  |  |  |
|  | 10.47 | Adobe\tSystems\tIncorporated\t2007 | 8-K | 1/30/07 | 10.1 |  |
|  |  | Performance\tShare\tProgram\tpursuant\tto |  |  |  |  |
|  |  | the\t2003\tEquity\tIncentive\tPlan* |  |  |  |  |
|  | 10.48 | Form\tof\tAward\tGrant\tNotice\tand | 8-K | 1/30/07 | 10.2 |  |
|  |  | Performance\tShare\tAward\tAgreement |  |  |  |  |
|  |  | used\tin\tconnection\twith\tgrants\tunder\tthe |  |  |  |  |
|  |  | Adobe\tSystems\tIncorporated\t2007 |  |  |  |  |
|  |  | Performance\tShare\tProgram\tpursuant\tto |  |  |  |  |
|  |  | the\t2003\tEquity\tIncentive\tPlan* |  |  |  |  |
|  | 10.49 | Adobe\tSystems\tIncorporated\t2007 | 8-K | 1/30/07 | 10.3 |  |

| Exhibit |  |  | Incorporated	by	Reference** | Incorporated	by	Reference** | Incorporated	by	Reference** | Filed |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Number |  | Exhibit\tDescription | Form | Date | Number | Herewith |
|  | 10.56 | Credit\tAgreement,\tdated\tas\tof\tFebruary\t16, | 8-K | 8/16/07 | 10.1 |  |
|  |  | 2007,\tamong\tAdobe\tSystems\tIncorporated |  |  |  |  |
|  |  | and\tCertain\tSubsidiaries\tas\tBorrowers; |  |  |  |  |
|  |  | BNP\tParibas,\tKeybank\tNational |  |  |  |  |
|  |  | Association,\tand\tUBS\tLoan\tFinance\tLLC |  |  |  |  |
|  |  | as\tCo-Documentation\tAgents;\tJPMorgan |  |  |  |  |
|  |  | Chase\tBank,\tN.A.\tas\tSyndication\tAgent; |  |  |  |  |
|  |  | Bank\tof\tAmerica,\tN.A.\tas\tAdministrative |  |  |  |  |
|  |  | Agent\tand\tSwing\tLine\tLender;\tthe\tOther |  |  |  |  |
|  |  | Lenders\tParty\tThereto;\tand\tBanc\tof |  |  |  |  |
|  |  | America\tSecurities\tLLC\tand\tJ.P.\tMorgan |  |  |  |  |
|  |  | Securities\tInc.\tas\tJoint\tLead\tArrangers\tand |  |  |  |  |
|  |  | Joint\tBook\tManagers |  |  |  |  |
|  | 10.57 | Amendment\tto\tCredit\tAgreement,\tdated\tas | 8-K | 8/16/07 | 10.2 |  |
|  |  | of\tAugust\t13,\t2007,\tamong\tAdobe |  |  |  |  |
|  |  | Systems\tIncorporated,\tas\tBorrower;\teach |  |  |  |  |
|  |  | Lender\tfrom\ttime\tto\ttime\tparty\tto\tthe |  |  |  |  |
|  |  | Credit\tAgreement;\tand\tBank\tof\tAmerica, |  |  |  |  |
|  |  | N.A.\tas\tAdministrative\tAgent |  |  |  |  |
|  | 10.58 | Second\tAmendment\tto\tCredit\tAgreement, | 8-K | 2/29/08 | 10.1 |  |
|  |  | dated\tas\tof\tFebruary\t26,\t2008,\tamong |  |  |  |  |
|  |  | Adobe\tSystems\tIncorporated,\tas |  |  |  |  |
|  |  | Borrower;\teach\tLender\tfrom\ttime\tto\ttime |  |  |  |  |
|  |  | party\tto\tthe\tCredit\tAgreement;\tand\tBank |  |  |  |  |
|  |  | of\tAmerica,\tN.A.\tas\tAdministrative\tAgent |  |  |  |  |
|  | 10.59 | Purchase\tand\tSale\tAgreement,\tby\tand | 8-K | 5/15/08 | 10.1 |  |

† The	certifications	attached	as	Exhibits	32.1	and	32.2	 that	accompany	 this	Annual	Report	on	Form	10-K,	are	not	deemed	filed	with	 the	Securities	and	 Exchange Commission	and	are	not	to	be	incorporated	by	reference	into	any	filing	of	Adobe	Systems	Incorporated	under	the	Securities	Act	of	1933,	as	amended,	or	the	Securities Exchange	Act	of	1934,	as	amended,	whether	made	before	or	after	the	date	of	this	Form	10-K,	irrespective	of	any	general	incorporation	language	contained	in	such	filing.



Question: if the total fin 48 gross liability for unrecognized tax benefits at november 28 , 2008 were recognized in the future , is the amount of unrecognized tax benefits that would decrease the effective tax rate greater than the amount that would decrease goodwill?
Answer: no