UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
FORM 10-K
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(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended November 27, 2009
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from to
Commission
file number: 0-15175
ADOBE
SYSTEMS INCORPORATED
(Exact
name of registrant as specified in its charter)
__________________________
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Delaware
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77-0019522
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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345
Park Avenue, San Jose, California 95110-2704
(Address
of principal executive offices and zip code)
(408)
536-6000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
Stock, $0.0001 par value per share
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The
NASDAQ Stock Market LLC
(NASDAQ
Global Select Market)
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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 check mark
whether the registrant has submitted electronically and posted on its corporate
Website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes x No o
Indicate by checkmark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405 of this chapter) 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. ¨
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
the definitions of “large accelerated filer, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x Accelerated filer
o Non-accelerated filer
o (Do not check if a smaller
reporting company) Smaller
reporting company o
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No x
The
aggregate market value of the registrant’s common stock, $0.0001 par value per
share, held by non-affiliates of the registrant on May 29, 2009, the last
business day of the registrant’s most recently completed second fiscal quarter,
was $12,843,687,113 (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 15,
2010, 524,119,635 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 2010 Annual Meeting of Stockholders (the “Proxy
Statement”), to be filed within 120 days of the end of the fiscal year ended
November 27, 2009, 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.
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PART I
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Item
1.
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3
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Item
1A.
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34
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Item
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45
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Item
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Item
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Item
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PART II
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Item
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49
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Item
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Item
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53
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Item
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Item
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Item
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124
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Item
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Item
9B.
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PART III
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Item
10.
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124
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Item
11.
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125
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Item
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Item
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Item
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PART IV
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Item
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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 2010.
When used in this report, the words “expects,” “could,” “would,” “may,”
“anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,”
“looks for,” “looks to” and similar expressions, as well as statements regarding
our focus for the future, are generally intended to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements which speak only as of the date of this 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.
PART I
Founded
in 1982, Adobe Systems Incorporated is one of the largest and most diversified
software companies in the world. We offer a line of creative, business, Web and
mobile software and services used by creative professionals, knowledge workers,
consumers, original equipment manufacturers (“OEMs”), developers and enterprises
for creating, managing, delivering, optimizing and engaging with compelling
content and experiences across multiple operating systems, devices and media. We
distribute our products through a network of distributors, value-added resellers
(“VARs”), systems integrators, independent software vendors (“ISVs”) and OEMs,
direct to end users and through our own Website at www.adobe.com. We also
license our technology to hardware manufacturers, software developers and
service providers, and we offer integrated software solutions to businesses of
all sizes. We have operations in the Americas, Europe, 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 Website at www.adobe.com.
Investors can obtain copies of our SEC filings from this site free of charge, as
well as from the SEC Website at www.sec.gov.
BUSINESS
OVERVIEW
For more
than 27 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, optimize 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, Web analysts, marketing executives, line of business managers and
executives; high-end consumers—digital imaging and digital video hobbyists and
enthusiasts; application developers and OEMs—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
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
2009, we categorized our products and services into the following businesses:
Creative Solutions, Business Productivity Solutions, Platform and Print and
Publishing. We further broke our Business Productivity Solutions business into
two reported segments: Knowledge Worker and Enterprise. With our acquisition of
Omniture, Inc. (“Omniture”)
in the fourth quarter of fiscal 2009, we created and added a new segment
called Omniture for the purpose of reporting Omniture results.
Effective
in the first quarter of fiscal 2010, we modified our segment reporting. Our
Creative Solutions segment, our Platform segment, our Print and Publishing
segment, and our Omniture segment continue to be reported as they were in fiscal
2009. Our Business Productivity Solutions business that is reported
in two segments (Knowledge Worker and Enterprise), was modified to reflect a
change in how we develop, market and sell our Acrobat Connect Pro product
family. Previously, Acrobat Connect Pro results were reported in our
Knowledge Worker segment. In fiscal 2010, Acrobat Connect Pro results
will be reported as part of our Enterprise segment.
Accordingly,
our six fiscal 2010 business segments are as follows: Creative
Solutions, Knowledge Worker, Enterprise, Omniture, 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 2009 results
and a discussion of our strategies to address our market opportunities in fiscal
2010 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, motion graphic artists, 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, Websites, Rich Internet Applications (“RIAs”), 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, educators, 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 change and 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, applications and systems. 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 versions 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 versions of these products when they buy new computers,
or migrate to new or updated operating systems.
In
addition, knowledge workers in enterprises, educators and students 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 Websites 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
Website content created by our customers to deliver impactful and compelling
Web-based experiences for their constituents across multiple screens, including
PCs, mobile devices, and Internet-connected living room electronics such as
televisions (“TVs”). We also believe those who manage Websites will want to
utilize Web analytic data and other Web usage metrics to optimize their Websites
and content to improve the overall experience of their sites.
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 have made the Web a
viable platform for the delivery of rich media, especially digital video. In
turn, the growth in the use of high definition TVs (“HD TVs”) 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 across PC and non-PC based devices.
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
Websites. 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
2009, our creative business was adversely affected by the global economic
recession and the weak general macro-economic environment. This caused revenue
for our Creative Suite 4 (“CS4”) family of products to be more than 20 percent
weaker than revenue achieved with the prior version for a comparable period of
time since release. Despite this economy-driven weakness, we maintained our
focus on driving adoption of our creative products during the year—particularly
with large media companies and enterprise customers. Our CS4 family of products,
which first shipped in fiscal 2008, incorporate 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.
After significant weakness in the first two months of the fiscal year, licensing
of CS4 products remained stable through the remainder of the year despite the
uncertain global economic conditions in end-user creative professional
markets.
During
the year, 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. Despite
maintaining strong market share for our professional Photoshop products during
the year, revenue decreased significantly on a year-over-year basis due to the
macro-economic environment.
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. We released Adobe Flash Media Server
3.5 (“FMS”) in the fourth quarter of fiscal 2009 which provides improved dynamic
streaming and HTTP delivery capabilities, performance improvements and enhanced
digital rights management capabilities for H.264 video and digital video
recorder functionality. 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
maintain the 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 75% of worldwide video
watched online is now in FLV format.
To
further the monetization capabilities of video content owners who wish to
deliver engaging experiences utilizing their video assets, we also delivered
Open Source Media Framework (“OSMF”), a new framework for media player
development that can be used to create and deliver custom online media players.
OSMF enables developers using Flash technologies to quickly and easily add rich
functionality such as advertising, user measurement and tracking, and social
network integration into new custom video players that can be branded for
individual content owners.
In the
professional page layout market, despite the downturn in the economy and
the financial pressure facing traditional print media companies, we continued to
focus on gaining market share during the year with our Adobe InDesign
product. Similarly, in the Web layout and Web development markets,
and in the illustration market, while our revenues were adversely affected due
to the economy, we focused on maintaining market share leadership with 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
year-over-year growth in fiscal 2009 based on accelerated customer adoption of
our solution. During the year, we updated the capabilities of our Scene7 hosted
cross media platform with new features for e-commerce and multichannel marketing
companies to create improved, high-impact customer experiences. New Adobe Scene7
capabilities include more design control and enhanced workflow efficiencies with
new features such as mixed media set publishing and viewing capabilities; video
authoring and viewing capabilities that synchronize merchandising videos with
specific call-to-action links, as well as improved integration with Adobe
Creative Suite.
During
the fourth quarter of fiscal 2009, we released version 8 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 8 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. Despite
success with these new hobbyist product releases, overall revenue in the
hobbyist category declined year-over-year due to the economy.
Creative
Solutions Business Strategy
In fiscal
2010, our Creative Solutions strategy will 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 deliver new versions of our Creative Suite family of
products during the year with a focus on improved integration between our
products, more efficient collaboration and workflow capabilities, and enhanced
functionality – particularly in areas related to interactivity and rich media
use related to Adobe Flash content creation, mobile and alternative device
content creation, and hosted cloud-based services which will augment the
capabilities of our desktop products. We will also utilize hardware improvements
such as 64-bit computing support and graphics processor unit acceleration to
significantly improve the performance of our products.
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 our Creative Suite penetration is lower.
We also believe many customers who did not migrate to newer CS4 releases during
2009 due to economic factors could upgrade to new versions of our products in
2010, due to new and enhanced features, improved productivity gains, support for
the latest Microsoft and Apple operating systems that are being adopted by our
customers, new hardware purchases by our customers which could cause them to
update old versions of creative software, and the addition of features in some
of our creative products which will provide better integration with our Omniture
Web analytics and business optimization products.
To
increase the addressable market for our Creative Solutions business, and to
address the needs of customers creating interactive content and applications for
both PC and non-PC based environments, we intend to add Adobe Flash Catalyst and
Adobe Flash Builder to some of our Creative Suite configurations in
2010. We believe interactive designers, Web developers and other
creative professionals will benefit from the added features and integration of
these Platform Business Unit products with the other creative products they
regularly use to provide innovative ways to deliver improved Web-based content,
applications and experiences for both PC screens and non-PC screens such as
mobile device and TV screens.
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 Website 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 family of 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 and hobbyists. In
addition, we continue to believe many customers will license the Photoshop
product capabilities via our Creative Suite editions as opposed to
licensing individual Photoshop 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. We will also work to integrate analytics
and optimization capabilities into our video solutions, leveraging our OSMF
effort and the capabilities of our Omniture offerings.
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 deliver advanced
content creation, protection, delivery and monetization capabilities in our
dynamic media streaming products, the Adobe Flash Player, our OSMF effort and
our Omniture solutions. By focusing on the end-to-end video workflow
needs and monetization goals 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 product 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 our Scene7 solutions will help Adobe build a more robust
Internet infrastructure for the delivery of software as a service (“SaaS”),
allowing us to further develop the brand-name customer list for our Scene7
solutions 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, Website
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 Websites,
applications, user interfaces, presentations, mobile device content and other
digital experiences; allows users to prototype Web projects, design Website
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 Websites, 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 Websites 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 Access—a scalable, flexible content protection solution that enables the
distribution and monetization of premium video content delivered online;
previously known as Adobe Flash Media Rights Management Server.
Adobe
Flash Media Interactive Server—a 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 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
Illustrator—a vector-based illustration design tool used to create compelling
graphic artwork for print publications, Websites 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
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 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 and photo
hobbyists, 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—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 Web.
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
Story—new online collaborative script development tool currently in beta release
and made available as a hosted service; can be used to begin the planning and
preproduction phase of video workflows and will be integrated with other Adobe
products, including future versions of the Adobe Creative Suite product family;
developed to create more efficient video production workflows while reducing
production costs, Adobe Story automatically turns content in scripts into
relevant metadata that can be used throughout the Adobe digital video
workflow.
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.
Business
Catalyst—hosted software service which provides an all-in-one capability to
develop, maintain, and run a Website to implement marketing campaigns and sell
products online.
Flash
Video Streaming Service—via CDN partners, 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.
Open
Source Media Framework (OSMF)—new framework for media player development that
can be used to create and deliver custom online media players for content
owners; enables developers using Flash technologies to quickly and easily add
rich functionality such as advertising, user measurement and tracking, and
social network integration into new custom video players that can be branded for
individual content owners.
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; 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 Websites to
automate the production and availability of rich media experiences, including
zoom, dynamic sizing, personalization and interactive dynamic product
catalogs.
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. We believe there are several macro trends and specific
growth drivers that are creating opportunities for our Business Productivity
Solutions business:
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Paper-to-digital—eliminating
paper and moving to automated forms-based workflows continue to be key
challenges in the enterprise. Paper remains prevalent throughout
industries and governments, and there are goals to drive down operational
costs related to paper use and workflows involving paper-based documents.
During the past decade, there has been considerable progress made towards
moving away from paper-based workflows. However, we believe
there still remains a significant opportunity to deliver solutions which
focus on this opportunity.
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Collaboration—the
nature of business continues to become more social and collaborative, and
enterprises and governments are being forced to become more
transparent. Customers and government constituents desire that
their online interactions be friendly and effective. As such, we believe
weaving social, real-time interaction into every customer interaction is
becoming a key market opportunity, as well as a differentiation in the
marketplace.
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Transforming
customer interactions—as businesses increasingly move their customer
service and new customer acquisition activities online, they are facing a
completely different customer interaction model. We believe
more than half of the transactions in our Adobe LiveCycle enterprise
business during the past year relate to solutions oriented around
transforming business processes such that organizations can more easily
and cost-effectively acquire, service, and ultimately retain their
customers/constituents.
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Given
these market trends and growth drivers, we categorize our opportunities and our
results into two distinct businesses within our Business Productivity Solutions:
Knowledge Worker and Enterprise. Both businesses utilize industry standards and
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 working in document
intensive industries, 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, architects,
educators, engineers, graphic designers, insurance underwriters and stock
analysts. These jobs typically require the sharing of information either as a
static, published document or as a collaborative, interactive
document.
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.
Document-based
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.
Our
Acrobat.com service provides centralized online file sharing and storage
capabilities, as well as simple PDF creation, an online word processor,
spreadsheet and presentation authoring capabilities, and personal Web
conferencing services with Adobe ConnectNow that is based on our Acrobat Connect
Pro 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
In fiscal
2009, our Knowledge Worker business was adversely affected by the recession and
the weak general macro-economic environment. This caused revenue for our
Knowledge Worker products to be approximately 23% weaker than revenue achieved
in fiscal 2008. Despite this economy-driven weakness, we maintained our focus on
driving adoption of our Acrobat products during the year—particularly with
enterprise and government customers.
Our
Acrobat 9 family of products, which first shipped in August of 2008, offers
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 version 9
features and enhancements included 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; and enable anyone using the free Adobe Reader to
digitally sign documents, participate in shared document reviews and save forms
locally. These enhanced capabilities helped to continue the increase of our
penetration of Acrobat desktop licenses in enterprises.
