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In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, including statements regarding product plans, future growth and market opportunities, which involve risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" in Part II, Item 1A. You should carefully review the risks described herein and in other documents we file from time to time with the SEC, including the Annual Report on Form 10-K for fiscal 2007 and the other Quarterly Reports on Form 10-Q to be filed by us in fiscal 2008. When used in this report, the words "expects," "could," "would," "may," "anticipates," "intends," "plans," "believes," "seeks," "targets," "estimates," "looks for," "looks to" and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. Founded in 1982, Adobe Systems Incorporated is one of the largest and most diversified software companies in the world. We offer a line of creative, business and mobile software and services used by creative professionals, designers, knowledge workers, high-end consumers, OEM partners, developers and enterprises for creating, managing, delivering and engaging with compelling content and experiences across multiple operating systems, devices and media. We distribute our products through a network of distributors and dealers, value-added resellers ("VARs"), systems integrators, independent software vendors ("ISVs") and OEMs, direct to end users and through our Web site at www.adobe.com. We also license our technology to hardware manufacturers, software developers and service providers, and we offer integrated software solutions to businesses of all sizes. We have operations in the Americas, Europe, the Middle East and Africa ("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. We maintain executive offices and principal facilities at 345 Park Avenue, San Jose, California 95110-2704. Our telephone number is 408-536-6000. We maintain a Web site at www.adobe.com. Investors can obtain copies of our SEC filings from this site free of charge, as well as from the SEC Web site at www.sec.gov. Effective in the first quarter of fiscal 2008, to better align our engineering and marketing efforts, we merged our Knowledge Worker Solutions segment with our Enterprise Solutions segment to form our new Business Productivity Solutions business unit. However, under the requirements of SFAS 131, Knowledge Worker Solutions and Enterprise Solutions are separate reportable segments. In addition, we moved responsibility for Flex Builder, Flex SDK and our ColdFusion product line to our Platform segment from our Enterprise Solutions segment. The prior year information has been updated to reflect this product movement. During the second quarter of fiscal 2008, we continued to focus on driving revenue growth and increasing market share of our products through the continued delivery of comprehensive software and technology solutions that meet the evolving needs of our customers. In our Creative Solutions segment, we grew revenue substantially on a year-over-year basis as we continued to increase the penetration of our Creative Suite 3 ("CS3") family of products during the second quarter. This growth was driven by strong CS3 results in Japan as well as continued solid CS3 demand in Europe. Our digital video products, our hobbyist products and our Scene7 business all achieved strong results in the second quarter. In our Knowledge Worker Solutions segment, we achieved record revenue with our Acrobat family of products in the second quarter of fiscal 2008. Helping drive this success was continued strong licensing of Acrobat products due to ongoing adoption by users in enterprises, governments and other vertical markets. In our Enterprise Solutions segment, we achieved strong year-over-year revenue growth as we continued to focus on delivering innovative products and solutions for our customers. Our Mobile and Device Solutions segment achieved record revenue in Q2 due to the success we have had targeting mobile operators, handset manufacturers and consumer electronic device manufactures with our Flash Lite and Flash Cast technologies. Our strong Mobile and Device results included a large transaction with a consumer electronics device manufacturer. On May 1, 2008, we announced the Open Screen Project. The project aims to enable a consistent runtime environment that will remove barriers for developers and designers as they publish content and applications across desktops and consumer devices, including phones, mobile internet devices ("MIDs") and set top boxes. As part of the project, we will be removing some restrictions on the use of some of our technology specifications and publishing several technology protocols. We will also be removing the license fees on the next major releases of Adobe Flash Player and Adobe AIR for devices. Accordingly, we expect revenue from Mobile and Device Solutions to decrease following the next major release of these products scheduled for fiscal 2009. We would expect this decrease to be offset in time by an increased demand for tooling products, server technologies, hosted services and applications. Our Platform business performed strongly, resulting in significant year-over-year revenue growth and our Print Publishing business segment also achieved modest year-over-year revenue growth. In preparing our condensed 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 estimates with the Audit Committee of the Board of Directors. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, stock-based compensation, goodwill impairment and income taxes have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. With the exception of our adoption of FIN 48, there have been no other significant changes in our critical accounting estimates during the six months ended May 30, 2008 as compared to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November 30, 2007. 0.95 0.96 0.95 0.96 0.18 0.27 0.05 0.04 0.05 0.04 0.42 0.37 0.19 0.27 As described in Note 16 of our Notes to Condensed Consolidated Financial Statements, we have the following segments: Creative Solutions, Knowledge Worker Solutions, Enterprise Solutions, Mobile and Device Solutions, Platform and Print Publishing products. Our services and support revenue is comprised of consulting, training, and maintenance and support, primarily related to the licensing of our enterprise, developer and platform products. 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. 527200000 436600000 1070700000 783000000 0.59 0.58 0.6 0.56 0.21 0.37 198400000 184800000 393900000 359600000 0.23 0.25 0.22 0.26 0.07 0.1 54400000 44000000 108600000 86500000 0.06 0.06 0.06 0.06 0.24 0.26 22200000 12300000 37400000 26000000 0.03 0.02 0.02 0.02 0.8 0.44 30400000 18900000 58500000 34700000 0.03 0.03 0.03 0.02 0.61 0.69 54300000 49000000 108200000 105200000 0.06 0.06 0.07 0.08 0.11 0.03 Revenue from Creative Solutions increased $90.6 million during the three months ended May 30, 2008 as compared to the three months ended June 1, 2007, of which approximately 50% related to an increase in Creative Suites revenue and approximately 25% related to an increase in Photoshop revenue. Revenue from Creative Solutions increased $287.7 million during the six months ended May 30, 2008 as compared to the six months ended June 1, 2007, of which approximately 70% related to an increase in Creative Suites revenue and approximately 20% related to an increase in Photoshop revenue. The increase in Creative Suites revenue was due primarily to the release of localized versions of our CS3 family of products during the third quarter of fiscal 2007 and to a lesser extent the launch of the English versions of our CS3 family of products in the second quarter of fiscal 2007. As a result of the launch of the CS3 family of products, there was an increase in the number of units sold as well as an increase in certain unit average selling prices as compared to the second quarter of fiscal 2007. The increase in average selling price was due in part to an increase in comparable per unit pricing year-over-year and Adobe's ability to move some customers to higher-priced product suites. The increase in Photoshop revenue primarily related to the launch of new Photoshop offerings during fiscal 2008. Revenue from Knowledge Worker Solutions increased $13.6 million and $34.3 million during the three and six months ended May 30, 2008, respectively, compared to the three and six months ended June 1, 2007, primarily due to higher average selling prices associated with continued licensing of our Acrobat 8 family of products. The volume remained relatively stable compared with fiscal 2007. Revenue from Enterprise Solutions increased $10.4 million and $22.1 million during the three and six months ended May 30, 2008, respectively, compared to the three and six months ended June 1, 2007. The increase was primarily due to continued adoption of our LiveCycle family of products. Revenue from Mobile and Device Solutions increased $9.9 million and $11.4 million during the three and six months ended May 30, 2008, respectively, compared to the three and six months ended June 1, 2007. The increase was primarily due to increased consulting revenue in Mobile Applications and continued strong unit shipments of our Flash enabled devices including a large transaction with a gaming console manufacturer. On May 1, 2008, we announced the Open Screen Project. The project aims to enable a consistent runtime environment that will remove barriers for developers and designers as they publish content and applications across desktops and consumer devices, including phones, MIDs and set top boxes. As part of the project, we will be removing some restrictions on the use of some of our technology specifications and publishing several technology protocols. We will also be removing the license fees on the next major releases of Adobe Flash Player and Adobe AIR for devices. Accordingly, we expect revenue from Mobile and Device Solutions to decrease following the next major release of these products scheduled for fiscal 2009. We would expect this decrease to be offset in time by an increased demand for tooling products, server technologies, hosted services and applications. Revenue from Platform increased $11.5 million and $23.8 million during the three and six months ended May 30, 2008, respectively, compared to the three and six months ended June 1, 2007. The increase was primarily due to increased revenue from our Flex Builder, Flash Player and ColdFusion products, each of which contributed relatively evenly to the revenue growth. Revenue from Print Publishing increased $5.3 million and $3.0 million during the three and six months ended May 30, 2008, respectively, compared to the three and six months ended June 1, 2007. The increase resulted principally from increased revenue associated with our legacy products, the introduction of Technical Suite and increased adoption of Shockwave. 