During
the year, continued adoption of our Creative Suite products has also contributed
to broader adoption of Acrobat in the creative professional market. Acrobat Pro
is 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 a material amount of
Acrobat revenue being reported in our Creative Solutions Segment during the
year.
We also
continued to grow the usage of Acrobat.com during fiscal 2009. Since it was
first introduced in 2008, more than five million users have created accounts to
use Acrobat.com to create and share documents, communicate in real time, and
simplify working with others. In the fourth quarter of fiscal 2009, we enhanced
its capabilities with easier file sharing, improved remote access including
mobile device access, and the addition of new spreadsheet and presentation
authoring capabilities. We believe this compelling subscription-based service
will enhance the growth capabilities of the Acrobat family of products in the
coming years.
Knowledge
Worker Strategy
In fiscal
2010, 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 also intend to
increase our focus on marketing and licensing Acrobat in targeted vertical
markets such as education, financial services, telecommunications and
government, as well as expanding into emerging markets.
We also
plan to deliver a new version of the Acrobat family of products later in the
fiscal year. This new release will provide enhanced collaboration features as
well as add additional capabilities to transform how Acrobat users create and
deliver more dynamic experiences within PDF files. We believe this new version
will help to accelerate adoption of Acrobat in targeted markets when compared to
adoption and upgrade rates we experienced during fiscal 2009, which were
adversely affected by the macro-economic downturn. In addition, we intend to
update the capabilities of our hosted service, Acrobat.com, to increase the
value of the service to existing and new users. As the use of Acrobat.com grows,
we intend to target users of the free aspects of the service with paid-for
functionality that will enhance their use of the overall solution.
Knowledge
Worker Products
Adobe
Acrobat.com—provides centralized online file sharing and storage capabilities,
as well as simple PDF creation, an online word processor called Buzzword, an
online spreadsheet authoring tool called Tables, an online presentation creation
tool called Presentations, and personal Web conferencing services with Adobe
ConnectNow.
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.
Enterprise
Market 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 RIAs 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. We also believe forward-thinking enterprises are actively
investing in disruptive processes to engage more meaningfully with customers,
and the employees and partners who serve them. Enterprises want to
leverage these dynamic human interactions to create a more effective customer
interaction model which accelerates acquisition and retention.
To
address these opportunities, we offer a platform for enterprises and governments
to build Customer Interaction Solutions (“CIS”) utilizing our Adobe LiveCycle
Enterprise Suite (“ES”) solutions to securely extend the reach of information,
processes and services to engage with customers and constituents. Our CIS
solutions leverage our Adobe Reader and the 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.
Our Adobe
Flash Platform enables 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 CIS 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.
To
improve their collaboration and communication capabilities, we believe
enterprises will increasingly utilize real-time communication to improve how
they train, market, sell and support their products and solutions to their
customers. For this reason, we now include our Adobe Acrobat Connect
Pro product line as part of our CIS offerings. Connect Pro 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 also offering Web conferencing services as part of our
LiveCycle family of products, 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.
Although
our solutions address the needs of a diverse set of enterprise customers, we
focus primarily on two key vertical industries: financial services and
government. To a lesser extent, we also target vertical markets such as media
and entertainment, manufacturing, telecommunications and
healthcare. For all 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.
Enterprise
Business Summary
In fiscal
2009, revenue performance for our Enterprise products was better than Adobe’s
overall business. Despite the negative macro-economic backdrop, overall
LiveCycle revenue declined only slightly on a year-over-year basis. A
contributing factor to the year-over-year decline in our LiveCycle revenue was
our strategic decision to focus less on consulting services as a component of
overall LiveCycle revenue during the year. With increased consulting
support by systems integrators such as Cognizant, Deloitte and Tata Consulting,
we downsized our consulting organization and the revenue aspirations associated
with it as we entered fiscal 2009—and focused our revenue generation primarily
on the licensing of our LiveCycle solutions.
The
overall performance of our enterprise business benefitted from the release of
new versions of products during the year. In the fourth quarter of fiscal 2009,
we delivered Adobe LiveCycle Enterprise Suite 2 (“ES2”), which enables
businesses and governments to deliver personalized experiences to improve
employee productivity and the overall experience of their customers and
constituents.
LiveCycle
ES2 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. It provides
developers the ability to build applications that improve interactions with
customers and constituents across devices and channels. Delivering significant
productivity improvements to IT and line-of-business managers, LiveCycle ES2
also provides an RIA framework for building customizable RIA workspaces, mobile
and desktop access to critical applications, and deployment as hosted
services.
New
features and enhancements to LiveCycle ES2 include expanded client and Web
browser support. We believe the extended mobile and desktop access to LiveCycle
ES2 will help organizations save time and costs by providing seamless end-user
access to processes and services that help them complete their work faster. As
part of LiveCycle ES2, we offer new capabilities such as LiveCycle Workspace ES2
Mobile—which enables access to LiveCycle ES2 from smartphones including iPhone,
Blackberry and Windows mobile devices, thereby increasing user productivity by
allowing access to tasks when users are away from their desks. We also offer
LiveCycle Launchpad ES2, which is an Adobe AIR application that provides easy
access on the desktop to initiate LiveCycle ES services such as PDF
creation.
Additional
LiveCycle ES2 capabilities included expanded RIA data services. Through closer
integration with the Adobe Flash Platform, LiveCycle ES2 enables Adobe Flex and
LiveCycle developers to create user-centric applications that are unique to
particular business needs. The new LiveCycle Mosaic ES2 capability is an RIA
framework for rapidly assembling and engaging activity-centric enterprise
applications, and provides knowledge workers with real-time, contextual
information from multiple sources in a single, personalized view. Developers can
extend existing applications by exposing their business logic and user
interfaces into application tiles that can be assembled to create unified
views.
In
addition, we provide LiveCycle Collaboration Service, which is a new hosted
service that provides developers and enterprises with a scalable solution to
easily build real-time, multi-user collaboration into existing or new RIAs.
LiveCycle ES2 also provides the option to deploy LiveCycle capabilities in the
cloud, hosted in the Amazon Web Services cloud computing environment. We believe
these capabilities provide organizations with a faster deployment path and lower
total cost of ownership. It also allows developers to stage multiple
applications before going live in production.
To make
it easy for enterprise designers and developers to automate enterprise business
processes, we provide tight integration of Adobe tools and solutions such as
LiveCycle ES2 Solution Accelerators—which help organizations launch project
planning and prototyping, and decrease development time. New LiveCycle ES2
Solution Accelerators include human capital management, eSubmissions,
correspondence management, new account enrollment and services and benefits
delivery. We also provide LiveCycle Workbench ES2, which is an integrated
development environment (“IDE”) that allows developers, designers, and business
analysts to work together collaboratively.
These
LiveCycle ES2 capabilities build upon advancements we have made with LiveCycle
ES that provided common services software for functionality such as forms
automation, PDF document creation, document security and process
management.
In fiscal
2009, we also increased our 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. Revenue grew by more
than 20% in fiscal 2009 due to our increased focus on marketing and licensing
the product, as well as overall growth in the market opportunity.
Enterprise
Strategy
In fiscal
2010, 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 field organization, as
well as together 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 vertical markets such as financial
services and government. We intend to continue to build out our go-to-market
model to leverage sales and consulting delivery through systems integrator
partners. We will also work to enhance our solutions offerings through
investments in new SaaS, or on-demand, capabilities for our enterprise server
product family.
With our
Connect Pro product, we intend to increase awareness of our solution in markets
such as government and other regulated industries. We also intend to expand our
go-to-market opportunity by working with Conferencing Service Providers, and we
plan to deliver capabilities which allow developers to build
collaboration-enabled business processes utilizing Connect Pro functionality and
services.
Enterprise
Products
Collaboration
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.
Data
Capture
Adobe
LiveCycle Barcoded Forms ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 ES2—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 enable Adobe LiveCycle customers
to connect their LiveCycle applications with other industry-leading enterprise
content management 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 ES2—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.
Omniture
Segment
Omniture
Market Opportunity
Our
Omniture Business segment provides Web analytics and online business
optimization products and services, which we deliver through our Omniture line
of products and our Omniture Online Marketing Suite. Customers use our Omniture
products and services to manage and enhance online, offline and multi-channel
business initiatives.
Customers
who use our Omniture solutions include marketing professionals such as marketing
managers, online marketing managers, search engine marketers, media managers,
media buyers, marketing research analysts and the chief marketing officer.
Customers also include Web content editors, Web analysts and Web production
managers. These customers often are involved in workflows which utilize other
Adobe products, such as our creative professional tools and our Adobe Flash
Platform client technologies.
We
believe there are several key market trends creating opportunities for our
Omniture business:
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Broad
commercial utilization of the Internet — The Internet has fundamentally
altered the way businesses and consumers purchase and consumer goods and
services. It has also redefined many business processes and has created
opportunities for new online businesses, as well as for existing offline
businesses seeking to capitalize on online initiatives. Because of this,
businesses are investing in innovative online initiatives to increase
sales, improve customer service, enhance brand awareness, decrease
time-to-market for their offerings, reduce fulfillment costs and increase
operational efficiency. We expect that the scope and scale of
commercial Internet usage will continue to increase. The roll-out of
broadband networks and mobile networks, particularly in emerging
geographic markets, will contribute to the growth of Internet usage.
Internet commerce should also continue to grow. Proliferation of online
marketing and customer response channels—such as mobile, online video, and
social networks—will continue to generate interactions that need to be
measured and analyzed across
channels.
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Need
to measure and automate online business — In order to make informed
decisions about priorities and investments in online marketing and other
commercial initiatives, we believe businesses require timely and accurate
measurement of customer behavior. The proliferation of Internet usage and
the fact that nearly every user interaction on a Website (or other digital
medium such as mobile phone applications, set-top boxes, kiosks, point of
sale systems or any IP connected device) can be captured by the owner of
the Website, or other digital medium, have resulted in the creation of an
unprecedented amount of data about how a business’ customers interact and
transact business with it. Businesses are increasingly realizing the
benefit of using information gained from online and other digital customer
interactions to improve functional areas, such as sales, customer service,
product development, marketing, pricing, manufacturing and inventory
management. The interactive and measurable nature of Internet activity
also enables businesses to determine how customers arrived at their online
destinations, such as Web and mobile sites, and to what extent the costs
they incur to increase site traffic are generating
sales.
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Opportunity
to optimize online business — Measuring online behavior and automating the
capture and analysis of data are important for making informed business
decisions. Businesses also need to leverage data to optimize the results
of their online business activities. For example, businesses have
historically measured the success of their online marketing programs by
simple click-through rates or conversion rates, the latter being the
percentage of click-through users who make a purchase or otherwise engage
in the desired customer action during the online session. However, the
effectiveness of online marketing can be optimized by analyzing and acting
on deeper information, such as repeat visits, transactions generated,
registrations, traffic pathways (various paths of online visitor traffic
flow), time spent and quality of interaction (engagement), eventual
conversion (desired customer action taken in subsequent visits) or success
over time (lifetime value of customer) as well as comparing the relative
effectiveness of different marketing channels (attribution). Business
success metrics can also vary based on the industry or vertical market –
for example, media companies optimize subscriptions and online advertising
revenue, whereas retailers and ecommerce companies focus on registrations
and online purchases. Online businesses utilize a large and
growing number of complex and diverse communication channels to market to
customers, including display advertising, paid and natural search
advertising, e-mail, social media marketing, affiliate marketing, blogs,
podcasts, video, RIAs and comparison shopping engines, as well as
traditional offline initiatives. The emergence of multi-channel marketing
initiatives, which combine traditional offline marketing initiatives such
as television, print, magazine, newspapers, radio and catalog with online
marketing initiatives, makes the measurement and analysis of online
behavior more challenging, but presents additional opportunities to
optimize results. For example, businesses want to measure and understand
the impact of their advertising initiatives across all these channels, not
only to determine how much credit should be given to a particular channel
and to understand cross-promotional effectiveness, but more importantly to
optimize search spending, make adjustments in the way channels are
utilized and align the amount of resources that are allocated to each of
them.
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For many
years, Adobe has provided creative tools and ubiquitous clients via the Adobe
Flash Platform to help customers create and deliver engaging content and
experiences. Given the market trends described above, we believe the
combination of our tools and clients with Omniture’s capabilities will help
customers to more efficiently and effectively measure, analyze and
optimize those experiences—creating a complete feedback loop. With
this broad platform, we believe
there is
a unique opportunity for Adobe to deliver an end-to-end workflow that will allow
customers to create, deliver, monetize, and optimize the impact and business
results of their content and assets.
Omniture
Business Summary
We
acquired Omniture on October 23, 2009. As one of the largest businesses in
the SaaS industry, our Omniture business segment processed over one trillion
transactions during the period of Adobe’s fourth quarter in a hosted environment
for approximately 5,000 customers around the world.
Like the
rest of our business segments, Omniture revenue was adversely affected during
2009 and growth rates slowed compared to those achieved in 2008. However,
in a trend that began before our acquisition of Omniture in October 2009, the
Omniture business appeared to stabilize during the fourth quarter with the
improvement in the general economy, as indicated by an increase in the
transaction volume on our network. In addition, our customer retention
rates began stabilizing and we experienced an increase in sales of additional
subscription services into our existing customer base.
Omniture’s
flagship product, SiteCatalyst, anchors our analytics business, and represented
56% of the Omniture revenue reported in the fourth quarter of fiscal 2009. This
compares to revenue of 62% in the comparable year-ago period, and reflects
success against our effort to provide additional types of services beyond
analytics which integrate into our Online Marketing Suite. These additional
services represented 32% of Omniture’s revenue in the fourth quarter of fiscal
2009, and compares to 27% in the comparable year-ago period. Our Omniture
professional services, including training and consulting services, comprised the
remaining 12% of Omniture’s revenue in the fourth quarter of fiscal
2009.