383800000 383500000 780700000 681800000 0.43 0.52 0.44 0.49 0 0.15 294600000 210900000 618500000 426600000 0.33 0.28 0.35 0.31 0.4 0.45 208500000 151200000 378100000 286600000 0.24 0.2 0.21 0.2 0.38 0.32 Overall revenue for the three and six months ended May 30, 2008 increased when compared to the three and six months ended June 1, 2007 primarily due to continued adoption of our CS3 and LiveCycle families of products and continued licensing of our Acrobat 8 family of products. Sales of our Mobile and Device products and Platform products also contributed to the increase. Revenue in the Americas was relatively stable during the three months ended May 30, 2008 as compared to the three months ended June 1, 2007 and increased slightly during the six months ended May 30, 2008 compared to the six months ended June 1, 2007. Revenue in EMEA increased $83.7 million and $191.9 million during the three and six months ended May 30, 2008, respectively, compared to the three and six months ended June 1, 2007, due to solid demand in all of our major product categories. Additionally, revenue in EMEA measured in U.S. dollars increased approximately $29.1 million and $54.5 million during the three and six months ended May 30, 2008, respectively, over the same reporting periods last year due to the strength of the Euro over the U.S. dollar. Revenue in Asia increased $57.3 million and $91.5 million during the three and six months ended May 30, 2008, respectively, compared to the three and six months ended June 1, 2007. The increase primarily resulted from sales of our LiveCycle and Platform products. Additionally, revenue in Asia measured in U.S. dollars increased approximately $15.4 million and $21.9 million during the three and six months ended May 30, 2008, respectively, over the same reporting periods last year primarily due to the strength of the Japanese Yen over the U.S. dollar. 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. Our backlog of unfulfilled orders at the end of the second quarter of fiscal 2008, other than those associated with new product releases, those pending credit review and those not shipped due to the application of our global inventory policy, was approximately 4% of second quarter fiscal 2008 revenue. The comparable backlog at the end of the first quarter of fiscal 2008 was approximately 5% of first quarter fiscal 2008 revenue. 0.07 0.09 0.07 0.09 -0.18 -0.05 0.03 0.03 0.03 0.03 0.2 0.21 -0.09 0.01 Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization related to localization costs and acquired technologies and the costs associated with the manufacturing of our products. Cost of product revenue fluctuated due to the following: Localization costs which are amortized over the product life cycle, increased during the three and six months ended May 30, 2008 as compared to the three and six months ended June 1, 2007, primarily due to the release of the localized versions of our CS3 family of products in the third quarter of fiscal 2007. Amortization expense decreased during the three and six months ended May 30, 2008 as compared to the three and six months ended June 1, 2007, due to a decrease in amortization expense primarily associated with intangible assets purchased through the Macromedia acquisition. Additionally, during the second quarter of fiscal 2007, charges were incurred in connection with certain technology licensing arrangements. 0.08 0.11 0.05 0.04 -0.02 0 -0.02 -0.02 -0.28 -0.21 0.01 0.03 -0.18 -0.05 Cost of services and support revenue is primarily comprised of employee-related costs and associated costs incurred to provide consulting services, training and product support. Cost of services and support revenue increased during the three and six months ended May 30, 2008 as compared to the three and six months ended June 1, 2007, due to increases in compensation and related benefits primarily as a result of headcount increases. Research and Development, Sales and Marketing and General and Administrative Expenses The increase in compensation costs for the three and six months ended May 30, 2008 related to higher expense for profit sharing and employee bonuses based on company performance to date, when compared to the three and six months ended June 1, 2007 and increased headcount in all functions. 0.19 0.2 0.19 0.21 0.14 0.18 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 fluctuated due to the following: We believe that investments in research and development, including the recruiting and hiring of software developers, are critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced products. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our desktop application and server-based software products. 0.08 0.08 0.06 0.07 0 0.03 0.14 0.18 0.18 0.2 0.32 0.32 0.3 0.32 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 fluctuated due to the following: 0.08 0.08 0.05 0.05 0.05 0.05 0 0.02 0.18 0.2 0.12 0.23 0.09 0.09 0.09 0.09 General and administrative expenses consist primarily of compensation and benefit expenses, travel expenses and related facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, expenses associated with computer equipment and software used in the administration of the business, charitable contributions and various forms of insurance. General and administrative expenses fluctuated due to the following: 0.07 0.1 0.04 0.04 0 0.04 0 0.01 0 0.01 0.01 0.03 0.12 0.23 0 0 0 0 0 0 During the six months ended May 30, 2008, there was an adjustment to previous estimates associated with closing redundant Macromedia facilities that were acquired through the acquisition. As of May 30, 2008, accrued restructuring charges related to the Macromedia acquisition totaled $15.7 million. We expect to pay this liability through fiscal 2011. -0.1 -0.07 0.02 0.03 0.02 0.03 Amortization expense decreased during the three and six months ended May 30, 2008 as compared to the three and six months ended June 1, 2007, due to a decrease in amortization expense associated with intangible assets purchased through the Macromedia acquisition and a decrease due to assets that were fully amortized during the second quarter of fiscal 2007, offset in part by newly acquired assets from acquisitions during fiscal 2007. Additionally, included in the amortization of purchased intangibles for the three and six months ended June 1, 2007 is $1.5 million related to the write-off of in-process research and development from an acquisition that occurred during the second quarter of fiscal 2007. -0.41 -0.41 0.01 0.03 0.01 0.03 0 0 0 0 1.26 0.86 0.01 0.01 0.01 0.01 -0.28 -0.28 The largest component of interest and other income, net, was interest earned on cash, cash equivalents and short-term fixed income investments. Interest and other income, net also included gains and losses on the sale or write-down for other-than-temporary impairment of fixed income investments and foreign exchange gains and losses, including those from hedging revenue transactions primarily denominated in Japanese Yen and Euro currencies. Interest and other income, net, decreased during the three and six months ended May 30, 2008 as compared to the three and six months ended June 1, 2007 primarily as a result of lower interest rates and lower average invested balances due to cash used for our share repurchase programs. Interest expense as of May 30, 2008, primarily represents interest associated with our credit facility. The outstanding balance as of May 30, 2008 was $350.0 million. Interest due under the credit facility is paid upon expiration of the LIBOR contract or at a minimum, quarterly. Investment gains, net, consist principally of realized gains or losses from the sale of marketable equity investments, other-than-temporary declines in the value of marketable and non-marketable equity securities and gains and losses of Adobe Ventures. In the three and six months ended May 30, 2008, investment gains, net, increased as compared to the three and six months ended June 1, 2007 due primarily to the gain resulting from the expiration of the escrow period related to the sale of our investment in Atom Entertainment, Inc. that occurred during the fourth quarter of fiscal 2006. 0.2 0.68 0.07 0.07 0.08 0.06 0.23 0.26 0.24 0.22 Our effective tax rate decreased approximately 3% during the three months ended May 30, 2008 as compared to the three months ended June 1, 2007. The decrease was primarily related to stronger forecasted international profits for fiscal 2008 and lower foreign taxes on those forecasted profits. Our effective tax rate increased approximately 2% during the six months ended May 30, 2008 as compared to the six months ended June 1, 2007. The increase was primarily related to the expiration of the U.S. research and development tax credit on December 31, 2007, reductions in tax exempt interest income for fiscal 2008, and a one-time tax benefit for the reinstatement of the U.S. research and development tax credit that was reflected in its entirety in the first quarter of fiscal 2007. The increase is offset by the aforementioned international profit forecast described above. 