Omniture
Strategy
In the
coming year, we hope to build upon the momentum Omniture achieved over the past
several years by enabling our customers to capture, store and analyze
information generated by their Websites and other sources and to gain critical
business insights into the performance and efficiency of marketing and sales
initiatives and other business processes. We intend to help our customers
utilize this information to automate the targeting and delivery of content and
marketing offers on a Website, as well as the broader Internet, and test site
design and navigational elements to optimize the user experience and revenue
opportunities for our customers. We also intend to enhance our services by
providing customers with real-time access to online business information, the
ability to integrate that information with a broad set of other data sources,
and generate flexible reports using real-time and historical data and the
ability to measure, automate and optimize critical online
processes.
With the
acquisition of Omniture in fiscal 2009, we believe we can help customers create
a complete feedback loop of creation, delivery, analysis, and optimization
around their creative and enterprise workflows. We expect to add capabilities to
many of our content creation and developer tools to enable improved trackability
of content in such workflows.
We also
believe we can accelerate the growth of our Omniture business by expanding the
Omniture go-to-market strategy to include new geographies and vertical markets
where Adobe has a strong presence.
Omniture
Products
We offer
the Omniture Online Marketing Suite, our suite of products and services used to
manage and enhance online, offline and multi-channel business initiatives, which
we host and deliver to our customers on-demand and also provide as an on-premise
solution for some products. Our Online Marketing Suite consists of an open
business analytics platform and an integrated set of optimization applications
for visitor acquisition, conversion, online analytics and multi-channel
analytics. These components and services are accessed primarily by a
Web browser, and are built on a scalable and flexible computing architecture. As
such, these components and services reduce the need for our customers to make
upfront investments in technology, implementation services or additional IT
personnel, thereby increasing customers’ flexibility in allocating their IT
capital investments.
The
components of our Online Marketing Suite, are described in more detail below and
are organized by four main components of our offering: Visitor Acquisition,
Conversion, Online Analytics and Multi-channel Analytics.
Omniture
Visitor Acquisition
Omniture
SearchCenter—hosted software which simplifies search marketing by providing a
common interface to manage search campaigns across multiple search engines,
integrate campaign metrics with web analytics, and optimize across marketing
programs; enables search marketing to occur in the context of a broader
marketing plan such that users such as online marketers can improve brand
engagement and online conversions.
Omniture
Conversion
Omniture
Test&Target—hosted software which provides users such as marketers the
capabilities to make their online content and offers more relevant to their
customers, yielding the potential for greater customer conversion; provides an
intuitive interface for rapidly designing and executing tests, creating audience
segments and targeting content.
Omniture
Survey—hosted software which helps organizations design, create and implement
online surveys to measure audience sentiment.
Omniture
SiteSearch—hosted software which gives users such as marketers the ability to
control and optimize the search results on their sites; enables control over the
search experience with presentation and navigation features designed to help
guide visitors to the most relevant information; integrated with Omniture
SiteCatalyst, SiteSearch dynamically promotes the most successful products,
services and content to the top of search results using analytics-derived
metrics such as revenue, conversion rates and page views.
Omniture
Recommendations—hosted software which enables businesses to promote products and
content online; utilizes flexible data and behavioral driven algorithms,
allowing customers to increase conversions on their Websites by ensuring
relevant choices are automatically presented to customers, either on Websites or
through email campaigns.
Omniture
Merchandising—hosted software which enables retailers to implement online
merchandising strategies that optimize marketing effectiveness through increased
conversions and average order value; helps retailers grow their online business
by improving shoppers’ ability to find and select products, as well as promoting
products based on business goals and metrics.
Omniture
Publish—an on-demand Web content management solution that enables business users
to easily create, manage and update Web content without the need of IT or Web
developers; enables content owners to easily publish and maintain content on
their Websites.
Omniture
Online Analytics
Omniture
SiteCatalyst—hosted software which provides customers and users such as
marketers the ability to capture, store and analyze information generated by
their Websites and other sources and to gain real-time business insights into
the performance and efficiency of marketing and sales initiatives and other
business processes; built on a scalable and flexible computing
architecture.
Omniture
Discover—hosted software which provides users such as Web analysts and online
marketers with real-time visitor information and insight; enables businesses to
understand a comprehensive, multi-dimensional view of their customers through
accurate and timely information such that they can make informed decisions to
improve the performance of their business.
Omniture
Multi-Channel Analytics
Omniture
Insight—on-premise software which enables organizations to quickly analyze large
volumes of rapidly evolving data in real-time; provides users with visualization
capabilities to assist them with making quick business decisions that can
improve overall business performance; accepts data from any source, including
data warehouses and business intelligence tools.
Omniture
Insight for Retail—on-premise software which provides organizations with rapid
customer insights using real-time analysis of large volumes of continuously
changing point-of-sale, kiosk and inventory data; helps users correlate data to
online interactions for a deeper understanding of customer responses across
multiple channels.
Omniture
Open Business Analytics Platform
Omniture
DataWarehouse—contains the information captured by Omniture SiteCatalyst, our
core Omniture product offering, and other Omniture applications.
Omniture
Genesis—contains application programming interfaces to integrate and augment
analytics data with relevant data from Internet and enterprise applications and
data from a growing number of online and offline channels to enable business
optimization.
Platform
Segment
Central
to our long-term strategy is our Adobe Flash Platform which enables the
development and delivery of applications, content and video which dramatically
improve how businesses engage with their customers and constituents. The Adobe
Flash Platform includes client technologies such as Adobe Flash Player, Adobe
Flash Lite and Adobe AIR. It also includes developer tools and
technologies such as Adobe Flash Professional, Adobe Flash Builder (formerly
Flex Builder), Adobe Flash Catalyst, Adobe Flash Platform Services and Adobe
Flex. In addition, server technologies such as Adobe FMS and Adobe
LiveCycle Data Services round out our Flash Platform offerings. Of
these products and services, Flash Professional, FMS and LiveCycle Data services
are managed and delivered in other Adobe business units, yet they remain core
components of our Flash Platform.
Platform
Market Opportunity, Business Summary and Strategy
Our
Platform Business Unit focuses on the development, marketing and licensing of
our Adobe Flash Platform technologies. We have achieved penetration
of Adobe Flash Player on more than 98% of Web-connected PCs – making it the most
widely distributed rich client software in the world. In addition, Adobe Flash
Lite, which is licensed by mobile handset and consumer electronic device
manufacturers, has been distributed on more than 1.2 billion devices as of the
Fall of 2009.
The broad
reach and rapid adoption of the newest versions of these Adobe Flash Platform
technologies allows us to rapidly innovate with our desktop and enterprise
server software which utilize these technologies – 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.
Our most
recent major release of Adobe Flash Player for personal computers, version 10,
was delivered in the fall of 2008. Within ten months of availability, more than
93% of Web-connected PCs in mature markets had this latest version installed,
the fastest adoption ever for a new version of our Flash
Player. Building upon the success of Flash Player 10, we released a
beta version of Flash Player 10.1 in November of 2009. In concert
with the availability of new versions of our Flash server products, the newest
Flash Player adds improved video capabilities such as HTTP streaming, content
protection, peer-to-peer support, and enhanced digital video recorder
capabilities such as pause, instant replay, and slow motion.
Due to
the success and frequent electronic downloads of client technologies such as
Flash Player, we generate 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 2009, this download revenue grew by more
than 40% when compared to fiscal 2008, and represented a significant part of the
overall revenue we reported in our Platform segment.
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. This trend equally applies to categories such
as Netbooks and Internet-connected televisions, and the explosion in adoption of
such devices is creating a challenge for content owners and application
developers to deliver consistent experiences across multiple devices, operating
systems, Web browsers and screen sizes.
To
address this opportunity, we participate in the Open Screen Project (“OSP”),
which enables designer and developers to seamlessly publish content and
applications across connected devices that utilize Adobe Flash and AIR as a
technology foundation. Initially started in May 2008 with approximately twenty
other participating companies, momentum for OSP grew significantly in fiscal
2009 as the number of member companies supporting OSP grew to approximately
fifty by October of 2009. Newest OSP members include Google, RIM and
Palm, who join many other hardware manufacturers, mobile and television
technology providers and media companies.
Essential
to the momentum of OSP was our decision to eliminate licensing fees with our
Flash client technology, as well as progress towards our goal of delivering the
full Flash Player that currently runs on PCs to the smartphone platform. The
removal of Flash licensing fees due to OSP resulted in an expected decline in
Flash Lite mobile client revenue, with revenue in fiscal 2009 decreasing by more
than fifty percent when compared to revenue achieved in fiscal
2008.
To
address the opportunity of explosive growth in smartphone adoption, we made
significant technological progress during the year with the conversion of Flash
Player to run on non-PC devices. New Flash Player improvements include improved
graphics acceleration, audio/video decoding, battery
optimization, improved rendering speed and reduced
memory
consumption. In
addition, new features include developer support for multi-touch and gesture
user interfaces, accelerometer support and screen orientation adjustments, and
mobile text input mechanisms. Based on this progress, in October of 2009 we
demonstrated initial versions of the new Flash Player running on smartphones
systems using operating systems such as Google Android and Windows
Mobile. We expect to deliver beta versions of this software to
handset manufacturers using these operating systems as well as Palm WebOS, Nokia
S60 and RIM. We further expect handset manufacturers using these
platforms to begin shipping phones with Flash Player 10.1 installed on them
starting in the first half of 2010.
With the
delivery of Flash Player 10.1 in fiscal 2010 to OSP members, we believe nineteen
of the top twenty handset manufacturers have now committed to utilizing Adobe
Flash technologies for Web browsing, application creation and the delivery of
rich, consistent Internet experiences on their devices. Over time, we expect
this broad community to adopt Flash Player 10.1, increasing the need for Adobe’s
designer and developer tools used to create content and applications, as well as
broadening our Omniture and LiveCycle opportunities as Web and IT developers
extend the reach of their solutions to include mobile handsets as enterprise
clients.
Another
major focus of our Platform business unit is to broaden the reach and
capabilities of the Adobe Flash Platform through the delivery of our newest
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 since first being made available in fiscal
2008. As of October 2009, there were more than 250 million AIR downloads, along
with more than one million downloads of the AIR 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.
As the
adoption of our Flash Platform grows, our Platform team also focuses on the
development and delivery of our developer solutions such as Flash Builder and
Flash Catalyst to leverage the latest innovations adopted by Flash Player users.
These solutions ensure reliable, secure and rich application experiences across
the broadest range of browsers, operating systems and devices. In fiscal 2010,
we expect to deliver new versions of Flash Builder and Flash Catalyst as
standalone products, as well as part of our Creative Suite family of products to
address the needs of designers and developers creating content and applications
for both PC and non-PC environments.
We also
anticipate that growth in sales of Internet-connected televisions from vendors
like Samsung and Vizio will continue to increase. Participation by these
partners and potentially others will extend our opportunity for Flash Player
distribution from mobile devices to Internet-connected consumer electronic
devices in the digital home. We expect this in turn will increase the need for
designer and developer solutions – ranging from our Creative Suite family of
products to previously mentioned developer tools and technologies which make up
the Adobe Flash Platform.
Our
ColdFusion product line also 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. Although our ColdFusion business was
affected by the economy in fiscal 2009, we continued to innovate and provide
ColdFusion developers with enhanced capabilities to support their evolving
needs.
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
ColdFusion Builder—new development tool for building ColdFusion applications;
provides a unified, customizable and extensible development environment to code
applications, manage servers and deploy projects.
Adobe
ColdFusion in the Cloud—new hosted service available in beta release; enables
developers to build ColdFusion applications through the Amazon Web Services
environment with access to the capabilities of ColdFusion as a hosted
service.
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 and interacting with content designed for
mobile handsets, televisions and other types of devices.
Adobe
Flash Builder—an Eclipse-based IDE for developing RIAs with the Adobe Flex
framework for either Adobe Flash Player or Adobe AIR; developers utilize Flash
Builder to quickly build and deploy applications that are expressive, intuitive
and rich in interactivity.
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
Flash Platform Services—new developer services that enable advertisers and
content publishers to promote, measure and monetize applications across social
networks, desktops and mobile devices.
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.
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
2009, we maintained our OEM PostScript revenue through continued innovation with
PostScript technologies. In 2010, we plan to continue to enhance
PostScript as well as utilize PDF enhancements to maintain these formats as
standards in 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 Market 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 released version 11.5 of our Adobe Director software targeted at game
developers, multimedia authors, and e-learning professionals. The updated
release includes new features for creating immersive gaming and multimedia
applications, support for a new audio engine, HD video and advanced 3-D
features.
In fiscal
2010, 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 Websites that conform to the structure, style, layout and site
standards setup by a Website administrator; streamlines the Web content
maintenance process and provides Website administrators with a set of simple
content management functionality to manage and administer Websites; 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 Websites, 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 20 of our Notes to Consolidated Financial Statements for further
information regarding our industry segments and geographic information. See risk
factor “We are subject to risks associated with global operations that may harm
our business” in Item 1A of this report for a discussion of risks related to our
foreign operations.
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
applications 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 customer
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 offering, as well as any
new competitive products coming from the open source movement.
Our other
digital imaging and video editing 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 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
Apple’s Aperture product and Microsoft’s Expression Design product, our Adobe
Photoshop and Adobe Photoshop Lightroom products face direct and indirect
competition from a number of companies including Corel. Our Adobe Photoshop
products compete favorably due to high customer 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.
Business
Productivity Solutions
With our
Adobe Acrobat business, we continue to face competition from Microsoft. Their
Windows 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. This PDF
feature in Office competes with Adobe Acrobat. 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.
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
certain versions of Microsoft Office 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 and Office which include a
document format called XPS which competes with Adobe PDF. Certain Windows
operating systems 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.
Omniture
In our
Omniture segment, we compete primarily with Web analytics and business
optimization vendors whose software is provided on demand to customers,
generally through a Web browser. We also compete to a limited extent with
vendors whose software is installed by customers directly on their servers. In
addition, we compete at times with our customers’ or potential customers’
internally developed applications.
Our
current principal competitors include companies such as Coremetrics, Google,
Microsoft, Nedstat, Yahoo! and WebTrends that offer on-demand
services. We also compete with software vendors, such as Infor (which
owns Epiphany), Nielsen/NetRatings, a part of the Nielsen Online Unit of the
Nielsen Company, Unica Corporation (which acquired Sane Solutions) and SAS
Institute. In addition, we also compete with online marketing service
providers, such as Microsoft Advertising (formerly aQuantive when acquired by
Microsoft), DoubleClick (owned by Google) and 24/7 Real Media (acquired by
WPP).
Our
Omniture Test&Target products also compete with multivariate testing
providers, such as Optimost (owned by Autonomy), Memetrics (acquired by
Accenture), Kefta (acquired by Acxiom Digital) and [x + 1]. Our
Omniture SiteSearch products compete with intra-site search vendors, such as
Autonomy, Endeca Technologies, FAST Search and Transfer ASA (acquired by
Microsoft) and Google. Our Omniture Merchandising product competes
with merchandising solutions providers such as Endeca (ThanxMedia), Celebros,
SLI Systems, Nextopia Software and Fredhopper. Our Omniture InSight
products compete with channel analytics providers, such as Truviso, Clickfox,
Qliktech and AsterData. Our Omniture Recommendations product competes
with product recommendations providers, such as Aggregate Knowledge, Baynote,
Certona, Rich Relevance and Amadesa. Finally, our Omniture Survey
product competes with survey providers such as OpinionLab, iPerceptions and
Foresee Results.
Many of
the companies that offer Web analytics software offer other products or services
and as a result could also bundle their products or services, which may result
in these companies effectively selling their products or services at or below
market prices.
In
addition, large software, Internet and database management companies may enter
the market or enhance their Web analytics capabilities, either by developing
competing services or by acquiring existing competitors or strategic partners of
ours, and compete against us effectively as a result of their significant
resources and preexisting relationships with our current and potential
customers. For example, Google offers a Web analytics service free of charge,
and acquired DoubleClick, one of our strategic partners, in 2008. Also,
Microsoft offers a Web analytics service free of charge, and offers Microsoft
Advertising, which is based on their 2007 acquisition of aQuantive. In addition,
Yahoo! also offers a Web analytics service based on its acquisition of
IndexTools.
We
believe competitive factors in our markets include the proven performance,
security, scalability, flexibility and reliability of services; the strategic
relationships and integration with third-party applications; the intuitiveness
and visual appeal of services’ user interfaces; the low total cost of ownership
and demonstrable cost-effective benefits to customers; the ability of services
to provide N-dimensional segmentation of
information; pricing; the flexibility and adaptability of
services
to match
changing business demands; enterprise-level customer service and training;
perceived market leadership; the usability of services, including services being
easy to learn and remember, efficient and visually compelling; the real-time
availability of data and reporting; independence from portals and search
engines; the ability to deploy the services globally and to provide
multi-currency, multi-language and multi-character support and to have a local
presence in international markets; and success in educating customers in how to
utilize services effectively.
We
believe that we compete favorably with our competitors on the basis of these
factors. However, if we are not able to compete successfully against our current
and future competitors, it will be difficult to acquire and retain customers,
and we may experience revenue declines, reduced operating margins, loss of
market share and diminished value in our services.
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 Flash 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 threats from Microsoft 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 FMS 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 others.
Version 5
of the Web markup language HTML (“HTML5”) is being developed by an industry
consortium that includes Adobe and leading browser manufacturers such as Apple,
Google and Microsoft. HTML5 will contain new features which will
compete with some of the features of Flash Player, such as the ability to play
video natively within the browser. We will work to implement support
for HTML5 in our Web authoring solutions. Yet, we believe the
competing interests of the browser developers, and the potential for
inconsistency in how each major browser implements HTML5 will create a
continuing demand for solutions such as Flash that provide a consistent
presentation capability that works across browsers, operating systems and
devices.
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 compete with our Adobe
Flash Platform clients and solutions 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. With respect to the Apple iPhone, although our desire
is to work closely with Apple to deliver Adobe Flash Platform technologies on
their device similar to our approach with other mobile vendors, we are
prohibited from making advancements towards this goal until we have Apple’s
cooperation to do so.
We
believe our Adobe Flash Platform 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, mobile phones and
consumer electronic devices. We also believe our robust programming
model and developer tools used to create video output for the Flash Player, the
large Flash developer community and ecosystem which utilize our tools, and the
growth of companies who have joined the OSP to utilize the Flash Platform as a
basis for rich content and application delivery 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 resulting 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 2009 to continue in 2010. We view
these ongoing developments from major mobile companies such as Google, Nokia,
Palm, Rim and others as 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 Zoran. In addition, Microsoft’s XPS
document format 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, 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 Website 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, Dubai,
Finland, France, Germany, India, Ireland, Italy, Japan, Korea, Mexico, Moldova,
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
2009, 2008 and 2007. As listed, our significant customers are distributors who
sell products across our various segments.
|
2009
|
2008
|
2007
|
||||||||||
|
Ingram
Micro
|
15 | % | 18 | % | 21 | % | ||||||
|
Tech
Data
|
8 | % | 9 | % | 10 | % | ||||||
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.
Receivables
from our significant distributors, as a percentage of gross trade receivables
for fiscal 2009 and 2008 were as follows:
|
2009
|
2008
|
|||||||
|
Ingram
Micro
|
16 | % | 18 | % | ||||
|
Tech
Data
|
6 | % | 8 | % | ||||
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 Supply Chain Operations organization.
We outsource our production, inventory and fulfillment activities to third
parties in the United States, Europe, Asia and Japan.
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 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. The
backlog of orders from customers, as of January 15, 2010 and January 16, 2009,
were approximately $5.4 million and $6.4 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 Website (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.
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.
During
fiscal years ended November 27, 2009, November 28, 2008 and November 30, 2007,
our research and development expenses were $565.1 million, $662.1 million and
$613.2 million, respectively.
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. We also offer many products under a SaaS or on-demand model,
where software is provided on demand to customers, generally through a Web
browser. The use of these products is generally governed by terms of
use associated with these products.
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
November 27, 2009, we employed 8,660 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 Website 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 Website is not
incorporated into this report.
EXECUTIVE
OFFICERS
Adobe’s
executive officers as of January 15, 2010 are as follows:
|
Name
|
Age
|
Positions
|
||
|
Shantanu
Narayen
|
46
|
President
and Chief Executive Officer
|
||
|
Mark
Garrett
|
52
|
Executive
Vice President, Chief Financial Officer
|
||
|
Karen O. Cottle
|
60
|
Senior
Vice President, General Counsel and Corporate Secretary
|
||
|
Joshua
G. James
|
36
|
Senior
Vice President, Omniture Business Unit
|
||
|
Johnny
Loiacono
|
48
|
Senior
Vice President, Creative Solutions Business Unit
|
||
|
Kevin
Lynch
|
43
|
Senior
Vice President, Chief Technology Officer
|
||
|
Rob
Tarkoff
|
41
|
Senior
Vice President, Business Productivity Business Unit
|
||
|
Matthew Thompson
|
51
|
Senior
Vice President, Worldwide Field Operations
|
||
|
Richard
T. Rowley
|
53
|
Vice
President, Principal Accounting
Officer
|
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.
before founding Pictra. Mr. Narayen is also a director of Dell Inc.
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.
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. James
joined Adobe upon the closing of the acquisition of Omniture in October 2009 as
Senior Vice President of the Omniture Business Unit. Prior to joining Adobe, Mr.
James was one of the founders of Omniture and served as a director
33
of
Omniture from 1998 to October 2009 and as its Chief Executive Officer or
President from 1996 to October 2009. From 1996 to 1998, Mr. James
co-founded and co-managed several entities that were Omniture predecessors.
Mr. James also served on the Brigham Young University eBusiness Advisory
Board and is a Platinum Founder of the BYU Center for Entrepreneurship. He has
lectured for numerous university classes and served on several other industry,
advisory and private company boards.
Mr.
Loiacono joined Adobe in April 2006 as Senior Vice President and General Manager
of the Creative Solutions Business Unit. Prior to joining Adobe, Mr.
Loiacono served as Executive Vice President of software at Sun Microsystems,
Inc., which he joined in 1987. During Mr. Loiacono's 19 year
tenure, he also served as General Manager of Sun Microsystems’s operating
platform group, as well as Chief Marketing Officer.
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.
Tarkoff currently serves as Adobe’s Senior Vice President of the Business
Productivity Business Unit. 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 electronic 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.
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.
The
ongoing economic downturn and continued uncertainty in the financial markets and
other 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 continues to be uncertain due to softness in the real estate and
mortgage markets, volatility in
34
fuel and
other energy costs, difficulties in the financial services sector and credit
markets, continuing geopolitical uncertainties, increasing unemployment and
other macro-economic factors affecting spending behavior. If economic growth in
the U.S. and other countries continues to be slow and does not improve, many
customers may delay or reduce technology purchases, advertising spending or
marketing spending. This could result in continued reductions in sales of our
products and services, longer sales cycles, slower adoption of new technologies
and increased price competition.
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 increased 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
services, and failure of derivative counterparties and other financial
institutions, which could negatively impact our treasury operations. Other
income and expense could also vary from expectations depending on gains or
losses realized on the sale or exchange of financial instruments,
impairment charges related to investment securities as well as equity and other
investments, interest rates, cash balances, and changes in fair value of
derivative instruments. Any of these events would likely harm our business,
results of operations and financial condition.
Political
instability in any of the major countries we do business in would also likely
harm our business, results of operations and financial condition.
If
we cannot continue to develop, market and distribute new products and services
or upgrades or enhancements to existing products and services that meet customer
requirements, our operating results could suffer.
The
process of developing new high technology products and services and enhancing
existing products and services is complex, costly and uncertain, and any failure
by us to anticipate customers’ changing needs and emerging technological trends
accurately could significantly harm our market share and results of operations.
We must make long-term investments, develop or obtain appropriate intellectual
property and commit significant resources before knowing whether our predictions
will accurately reflect customer demand for our products and services. Our
inability to extend our core technologies into new applications and new
platforms, including the mobile and embedded devices market, and to anticipate
or respond to technological changes could affect continued market acceptance of
our products and services and our ability to develop new products and services.
Additionally, any delay in the development, production, marketing or
distribution of a new product or service or upgrade or enhancement to an
existing product or service could cause a decline in our revenue, earnings or
stock price and could harm our competitive position. We maintain
strategic relationships with third parties with respect to the distribution of
certain of our technologies. If we are unsuccessful in establishing
or maintaining our strategic relationships with these third parties, our ability
to compete in the marketplace or to grow our revenues would be impaired and our
operating results would suffer.
We offer
our desktop application-based products primarily on Windows and Macintosh
platforms. We generally offer our server-based products on the Linux platform as
well as the Windows and UNIX platforms. To the extent that there is a slowdown
of customer purchases of personal computers on either the Windows or Macintosh
platform or in general, or to the extent that significant demand arises for our
products or competitive products on other platforms before we choose and are
able to offer our products on these platforms our business could be harmed.
Additionally, to the extent that we have difficulty transitioning product or
version releases to new Windows and Macintosh operating systems, or to the
extent new releases of operating systems or other third-party products make it
more difficult for our products to perform, our business could be
harmed.
Introduction
of new products, services and business models by existing and new competitors
could harm our competitive position and results of operations.
The
markets for our products and services are characterized by intense competition,
evolving industry standards and business models, disruptive software and
hardware technology developments, frequent new product and service
introductions, short product and service life cycles, price cutting, with
resulting downward pressure on gross margins, and price sensitivity on the part
of consumers. Our future success will depend on our ability to enhance our
existing products and services, introduce new products and services on a timely
and cost-effective basis, meet changing customer needs, extend our core
technology into new applications, and anticipate and respond to emerging
standards, business models, software delivery
35
methods
and other technological changes. For example, certain versions of
Microsoft Windows operating systems contain a fixed
document format, XPS, which competes with Adobe PDF. Additionally, certain
versions of Microsoft Office offer a feature to save Microsoft Office documents
as PDF files, which competes with Adobe PDF creation. Microsoft Expression
Studio competes with our Adobe Creative Suite family of products and Microsoft
Silverlight and Visual Studio, Web development tools for RIAs, compete with
Adobe Flash, Adobe Flex and Adobe AIR. Google Gears and Sun’s JavaFX,
alternative approaches to deploying RIAs, compete with Adobe Flash and Adobe
AIR. Additionally, HTML5 specifies scripting application programming interfaces
which if broadly implemented in browsers could compete with Adobe Flash.
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 SaaS, or on-demand, 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 developing and deploying our own SaaS strategies through various
business units, including our Omniture business unit, but there are significant
competitors in this area as well. For instance, our Omniture Online
Marketing Suite competes with Google Analytics, which Google offers free of
charge, and other competitive SaaS offerings from companies such as Coremetrics,
Yahoo! and WebTrends. If any competing products or services in these
areas 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 and service 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. Some of these new product and service
offerings could subject us to increased risk of legal liability related to the
provision of services as well as cause us to incur significant technical, legal
or other costs. For example, with our introduction of on-demand services, we are
entering a market that is at an early stage of development. Market acceptance of
such services is affected by a variety of factors, including security
reliability of on-demand services, customers concerns with entrusting a third
party to store and manage their data, public concerns regarding privacy and the
enactment of laws or regulations that restrict our ability to provide such
services to customers in the U.S. or internationally. As our business continues
to transition to new business models that may be more highly regulated for
privacy and data security, and to countries outside the U.S. that have more
strict data protection laws, our liability exposure, compliance requirements and
costs may increase. In addition, laws in the areas of privacy and behavioral
tracking and advertising are likely to be passed in the future, which could
result in significant limitations on or changes to the ways in which we can
collect, use, store or transmit the personal information of our customers or
employees, communicate with our customers, and deliver products and
services. Further, any perception of our practices as an invasion of
privacy, whether or not illegal, may subject us to public
criticism. Existing and potential future privacy laws, increased
risks related to unauthorized data disclosures and increasing sensitivity of
consumers to use of personal information may create negative public relations
related to our business practices.
Additionally,
customer requirements for open standards or open source products could impact
adoption or use with respect to some of our products or services. To the extent
we incorrectly estimate customer requirements for such products or services or
if there is a delay in market acceptance of such products or services, our
business could be harmed.
From time
to time we open source certain of our technology initiatives, provide broader
open access to certain of our technology, such as our OSP, and release selected
technology for industry standardization. These changes may have negative revenue
implications and make it easier for our competitors to produce products or
services similar to ours. If we are unable to respond to these competitive
threats, our business could be harmed.
We are
also devoting significant resources to the development of technologies and
service offerings in markets where we have a limited operating history,
including the enterprise, government and mobile and 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 and
offering services in certain markets such as the government and enterprise
market and may experience a number of factors that will make our revenue less
predictable, including longer than expected sales and implementation cycles,
decision 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.
For
instance, the SaaS business model we utilize in our Omniture business unit
typically involves selling services on a subscription basis pursuant to service
agreements that are generally one to three years in length. Although many of our
service agreements contain automatic renewal terms, our customers have no
obligation to renew their subscriptions for our services after the expiration of
their initial subscription period upon providing timely notice of non-renewal
and we cannot provide assurance that these subscriptions will be renewed at the
same or higher level of service, if at all. Moreover, under some circumstances,
some of our customers have the right to cancel their service agreements prior to
the expiration of the terms of their agreements. We cannot be assured that we
will be able to accurately predict future customer renewal rates. Our customers’
renewal rates may decline or fluctuate as a result of a number of factors,
including their satisfaction or dissatisfaction with our services, the prices of
our services, the prices of services offered by our competitors, mergers and
acquisitions affecting our customer base, reductions in our customers’ spending
levels, or declines in consumer Internet activity as a result of economic
downturns or uncertainty in financial markets. If our customers do not renew
their subscriptions for our services or if they renew on less favorable terms to
us, our revenues may decline.
We
may not realize the anticipated benefits of past or future acquisitions, and
integration of these acquisitions may disrupt our business and
management.
We have
in the past and may in the future acquire additional companies, products or
technologies. Most recently, we completed the acquisition of Omniture in October
2009. 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, products or services
with our current technologies, products or
services;
|
|
|
·
|
difficulty
in maintaining controls, procedures and policies during the transition and
integration;
|
|
·
|
entry
into markets in which we have no or limited direct prior experience and
where competitors in such markets have stronger market
positions;
|
|
|
·
|
disruption
of our ongoing business and distraction of our management and employees
from other opportunities and
challenges;
|
|
|
·
|
difficulty
integrating the acquired company’s accounting, management information,
human resources and other administrative
systems;
|
|
|
·
|
inability
to retain key technical and managerial personnel of the acquired
business;
|
|
|
·
|
inability
to retain key customers, distributors, vendors and other business partners
of the acquired business;
|
|
|
·
|
inability
to achieve the financial and strategic goals for the acquired and combined
businesses;
|
|
|
·
|
inability
to take advantage of anticipated tax benefits as a result of unforeseen
difficulties in our integration
activities;
|
|
|
·
|
incurring
acquisition-related costs or amortization costs for acquired intangible
assets that could impact our operating
results;
|
|
|
·
|
potential
additional exposure to fluctuations in currency exchange
rates;
|
|
|
·
|
potential
impairment of our relationships with employees, customers, partners,
distributors or third-party providers of our technologies, products or
services;
|
|
|
·
|
potential
failure of the due diligence processes to identify significant problems,
liabilities or other shortcomings or challenges of an acquired company or
technology, including but not limited to, issues with the acquired
company’s intellectual property, product quality or product architecture,
data back-up and security, revenue recognition or other accounting
practices, employee, customer or partner issues or legal and financial
contingencies;
|
|
|
·
|
exposure
to litigation or other claims in connection with, or inheritance of claims
or litigation risk as a result of, an acquisition, including but not
limited to, claims from terminated employees, customers, former
stockholders or other
third-parties;
|
|
|
·
|
incurring
significant exit charges if products or services acquired in business
combinations are unsuccessful;
|
|
|
·
|
potential
inability to assert that internal controls over financial reporting are
effective;
|
|
|
·
|
potential
inability to obtain, or obtain in a timely manner, approvals from
governmental authorities, which could delay or prevent such
acquisitions;
|
|
|
·
|
potential
delay in customer and distributor purchasing decisions due to uncertainty
about the direction of our product and service offerings;
and
|
|
|
·
|
potential
incompatibility of business
cultures.
|
Mergers
and acquisitions of high technology companies are inherently risky, and
ultimately, if we do not complete an announced acquisition transaction or
integrate an acquired business successfully and in a timely manner, we may not
realize the benefits of the acquisition to the extent anticipated.
We
may incur substantial costs enforcing or acquiring intellectual property rights
and defending against third-party claims as a result of litigation or other
proceedings.
In
connection with the enforcement of our own intellectual property rights, the
acquisition of third-party intellectual property rights, or disputes relating to
the validity or alleged infringement of third-party intellectual property
rights, including patent rights, we have been, are currently and may in the
future be subject to claims, negotiations or complex, protracted litigation.
Intellectual property disputes and litigation are typically very costly and can
be disruptive to our business operations by diverting the attention and energies
of management and key technical personnel. Although we have successfully
defended or resolved past litigation and disputes, we may not prevail in any
ongoing or future litigation and disputes. Third-party intellectual property
disputes could subject us to significant liabilities, require us to enter into
royalty and licensing arrangements on unfavorable terms, prevent us from
licensing certain of our products or offering certain of our services, subject
us to injunctions restricting our sale of products or services, cause severe
disruptions to our operations or the markets in which we compete, or require us
to satisfy indemnification commitments with our customers including contractual
38
provisions
under various license arrangements and service agreements. In addition, we may
incur significant costs in acquiring the necessary third-party intellectual
property rights for use in our products. Any of these could seriously harm our
business.
We
may not be able to protect our intellectual property rights, including our
source code, from third-party infringers, or unauthorized copying, use or
disclosure.
Although
we defend our intellectual property rights and combat unlicensed copying and use
of software and intellectual property rights through a variety of techniques,
preventing unauthorized use or infringement of our rights is inherently
difficult. We actively pursue software pirates 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.
Security vulnerabilities in our
products and systems could lead to reduced revenues or to liability
claims.
Maintaining
the security of computers and computer networks is a critical issue for us and
our customers. Hackers develop and deploy viruses, worms, and other malicious
software programs that attack our products and systems. Although this is an
industry-wide problem that affects computers and products across all platforms,
it affects our products in particular because hackers tend to focus their
efforts on the most popular operating systems and programs and we expect them to
continue to do so. Critical vulnerabilities have been identified in certain of
our products. These vulnerabilities could cause the application to crash and
could potentially allow an attacker to take control of the affected
system.
We devote
significant resources to address security vulnerabilities through engineering
more secure products, enhancing security and reliability features in our
products and systems, code hardening, deploying security updates to address
security vulnerabilities and improving our incident response time. The cost of
these steps could reduce our operating margins. Despite these efforts, actual or
perceived security vulnerabilities in our products and systems may lead to
claims against us and harm our reputation, and could lead some customers to seek
to return products, to stop using certain services, to reduce or delay future
purchases of products or services, or to use competing products or services.
Customers may also increase their expenditures on protecting their existing
computer systems from attack, which could delay adoption of new technologies.
Any of these actions by customers could adversely affect our
revenue.
Some
of our businesses rely on us or third-party service providers to host and
deliver services, and any interruptions or delays in our service or service from
these third parties, security or privacy breaches, or failures in data
collection could expose us to liability and harm our business and
reputation.
Some of
our businesses, including our Omniture business unit, rely on hosted services
from us or third parties. Because we hold large amounts of customer data and
host certain of such data in third-party facilities, a security
incident may compromise the integrity or availability of customer data, or
customer data may be exposed to unauthorized access. Unauthorized access to
customer data may be obtained through break-ins, breach of our secure network by
an unauthorized party, employee theft or misuse, or other misconduct. It is also
possible that unauthorized access to customer data may be obtained through
inadequate use of security controls by customers. While strong password
controls, IP restriction and account controls are provided and supported, their
use is controlled by the customer. For example, this could allow accounts to be
created with weak passwords, which could result in allowing an attacker to gain
access to customer data. Additionally, failure by customers to remove accounts
of their own employees, or granting of accounts by the customer in an
uncontrolled manner, may allow for access by former or unauthorized customer
employees. If there were ever an inadvertent disclosure of personally
identifiable information, or if a third party were to gain unauthorized access
to the personally identifiable information we possess, our operations could be
disrupted, our reputation could be harmed and we could be subject to
claims
39
or other
liabilities. In addition, such perceived or actual unauthorized disclosure of
the information we collect or breach of our security could result in the loss of
customers and harm our business.
Because
of the large amount of data that we collect and manage on behalf of our
customers, it is possible that hardware failures or errors in our systems could
result in data loss or corruption or cause the information that we collect to be
incomplete or contain inaccuracies that our customers regard as significant.
Furthermore, our ability to collect and report data may be delayed or
interrupted by a number of factors, including access to the Internet, the
failure of our network or software systems, security breaches or significant
variability in visitor traffic on customer Websites. In addition, computer
viruses may harm our systems causing us to lose data, and the transmission of
computer viruses could expose us to litigation. We may also find, on occasion,
that we cannot deliver data and reports to our customers in near real time
because of a number of factors, including significant spikes in consumer
activity on their Websites or failures of our network or software. We may be
liable to our customers for damages they may incur resulting from these events,
such as loss of business, loss of future revenues, breach of contract or for the
loss of goodwill to their business. In addition to potential liability, if we
supply inaccurate information or experience interruptions in our ability to
capture, store and supply information in near real time or at all, our
reputation could be harmed and we could lose customers.
On behalf
of certain of our customers using our services, including those using services
offered by our Omniture business unit, we collect and use information derived
from the activities of Website visitors, which may include anonymous and/or
personal information. This enables us to provide such customers with reports on
aggregated anonymous or personal information from and about the visitors to
their Websites in the manner specifically directed by such customers. Federal,
state and foreign government bodies and agencies have adopted or are considering
adopting laws regarding the collection, use and disclosure of this information.
Therefore, our compliance with privacy laws and regulations and our reputation
among the public body of Website visitors depend on such customers’ adherence to
privacy laws and regulations and their use of our services in ways consistent
with such visitors’ expectations. We also rely on representations made to
us by customers that their own use of our services and the information we
provide to them via our services do not violate any applicable privacy laws,
rules and regulations or their own privacy policies. We ask customers to
represent to us that they provide their Website visitors the opportunity to
“opt-out” of the information collection associated with our services, as
applicable. We do not formally audit such customers to confirm compliance with
these representations. If these representations are false or if such customers
do not otherwise comply with applicable privacy laws, we could face potentially
adverse publicity and possible legal or other regulatory action.
Failure
to manage our sales and distribution channels and third-party customer service
and technical support providers effectively could result in a loss of revenue
and harm to our business.
A
significant amount of our revenue for application products is from two
distributors, Ingram Micro, Inc. and Tech Data Corporation, which represented
15% and 8% of our net revenue for fiscal 2009, 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 2009, 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.
Successfully
managing our indirect channel efforts to reach various potential customer
segments for our products and services is a complex process. Our distributors
are independent businesses that we do not control. Notwithstanding the
independence of our channel partners, we face potential legal risk from the
activities of these third parties including, but not limited to, export control
violations, corruption and anti-competitive behavior. Although we have
undertaken efforts to reduce these third-party risks, they remain present. We
cannot be certain that our distribution channel will continue to market or sell
our products effectively. If we are not successful, we may lose sales
opportunities, customers and revenues.
Our
distributors also sell our competitors’ products, and if they favor our
competitors’ products for any reason, they may fail to market our products as
effectively or to devote resources necessary to provide effective sales, which
would cause our results to suffer. We also distribute some products through our
OEM channel, and if our OEMs decide not to bundle our applications on their
devices, our results could suffer.
In
addition, the financial health of our distributors and our continuing
relationships with them are important to our success. Some of these distributors
may be unable to withstand adverse changes in current economic conditions, which
could result in insolvency of certain of our distributors and/or the inability
of our distributors to obtain credit to finance purchases of our products.
In addition, weakness in the end-user market could further negatively affect the
cash flow of our distributors who could, in turn, delay paying their obligations
to us, which would increase our credit risk exposure. Our business could be
harmed if the financial condition of some of these distributors substantially
weakens and we were unable to timely secure replacement
distributors.
We also
sell certain of our products and services through our direct sales force. Risks
associated with this sales channel include a longer sales cycle associated with
direct sales efforts, difficulty in hiring, retaining and motivating our direct
sales force, and substantial amounts of training for sales representatives,
including regular updates to cover new and upgraded products and services.
Moreover, our recent hires and sales personnel added through our recent business
acquisitions may not become as productive as we would like, as in most cases it
takes a significant period of time before they achieve full productivity. Our
business could be seriously harmed if these expansion efforts do not generate a
corresponding significant increase in revenues and we are unable to achieve the
efficiencies we anticipate.
We also
provide products and services, directly and indirectly, to a variety of
governmental entities, both domestically and internationally. The licensing and
sale of products and services to governmental entities may require
adherence to complex specific procurement regulations and other
requirements. While we believe we have adequate controls in this
area, failure to effectively manage this complexity and satisfy these
requirements could result in the potential assessment of penalties and fines,
harm to our reputation and lost sales opportunities to such governmental
entities.
We
outsource a substantial portion of our customer service and technical support
activities to third-party service providers. We rely heavily on these
third-party customer service and technical support representatives working on
our behalf and we expect to continue to rely heavily on third parties in the
future. This strategy provides us with lower operating costs and greater
flexibility, but also presents risks to our business, including the
possibilities that we may not be able to impact the quality of support that we
provide as directly as we would be able to do in our own company-run call
centers, and that our customers may react negatively to providing information
to, and receiving support from, third-party organizations, especially if based
overseas. If we encounter problems with our third-party customer service and
technical support providers, our reputation may be harmed and our revenue may be
adversely affected.
Catastrophic
events may disrupt our business.
We are a
highly automated business and rely on our network infrastructure and enterprise
applications, internal technology systems and our Website for our development,
marketing, operational, support, hosted services and sales activities. In
addition, some of our businesses rely on third-party hosted services and we do
not control the operation of third-party data center facilities serving our
customers from around the world, which increases our vulnerability. A
disruption, infiltration or failure of these systems or third party hosted
services in the event of a major earthquake, fire, power loss,
telecommunications failure, cyber attack, war, terrorist attack, or other
catastrophic event could cause system interruptions, reputational harm, loss of
intellectual property, delays in our product development, lengthy interruptions
in our services, breaches of data security and loss of critical data and could
prevent us from fulfilling our customers’ orders. Our corporate headquarters, a
significant portion of our research and development activities, certain of our
data centers, and certain other critical business operations are located in 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, product enhancements or service introductions by us or our
competitors, seasonal variations
in the
demand for our products and services and the implementation cycles for our new
customers, the loss of a large customer or our inability to increase sales to
existing customers and attract new customers, quarterly variations in our or our
competitors’ results of operations, developments in our industry; unusual events
such as significant acquisitions, divestitures and litigation, general
socio-economic, regulatory, political or market conditions and other factors,
including factors unrelated to our operating performance.
We
are subject to risks associated with global operations which may harm our
business.
We are a
global business that generates over 50% of our total revenue from sales to
customers outside of the Americas. This subjects us to a number of risks,
including:
|
|
·
|
foreign
currency fluctuations;
|
|
|
·
|
changes
in government preferences for software
procurement;
|
|
|
·
|
international
economic, political and labor
conditions;
|
|
|
·
|
tax
laws (including U.S. taxes on foreign
subsidiaries);
|
|
|
·
|
increased
financial accounting and reporting burdens and
complexities;
|
|
|
·
|
unexpected
changes in, or impositions of, legislative or regulatory
requirements;
|
|
|
·
|
failure
of laws to protect our intellectual property rights
adequately;
|
|
|
·
|
inadequate
local infrastructure and difficulties in managing and staffing
international operations;
|
|
|
·
|
delays
resulting from difficulty in obtaining export licenses for certain
technology, tariffs, quotas and other trade barriers and
restrictions;
|
|
|
·
|
transportation
delays;
|
|
|
·
|
operating
in locations with a higher incidence of corruption and fraudulent business
practices; and
|
|
|
·
|
other
factors beyond our control, including terrorism, war, natural disasters
and diseases.
|
If sales
to any of our customers outside of the Americas are delayed or cancelled because
of any of the above factors, our revenue may be negatively
impacted.
In
addition, approximately 42% of our employees are located outside the U.S. This
means we have exposure to changes in foreign laws governing our relationships
with our employees, including wage and hour laws and regulations, fair labor
standards, unemployment tax rates, workers’ compensation rates, citizenship
requirements and payroll and other taxes, which likely would have a direct
impact on our operating costs. We also intend to continue expansion of our
international operations and international sales and marketing activities.
Expansion in international markets has required, and will continue to require,
significant management attention and resources. We may be unable to scale our
infrastructure effectively, or as quickly as our competitors, in these markets
and our revenues may not increase to offset these expected increases in costs
and operating expenses, which would cause our results to suffer.
Moreover,
as a global company, we are subject to varied and complex laws, regulations and
customs domestically and internationally. These laws and regulations relate to a
number of aspects of our business, including trade protection, import and export
control, data and transaction processing security, records management, gift
policies, employment and labor relations laws, securities regulations and other
regulatory requirements affecting trade and investment. The
application of these laws and regulations to our business is often unclear and
may at times conflict. Compliance with these laws and regulations may involve
significant costs or require changes in our business practices that result in
reduced revenue and profitability. Non-compliance could also result in fines,
damages, criminal sanctions against us, our officers, or our
employees, prohibitions on the conduct of our business, and damage to
our reputation. We incur additional legal compliance
costs
associated with our global operations and could become subject to legal
penalties in foreign countries if we do not comply with local laws and
regulations, which may be substantially different from those in the U.S. In many
foreign countries, particularly in those with developing economies, it is common
to engage in business practices that are prohibited by U.S. regulations
applicable to us such as the Foreign Corrupt Practices Act. Although we
implement policies and procedures designed to ensure compliance with these laws,
there can be no assurance that all of our employees, contractors and agents, as
well as those companies to which we outsource certain of our business
operations, including those based in or from countries where practices which
violate such U.S. laws may be customary, will not take actions in violation of
our internal policies. Any such violation, even if prohibited by our internal
policies, could have an adverse effect on our business.
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
and subscription revenue
recognition;
|
|
|
·
|
accounting
for stock-based compensation;
|
|
|
·
|
accounting
for income taxes; and
|
|
|
·
|
accounting
for business combinations and related
goodwill.
|
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued revised
standards for business combinations, which changes the accounting for business
combinations including timing of the measurement of acquirer shares issued in
consideration for a business combination, the timing of recognition and amount
of contingent consideration, the accounting for pre-acquisition gain and loss
contingencies, the recognition of capitalized in-process research and
development, the accounting for acquisition related restructuring liabilities,
the treatment of acquisition related transaction costs and the recognition of
changes in the acquirer’s income tax valuation allowance. The revised standards
for business combinations is effective for financial statements issued for
fiscal years beginning after December 15, 2008. The revised standards for
business combinations are effective for us beginning the first quarter of fiscal
2010. We currently believe that the adoption of the revised standards for
business combinations will result in the recognition of certain types of
expenses in our results of operations that we currently capitalize pursuant to
existing accounting standards.
If
our goodwill or amortizable intangible assets become impaired we may be required
to record a significant charge to earnings.
Under
GAAP, we review our goodwill and amortizable intangible assets for impairment
when events or changes in circumstances indicate the carrying value may not be
recoverable. Goodwill is required to be tested for impairment at least annually.
Factors that may be considered a change in circumstances indicating that the
carrying value of our goodwill or amortizable intangible assets may not be
recoverable include a decline in stock price and market capitalization, future
cash flows, and slower growth rates in our industry. We may be required to
record a significant charge to earnings in our financial statements during the
period in which any impairment of our goodwill or amortizable intangible assets
is determined, resulting in an impact on our results of operations. For example,
our Mobile and Device Solutions business, which is reported
as part
of our Platform segment in fiscal 2009, is in an emerging market with high
growth potential. In May 2008, we announced the OSP. As part of the project, we
will be removing the license fees on the next major releases of Adobe Flash
Player and Adobe AIR for devices. Revenue from this segment has begun to
decrease. Although we would expect this decrease to be offset in time by an
increased demand for tooling products, server technologies, hosted services and
applications, if future revenue or revenue forecasts for our Platform segment do
not meet our expectations, we may be required to record a charge to earnings
reflecting an impairment of recorded goodwill or intangible assets.
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 of our fiscal 2005, 2006 and 2007 tax returns. These
examinations are expected to focus on our intercompany transfer pricing
practices as well as other matters. We regularly assess the likelihood of
outcomes resulting from these examinations to determine the adequacy of our
provision for income taxes and have reserved for potential adjustments that may
result from the current examination. We believe such estimates to be reasonable;
however, there can be no assurance that the final determination of any of these
examinations will not have an adverse effect on our operating results and
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. 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.
Effective succession planning is also a key factor for our long-term success.
Our failure to enable the effective transfer of knowledge and facilitate smooth
transitions with regards to our key employees could adversely affect our
long-term strategic planning and execution.
We
believe that a critical contributor to our success to date has been our
corporate culture, which we believe fosters innovation and teamwork. As we grow,
including from the integration of employees and businesses acquired in
connection with our previous or future acquisitions, we may find it difficult to
maintain important aspects of our corporate culture which could negatively
affect our ability to retain and recruit personnel and otherwise adversely
affect our future success.
Our
investment portfolio may become impaired by deterioration of the capital
markets.
Our cash
equivalent and short-term investment portfolio as of November 27, 2009 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 may pose risks arising from recent market liquidity and
credit concerns. As of November 27, 2009, 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 seven 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.
None.
The
following table sets forth the location, approximate square footage and use of
each of the principal properties used by Adobe during fiscal 2009. 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 on Townsend and
Waltham 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 $84.8 million and is subject to
annual adjustments as well as changes in interest rates.
|
Location
|
Approximate
Square
Footage
|
Use
|
|||||||
|
North
America:
|
|||||||||
|
345
Park Avenue
San
Jose, CA 95110, USA
|
378,000
|
Research,
product development, sales and marketing, and
administration
|
|||||||
|
321
Park Avenue
San
Jose, CA 95110, USA
|
321,000
|
Research,
product development, sales and marketing
|
|||||||
|
151
Almaden Boulevard
San
Jose, CA 95110, USA
|
267,000
|
Product
development, sales and administration
|
|||||||
|
601
and 625 Townsend Street
San
Francisco, CA 94103, USA
|
272,000
|
*
|
Research,
product development, sales, marketing and
administration
|
||||||
|
801
N. 34th
Street-Waterfront
Seattle,
WA 98103, USA
|
182,000
|
Product
development, sales, technical support and
administration
|
|||||||
|
550
East Timpanagos Circle
Orem,
UT 84097, USA
|
135,000
|
Research,
product development, sales, marketing and
administration
|
|||||||
|
10182
Telesis Court
San
Diego, CA 92121, USA
|
61,000
|
**
|
Product
development, sales and marketing
|
||||||
|
21
Hickory Drive
Waltham,
MA 02451, USA
|
108,000
|
Research,
product development, sales and marketing
|
|||||||
|
1-3
Riverside Center
275
Grove Street
Newton,
MA 02466, USA
|
63,000
|
***
|
Research,
product development, sales and marketing
|
||||||
|
250
Brannan Street
San
Francisco, CA 94107, USA
|
35,000
|
Product
development, sales and marketing
|
|||||||
|
13450
Sunrise Valley Drive
Herndon,
VA 20171,USA
|
29,000
|
Product
development, sales and marketing
|
|||||||
|
343
Preston Street
Ottawa,
Ontario K1S 5N4, Canada
|
122,000
|
Research,
product development, sales, marketing and
administration
|
|||||||
|
India:
|
|||||||||
|
Adobe
Towers, 1-1A, Sector 25A
Noida,
U.P.
|
191,000
|
Product
development
|
|||||||
|
Adobe
Towers, Plot #6, Sector
127
Expressway, Noida, U.P.
|
65,000
|
Product
development
|
|||||||
|
Salapuria
Infinity, 3rd Floor
#5,
Bannerghatta Road
Bangalore
|
94,000
|
Research
and product development
|
|||||||
|
Location
|
Approximate
Square
Footage
|
Use
|
|
Japan:
|
|||||||||
|
Gate
City Ohsaki East Tower
1-11-2
Osaki, Shinagawa-ku
Tokyo
|
56,000
|
Product
development, sales and marketing
|
|||||||
|
China:
|
|||||||||
|
Block
A, SP Tower, 21st & 22nd Floor
Block
D, SP Tower, 10th Floor
Tsinghua
Science Park, Yard 1
Zhongguancun
Donglu, Haidian District
Beijing
|
77,000
|
Research
and product development
|
|||||||
|
Germany:
|
|||||||||
|
Grosse
Elbstrasse 27
Hamburg
22767
|
36,000
|
Research
and product development
|
|||||||
|
Romania:
|
|||||||||
|
26
Z Timisoara Blvd, Anchor Plaza
Lujerului,
Sector 6
Bucharest
|
44,000
|
Research
and product development
|
|||||||
|
UK:
|
|||||||||
|
3
Roundwood Avenue
Stockley
Park, Heathrow
|
22,000
|
Product
development, sales, marketing and
administration
|
|||||||
_________________________________________
|
*
|
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 61,000, of which we occupy 21,000 square feet, or
approximately 34% of this facility. The remaining square
footage is subleased.
|
|
***
|
The
total square footage is 63,000, of which we occupy 49,000 square feet, or
approximately 78% 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 80%.
On
September 23, 2009, Richard Miner on behalf of himself and all similarly
situated stockholders of Omniture, Inc. filed a class action lawsuit captioned
Miner v. Omniture, Inc.,
et. al., Case No.
090403559 (the “Miner Lawsuit”) against Omniture, the members of
Omniture’s board of directors (collectively, the “Omniture Defendants”) and
Adobe in the United States Fourth Judicial District Court for Utah County, Provo
Department, State of Utah seeking to enjoin the proposed acquisition between
Omniture and Adobe. In the event the acquisition is consummated, the
plaintiff seeks to recover an unspecified amount of damages. The plaintiff
alleges that the members of Omniture’s board of directors breached their
fiduciary duties to Omniture’s stockholders by failing to seek the highest
possible price for Omniture and that Adobe induced or aided and abetted in the
alleged breach of such fiduciary duties. Also on September 23, 2009, Christopher
R. Barrell filed a substantially similar lawsuit to the Miner Lawsuit in the
United States Fourth Judicial District Court for Utah County, Provo Department,
State of Utah, captioned Barrell v. Omniture, Inc. et. al.,
Case No. 090403560 (the “Barrell Lawsuit”). The Barrell Lawsuit names the
same defendants as the Miner Lawsuit, and also names Snowbird Acquisition
Corporation as an additional defendant. Subsequently, on September 24, 2009,
the plaintiff in the Barrell Lawsuit filed an amended complaint, which
added allegations that the Schedule 14D-9 Solicitation/Recommendation Statement
filed by Omniture on September 24, 2009 contained inadequate disclosures and was
materially misleading. On September 25, 2009, the Omniture Defendants
filed a motion requesting that the court consolidate the Barrell Lawsuit, Miner
Lawsuit and a substantially similar
lawsuit
captioned Lodhia v. Omniture,
Inc. et al.,
Case No. 090403499 (the
“Lodhia Lawsuit”) in which the Omniture Defendants, but not Adobe, were named.
Additionally, on September 30, 2009, the plaintiff in the Lodhia Lawsuit filed a
response to defendants’ motion to consolidate, agreeing consolidation is
appropriate, and also filed a motion seeking appointment as lead plaintiff in
the consolidated action. Omniture moved for an order consolidating
all three lawsuits. The plaintiffs in the three lawsuits filed a joint
motion seeking preliminary injunction barring the consummation of the proposed
acquisition and requiring additional disclosures by Omniture in its Schedule
14D-9. At a hearing on October 20, 2009, the court granted Omniture’s
motion to consolidate the three cases and denied the plaintiffs’ motion for a
preliminary injunction. On December 30, 2009, the plaintiffs served the
defendants with a consolidated amended complaint. Adobe intends to defend the
lawsuits vigorously.
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.
No
matters were submitted to a vote of security holders during the quarter ended
November 27, 2009.
PART II
Our
common stock is traded on the NASDAQ Global Select Market under the symbol
“ADBE.” According to the records of our transfer agent, there were 1,709 holders
of record of our common stock on January 15, 2010. 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 declare or pay any cash dividends on our common stock during fiscal 2009 or
fiscal 2008. 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. We do not anticipate paying any cash
dividends in the foreseeable future. The following table sets forth the high and
low sales price per share of our common stock for the periods
indicated.
| Price Range | ||||||||
|
High
|
Low
|
|||||||
|
Fiscal
2009:
|
||||||||
|
First
Quarter
|
$ | 24.29 | $ | 16.70 | ||||
|
Second
Quarter
|
$ | 28.18 | $ | 15.98 | ||||
|
Third
Quarter
|
$ | 33.43 | $ | 26.34 | ||||
|
Fourth
Quarter
|
$ | 36.90 | $ | 31.00 | ||||
|
Fiscal
Year
|
$ | 36.90 | $ | 15.98 | ||||
|
Fiscal
2008:
|
||||||||
|
First
Quarter
|
$ | 44.62 | $ | 32.62 | ||||
|
Second
Quarter
|
$ | 44.06 | $ | 30.79 | ||||
|
Third
Quarter
|
$ | 45.89 | $ | 38.23 | ||||
|
Fourth
Quarter
|
$ | 43.14 | $ | 20.75 | ||||
|
Fiscal
Year
|
$ | 45.89 | $ | 20.75 | ||||
Issuer
Purchases of Equity Securities
Below is
a summary of stock repurchases for the quarter ended November 27, 2009. See Note 14 of our Notes to
Consolidated Financial Statements for information regarding our stock repurchase
programs.
|
Plan/Period(1)
|
|
Shares
Repurchased(2)
|
Average
Price
Per
Share
|
Maximum
Number
of
Shares that May
Yet
be Purchased
Under
the Plan
|
|||||||||
|
Stock
Repurchase Program I
|
|||||||||||||
|
Beginning
shares available to be repurchased as of August 28, 2009
|
131,855,184 | (3) | |||||||||||
|
August
29—September 25, 2009
|
|||||||||||||
|
Structured
repurchases
|
1,842,160 | $ | 31.62 | ||||||||||
|
September
26—October 23, 2009
|
|||||||||||||
|
Structured
repurchases
|
1,770,314 | $ | 32.73 | ||||||||||
|
October
24—November 27, 2009
|
|||||||||||||
|
From
employees(4)
|
10 | $ | 34.78 | ||||||||||
|
Structured
repurchases
|
1,705,926 | $ | 33.88 | ||||||||||
|
Adjustments
to repurchase authority for net dilution
|
— | 5,840,221 | (5) | ||||||||||
|
Total
shares repurchased
|
5,318,410 | (5,318,410 | ) | ||||||||||
|
Ending
shares available to be repurchased under Program I as of November 27,
2009
|
132,376,995 | (6) | |||||||||||
________________________________________
|
(1)
|
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
periods ending November 27, 2009. 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 December 3, 2004
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
|
2009
|
|||||||||||||||||||
|
Adobe
Systems
|
$ | 100.00 | $ | 111.13 | $ | 125.05 | $ | 133.91 | $ | 73.60 | $ | 112.43 | ||||||||||||
|
S&P
500 Index
|
$ | 100.00 | $ | 108.16 | $ | 121.69 | $ | 131.45 | $ | 81.83 | $ | 101.64 | ||||||||||||
|
S&P
500 Software & Services Index
|
$ | 100.00 | $ | 102.94 | $ | 107.51 | $ | 122.76 | $ | 70.42 | $ | 106.79 |
_________________________________________
|
(*)
|
The
material in this report is not deemed “filed” with the SEC and is not to
be incorporated by reference into any of our filings 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.
|
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.
| Fiscal Years | ||||||||||||||||||||
|
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Operations:
|
||||||||||||||||||||
|
Revenue
|
$ | 2,945,853 | $ | 3,579,889 | $ | 3,157,881 | $ | 2,575,300 | $ | 1,966,321 | ||||||||||
|
Gross
profit
|
$ | 2,649,121 | $ | 3,217,259 | $ | 2,803,187 | $ | 2,282,843 | $ | 1,853,743 | ||||||||||
|
Income
before income taxes
|
$ | 701,520 | $ | 1,078,508 | $ | 947,190 | $ | 679,727 | $ | 765,776 | ||||||||||
|
Net
income(1)
|
$ | 386,508 | $ | 871,814 | $ | 723,807 | $ | 505,809 | $ | 602,839 | ||||||||||
|
Net
income per share(1),
(2)
|
||||||||||||||||||||
|
Basic
|
$ | 0.74 | $ | 1.62 | $ | 1.24 | $ | 0.85 | $ | 1.23 | ||||||||||
|
Diluted
|
$ | 0.73 | $ | 1.59 | $ | 1.21 | $ | 0.83 | $ | 1.19 | ||||||||||
|
Cash
dividends declared per common share
|
$ | — | $ | — | $ | — | $ | — | $ | 0.00625 | ||||||||||
|
Financial
position:(3)
|
||||||||||||||||||||
|
Cash,
cash equivalents and short-term investments
|
$ | 1,904,473 | $ | 2,019,202 | $ | 1,993,854 | $ | 2,280,879 | $ | 1,700,834 | ||||||||||
|
Working
capital
|
$ | 1,629,071 | $ | 1,972,504 | $ | 1,720,441 | $ | 2,208,688 | $ | 1,528,915 | ||||||||||
|
Total
assets
|
$ | 7,282,237 | $ | 5,821,598 | $ | 5,713,679 | $ | 5,962,548 | $ | 2,440,315 | ||||||||||
|
Long-term
debt
|
$ | 1,000,000 | $ | 350,000 | $ | — | $ | — | $ | — | ||||||||||
|
Stockholders’
equity
|
$ | 4,890,568 | $ | 4,410,354 | $ | 4,649,982 | $ | 5,151,876 | $ | 1,865,164 | ||||||||||
|
Additional
data:
|
||||||||||||||||||||
|
Worldwide
employees
|
8,660 | 7,544 | 6,794 | 6,068 | 4,285 | |||||||||||||||
______________________________________
|
(1)
|
In
fiscal 2009, 2008, 2007 and 2006, net income and net income per share
includes the impact of stock-based compensation charges as well as the
integration of Macromedia into our operations in fiscal 2006, neither of
which were present in fiscal year 2005. Fiscal 2009, also includes the
integration of Omniture into our operations which was not present in the
prior years. See Notes 2
and 13 of our Notes to Consolidated Financial Statements for information
regarding our Omniture and Macromedia acquisitions 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
2009.
|
The
following discussion 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 2010. When used in this report, the words “expects,” “could,” “would,”
“may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,”
“estimates,” “looks for,” “looks to” and similar expressions, as well as
statements regarding our focus for the future, are generally intended to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements, which speak only as of the date of this 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.
BUSINESS
OVERVIEW
Founded
in 1982, Adobe Systems Incorporated is one of the largest and most diversified
software companies in the world. We offer a line of creative, business, Web and
mobile software and services used by creative professionals, knowledge workers,
consumers, OEMs, developers and enterprises for creating, managing, delivering,
optimizing and engaging with compelling content and experiences across multiple
operating systems, devices and media. We distribute our products through a
network of distributors, VARs, systems integrators, ISVs and OEMs, direct to end
users and through our own Website at www.adobe.com. We also license our
technology to hardware manufacturers, software developers and service providers,
and we offer integrated software solutions to businesses of all sizes. We have
operations in the Americas, Europe, 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.
ACQUISITION
OF OMNITURE
On
October 23, 2009, we completed the acquisition of Omniture, an industry leader
in Web analytics and online business optimization based in Orem, Utah, for
approximately $1.8 billion. Accordingly, we have included the results of the
business operations acquired from Omniture in our consolidated results of
operations beginning on October 24, 2009. We expect the acquisition to have a
significant impact on our consolidated financial position, results of operations
and cash flows. We expect our revenues, cost of revenues and operating expenses
to increase in the future, but we also anticipate both revenue and cost saving
synergies. Coinciding with the integration of Omniture, we created a new
reportable segment for financial reporting purposes. See Note 2 of our Notes to
Consolidated Financial Statements for further information regarding this
acquisition.
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, business combinations,
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.
We
recognize revenues for hosting services that are based on a committed number of
transactions, including implementation and set-up fees, ratably beginning on the
date the customer commences use of our services and continuing through the end
of the customer term. Over-usage fees, and fees billed based on the actual
number of transactions from which we capture data, are billed in accordance with
contract terms as these fees are incurred. We record amounts that have been
invoiced in accounts receivable and in deferred revenue or revenue, depending on
whether the revenue recognition criteria have been met.
Our
consulting revenue is primarily 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
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.
Business
Combinations
We allocate
the purchase price of acquired companies to the tangible and intangible assets
acquired and liabilities assumed as well as to in-process research and
development based upon their estimated fair values at the acquisition date. The
purchase price allocation process requires management to make significant
estimates and assumptions, especially at acquisition date with respect to
intangible assets and deferred revenue obligations assumed.
Although we
believe the assumptions and estimates we have made are reasonable, they are
based in part on historical experience and information obtained from the
management of the acquired companies and are inherently uncertain. Examples of
critical estimates in valuing certain of the intangible assets we have acquired
or may acquire in the future include but are not limited to:
|
·
|
future
expected cash flows from software license sales, subscriptions, support
agreements, consulting contracts and acquired developed technologies and
patents;
|
|
·
|
expected
costs to develop the in-process research and development into commercially
viable products and estimated cash flows from the projects when
completed;
|
|
·
|
the
acquired company’s trade name and trademarks as well as assumptions about
the period of time the acquired trade name and trademarks will continue to
be used in the combined company’s product portfolio;
and
|
|
·
|
discount
rates.
|
In connection
with the purchase price allocations for our acquisitions, we estimate the fair
value of the deferred revenue obligations assumed. The estimated fair value of
the support obligations is determined utilizing a cost build-up approach. The
cost build-up approach determines fair value by estimating the costs related to
fulfilling the obligations plus a normal profit margin. The estimated costs to
fulfill the obligations are based on the historical costs related to fulfilling
the obligations.
Unanticipated
events and circumstances may occur which may affect the accuracy or validity of
such assumptions, estimates or actual results.
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.
We
completed our annual impairment test in the second quarter of fiscal 2009 and
determined there was no impairment. We currently believe that there is no
significant risk of future material goodwill impairment in any of our reporting
units.
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
Overview
of 2009
Effective
in the first quarter of fiscal 2009, our former Mobile and Devices Solutions
segment, which was integrated into our Platform business unit to better align
our engineering and marketing efforts, is now reported as part of the Platform
segment. Prior year information has been updated to reflect the integration of
these business units.
During
fiscal 2009, our business was broadly impacted by the global economic recession
and generally weak macro-economic environment. This resulted in a
significant year-over-year decline in our revenue and earnings
results.
In our
Creative Solutions segment, revenue decreased by 18% during fiscal 2009 as
compared to fiscal 2008. We attribute this decline to reduced adoption of our
CS4 family of products during the year, as the global financial crisis
significantly affected demand in the creative professional end user
market. All major creative product categories declined on a
year-over-year basis.
Our
Business Productivity Solutions business declined 19% in fiscal 2009 when
compared to fiscal 2008. A decline in demand primarily due to the
macro-economic environment with our Acrobat product family – which makes up the
majority of revenue in our Knowledge Worker segment – was the primary factor for
this decline. In our Enterprise business, our LiveCycle revenue
declined 7% when compared to revenue achieved in fiscal 2008. We attribute this
smaller percentage decline in comparison to our other segments to focused
execution by our sales teams and the large market opportunities these product
solutions address.
In our
Platform segment, revenue declined 22% on a year-over-year basis primarily due
to the impact of the OSP. The removal of license fees associated with our Flash
technologies on mobile devices commenced in fiscal 2009, and as such, OEM
revenue from device manufacturers began to decline from rates of revenue we
achieved in fiscal 2008. We continue to expect this decline to be
offset over time by an increased demand for tooling products, server
technologies, services and applications in many of our other business
segments.
In our
Print and Publishing segment, revenue was also impacted by the global
macroeconomic environment, resulting in a 16% year-over-year
decline.
The
Omniture business appeared to stabilize during the fourth quarter with the
improvement in the general economy, as indicated by an increase in the
transaction volume on our network. In addition, customer retention
rates began stabilizing and we experienced an increase in the number of
subscription services provided to our existing customers.
Revenue
(dollars in millions)
|
Fiscal
2009
|
% Change
2009 to 2008
|
Fiscal
2008
|
% Change
2008 to 2007
|
Fiscal
2007
|
||||||||||||||
|
Product
|
$ | 2,759.4 | (19 | )% | $ | 3,396.5 | 12 | % | $ | 3,019.5 | ||||||||
|
Percentage
of total revenue
|
94 | % | 95 | % | 96 | % | ||||||||||||
|
Services
and support
|
186.5 | 2 | % | 183.4 | 33 | % | 138.4 | |||||||||||
|
Percentage
of total revenue
|
6 | % | 5 | % | 4 | % | ||||||||||||
|
Total
revenue
|
$ | 2,945.9 | (18 | )% | $ | 3,579.9 | 13 | % | $ | 3,157.9 | ||||||||
In fiscal
2009, we categorized our products into the following segments: Creative
Solutions, Knowledge Worker, Enterprise, Platform, Print and Publishing and
Omniture 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 Platform segment provides developer solutions and technologies,
including Adobe Flash Player, Adobe AIR and Flash Builder which are used to
build rich application experiences in addition to 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 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. Finally,
our Omniture segment provides Web analytics and online business optimization
products and services.
We will
adjust our reporting segments at the beginning of fiscal 2010 to reflect changes
in how we manage our business as we enter the new fiscal year. Specifically, we
are moving responsibility for our Adobe Connect Pro product line from our
Knowledge Worker segment to our Enterprise segment.
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, are recognized ratably over the term of the arrangement.
Segment
Information (dollars in millions)
|
Fiscal
2009
|
% Change
2009 to 2008
|
Fiscal
2008
|
% Change
2008 to 2007
|
Fiscal
2007
|
||||||||||||||
|
Creative
Solutions
|
$ | 1,702.1 | (18 | )% | $ | 2,072.8 | 9 | % | $ | 1,899.0 | ||||||||
|
Percentage
of total revenue
|
58 | % | 58 | % | 60 | % | ||||||||||||
|
Knowledge
Worker
|
623.0 | (23 | )% | 810.9 | 11 | % | 728.5 | |||||||||||
|
Percentage
of total revenue
|
21 | % | 23 | % | 23 | % | ||||||||||||
|
Enterprise
|
235.5 | (7 | )% | 253.0 | 32 | % | 191.3 | |||||||||||
|
Percentage
of total revenue
|
8 | % | 7 | % | 6 | % | ||||||||||||
|
Platform
|
181.0 | (22 | )% | 231.6 | 74 | % | 133.4 | |||||||||||
|
Percentage
of total revenue
|
6 | % | 6 | % | 4 | % | ||||||||||||
| Print and Publishing | 178.0 | (16 | )% | 211.6 | 3 | % | 205.7 | |||||||||||
|
Percentage
of total revenue
|
6 | % | 6 | % | 7 | % | ||||||||||||
|
Omniture
|
26.3 | * | % | — | — | % | — | |||||||||||
|
Percentage
of total revenue
|
1 | % | — | % | — | % | ||||||||||||
|
Total
revenue
|
$ | 2,945.9 | (18 | )% | $ | 3,579.9 | 13 | % | $ | 3,157.9 | ||||||||
_____________________________________
|
*
|
Percentage
is not meaningful.
|
Fiscal
2009 Revenue Compared to Fiscal 2008 Revenue
Revenue
from our Creative Solutions segment decreased $370.7 million during fiscal 2009
as compared to fiscal 2008 primarily due to reduced adoption of our CS family of
products because of the global recession and generally weak macro-economic
environment. The decrease was driven largely by a 15% decline in Creative Suites
related revenue and a decline of 27% in Photoshop point product revenue. Also
contributing to the decrease was an overall decline in the number of units
licensed. Average unit selling prices have remained relatively
consistent.
Revenue
in our Knowledge Worker segment decreased $187.9 million during fiscal 2009 as
compared to fiscal 2008 for similar reasons as Creative Solutions in addition to
a decrease in the licensing of our Acrobat family of products. We attribute the
decline in revenue to lower volume licensing by our enterprise customers, as
well as a decrease in the number of units sold through our shrink-wrap
distribution channel. Average unit selling prices have remained relatively
consistent.
Revenue
from our Enterprise segment decreased $17.5 million during fiscal 2009 as
compared to fiscal 2008 primarily due to the economic impact which resulted in
reduced spending by our enterprise customers.
Revenue
from our Platform segment decreased by $50.6 million during fiscal 2009 as
compared to fiscal 2008 due to the impact of the OSP which we announced on May
1, 2008, and involves the removal of certain licensing fees of our Flash Lite
client with OEMs.
Revenue
in our Print and Publishing business decreased by $33.6 million during fiscal
2009 as compared to fiscal 2008 due to reduced demand because of the global
macro-economic downturn.
We
acquired Omniture in the fourth quarter of fiscal 2009, and as such, there is no
prior fiscal 2008 period with which to compare Omniture fiscal 2009
revenue.
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 2008. We also achieved solid growth in our Scene7 business and
with our hobbyist products. The increase was also driven by a 7% increase in
Creative Suites related revenue and an increase of 5% in Photoshop point product
revenue. 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 Platform segment increased by $98.2 million during fiscal 2008 as
compared to fiscal 2007 due to continued adoption of Flash Lite by mobile and
non-PC device manufacturers, as well as 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.
Geographic
Information (dollars in millions)
|
Fiscal
2009
|
% Change
2009 to 2008
|
Fiscal
2008
|
% Change
2008 to 2007
|
Fiscal
2007
|
||||||||||||||
|
Americas
|
$ | 1,382.6 | (15 | )% | $ | 1,632.8 | 8 | % | $ | 1,508.9 | ||||||||
|
Percentage
of total revenue
|
46 | % | 46 | % | 48 | % | ||||||||||||
|
EMEA
|
928.9 | (24 | )% | 1,229.2 | 20 | % | 1,026.4 | |||||||||||
|
Percentage
of total revenue
|
32 | % | 34 | % | 32 | % | ||||||||||||
|
Asia
|
634.4 | (12 | )% | 717.9 | 15 | % | 622.6 | |||||||||||
|
Percentage
of total revenue
|
22 | % | 20 | % | 20 | % | ||||||||||||
|
Total
revenue
|
$ | 2,945.9 | (18 | )% | $ | 3,579.9 | 13 | % | $ | 3,157.9 | ||||||||
Fiscal
2009 Revenue by Geography Compared to Fiscal 2008 Revenue by
Geography
Overall
revenue in each of the geographic segments for fiscal 2009 decreased compared to
fiscal 2008 primarily due to the global economic recession, which resulted in
reduced adoption of many of our major products.
Included
in the overall decrease in revenue were impacts associated with foreign
currency. Revenue in EMEA measured in U.S. dollars decreased approximately $47.1
million, due to the strength of the U.S. dollar against the Euro, as compared to
fiscal 2008. Our currency hedging program is used to mitigate a portion of the
foreign currency impact to revenue. During fiscal 2009, our currency hedging
program related to the Euro resulted in hedging gains of $25.8 million. Revenue
in Asia measured in U.S. dollars was favorably impacted by approximately
$32.8 million due to the strength of the Yen against the U.S. dollar as
compared to fiscal 2008. During fiscal 2009, our currency hedging program
related to the Yen resulted in hedging gains of $1.2 million.
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.
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. Our backlog for the fourth quarter
of fiscal 2009 was approximately 9% of fourth quarter fiscal 2009 revenue
compared with approximately 2% of third quarter fiscal 2009 revenue. We had
minimal backlog at the end of the fourth quarter of fiscal 2008.
Cost
of Revenue
(dollars in millions)
|
Fiscal
2009
|
% Change
2009 to 2008
|
Fiscal
2008
|
% Change
2008 to 2007
|
Fiscal
2007
|
||||||||||||||
|
Product
|
$ | 228.9 | (14 | )% | $ | 266.4 | (2 | )% | $ | 270.8 | ||||||||
|
Percentage
of total revenue
|
8 | % | 7 | % | 9 | % | ||||||||||||
|
Services
and support
|
67.8 | (30 | )% | 96.2 | 15 | % | 83.9 | |||||||||||
|
Percentage
of total revenue
|
2 | % | 3 | % | 3 | % | ||||||||||||
|
Total
cost of revenue
|
$ | 296.7 | (18 | )% | $ | 362.6 | 2 | % | $ | 354.7 | ||||||||
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 decreased due to the following:
|
% Change
2009 to 2008
|
% Change
2008
to 2007
|
|||||||
|
Amortization
of acquired rights to use technology
|
(8
|
)%
|
6
|
%
|
||||
|
Amortization
of purchased intangibles
|
(10
|
)
|
(10
|
)
|
||||
|
Royalty
cost
|
(1
|
)
|
3
|
|||||
|
Hosted
services
|
9
|
3
|
||||||
|
Various
individually insignificant items
|
(4
|
)
|
(4
|
)
|
||||
|
Total
change
|
(14
|
)%
|
(2
|
)%
|
||||
The
decrease in amortization of acquired rights to use technology primarily relates
to a charge for historical use of licensing rights associated with certain
technology licensing arrangements entered into in fiscal 2008 that did not recur
in fiscal 2009. Amortization of acquired rights to use technology increased in
fiscal 2008 as compared to fiscal 2007, 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.
Amortization
of purchased intangibles decreased during fiscal 2009 as compared to fiscal 2008
and decreased during fiscal 2008 as compared to fiscal 2007, due to a decrease
in amortization primarily associated with intangible assets purchased through
the Macromedia acquisition which were fully amortized during fiscal
2009.
The
increase in hosted service costs was primarily related to the amortization of
our investment in capitalized infrastructure costs related to our SaaS business
in fiscal 2009 as compared to fiscal 2008.
Services
and Support
Cost of
services and support revenue is primarily comprised of employee-related costs
and associated costs incurred to provide consulting services, training and
product support.
Cost of
services and support revenue decreased during fiscal 2009 as compared to fiscal
2008, due to decreases in compensation and related benefits driven by headcount
reductions as well as increased consulting support provided by third- party
systems integrators resulting in the downsizing of our consulting
organization.
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.
Operating
Expenses
(dollars in millions)
Research
and Development, Sales and Marketing and General and Administrative
Expenses
The
decrease in research and development, sales and marketing and general and
administrative expenses in fiscal 2009 was primarily driven by decreases in
compensation expense and a decrease in the costs associated with acquired rights
to use technology. The decrease in compensation costs during fiscal 2009 as
compared to fiscal 2008 was primarily due to lower profit sharing and employee
bonuses based on company performance. 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.
Research
and Development
|
Fiscal
2009
|
% Change
2009 to 2008
|
Fiscal
2008
|
% Change
2008 to 2007
|
Fiscal
2007
|
||||||||||||||
|
Expenses
|
$ | 565.1 | (15 | )% | $ | 662.1 | 8 | % | $ | 613.2 | ||||||||
|
Percentage
of total revenue
|
19 | % | 18 | % | 19 | % | ||||||||||||
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 decreased due to the following:
|
% Change
2009 to 2008
|
% Change
2008
to 2007
|
|||||||
|
Compensation
and related benefits associated with headcount growth
|
1
|
%
|
7
|
%
|
||||
|
Compensation
associated with incentive compensation and stock-based
compensation
|
(13
|
)
|
—
|
|||||
|
Various
individually insignificant items
|
(3
|
)
|
1
|
|||||
|
Total
change
|
(15
|
)%
|
8
|
%
|
||||
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
2009
|
% Change
2009 to 2008
|
Fiscal
2008
|
% Change
2008
to 2007
|
Fiscal
2007
|
||||||||||||||
|
Expenses
|
$ | 981.9 | (10 | )% | $ | 1,089.3 | 11 | % | $ | 984.4 | ||||||||
|
Percentage
of total revenue
|
33 | % | 30 | % | 31 | % | ||||||||||||
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 decreased due to the following:
|
% Change
2009 to 2008
|
% Change
2008 to 2007
|
|||||||
|
Compensation
and related benefits associated with headcount growth
|
2
|
%
|
5
|
%
|
||||
|
Compensation
associated with incentive compensation and stock-based
compensation
|
(8
|
)
|
1
|
|||||
|
Marketing
spending related to product launches and overall marketing efforts to
further increase revenue
|
(1
|
)
|
4
|
|||||
|
Various
individually insignificant items
|
(3
|
)
|
1
|
|||||
|
Total
change
|
(10
|
)%
|
11
|
%
|
||||
General
and Administrative
|
Fiscal
2009
|
% Change
2009
to 2008
|
Fiscal
2008
|
% Change
2008 to 2007
|
||||||||||||