1864700000 1993900000 1708700000 1720600000 This data should be read in conjunction with the consolidated statements of cash flows.Our primary source of cash is receipts from revenue. The primary uses of cash are payroll related expenses; general operating expenses including marketing, travel and office rent; and cost of product revenue. Another source of cash is proceeds from the exercise of employee options and participation in the ESPP and another use of cash is our stock repurchase program, which is detailed below. Net cash provided by operating activities of $731.1 million for the six months ended May 30, 2008, was primarily comprised of net income plus the net effect of non-cash expenses. The primary working capital sources of cash were increases in net income, income taxes payable and deferred revenue. The increase in income taxes payable relates primarily to the higher income tax provision for the three and six months ended May 30, 2008 as compared to the three and six months ended June 1, 2007. Increases in deferred revenue related to maintenance and support and a customer prepayment, offset in part by decreases in deferred revenue for our Education products and Adobe Photoshop Lightroom. The primary working capital uses of cash were increases in receivables, payments of accrued expenses, trade payables and accrued restructuring costs and outlays for prepaid expenses and other current assets. Receivables increased primarily as a result of the timing of shipments during the second quarter of fiscal 2008 compared to the same reporting period in fiscal 2007. Our days sales outstanding in trade receivables was 33 days for the second quarter of fiscal 2008. Accrued expenses decreased primarily due to payments for employee bonuses and commissions, offset in part by additional contributions to the employee stock purchase accrual. Accrued restructuring decreased primarily due to payments for facility costs for the six months ended May 30, 2008. Outlays for prepaid expenses and other current assets were primarily for annual insurance premiums. Net cash from investing activities increased from cash used for the six months ended June 1, 2007 of $158.4 million to cash provided for the six months ended May 30, 2008 of $259.7 million. Sources of cash during the six months ended May 30, 2008 primarily represented maturities and sales of short-term investments and to a lesser extent, proceeds from the sale of equity securities. Sources of cash were offset in part by purchases of short-term investments, property and equipment and long-term investments and other assets. Additionally, as part of our lease extension for the Almaden Tower lease completed during the second quarter of fiscal 2007, we purchased a portion of the lease receivable totaling $80.4 million and we also completed two acquisitions for cash consideration of approximately $70.0 million during the six months ended June 1, 2007. Net cash used for financing activities increased $446.2 million for a total of $778.4 million in the six months ended May 30, 2008 as compared to cash used for the same period last year, primarily due to increased purchases of treasury stock when compared to the prior year (see sections entitled "Stock Repurchase Program I" and "Stock Repurchase Program II" discussed below), offset by proceeds related to the issuance of the treasury stock. Sources of cash during the six months ended May 30, 2008 also included $450.0 million of proceeds from borrowings under our credit facility offset with repayments of $100.0 million on this credit facility. We expect to continue our investing activities, including short-term and long-term investments and purchases of computer systems for research and development, sales and marketing, product support and administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase programs and to strategically acquire software companies, products or technologies that are complementary to our business. The Board of Directors has approved a facilities expansion for our operations in India, which may include the purchase of land and buildings. As previously disclosed, we plan to invest $100.0 million directly in venture capital, of which, approximately $25.7 million has already been spent. The remaining balance will be invested over the next three to five years. Our existing cash, cash equivalents and investment balances may decline during fiscal 2008 in the event of a weakening of the economy or changes in our planned cash outlay. However, based on our current business plan and revenue prospects, we believe that our existing balances, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months. Cash from operations could be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part II, Item 1A titled "Risk Factors". During the third quarter of fiscal 2007, we also increased our existing $500.0 million credit facility to $1.0 billion. The purpose of the credit facility is to provide backup liquidity for general corporate purposes including stock repurchases. In January 2008, we drew down $450.0 million under this facility, of which $350.0 million was outstanding as of May 30, 2008 and is included in long-term liabilities on our condensed consolidated balance sheet. In June 2008, we acquired certain intellectual property rights totaling $90.0 million. To the extent the intellectual property rights will benefit future periods, we will capitalize such amounts and amortize them over their useful life. We use professional investment management firms to manage a large portion of our invested cash. External investment firms managed, on average, 43% of our consolidated invested balances during the second quarter of fiscal 2008. Within the U.S., the portfolio is invested primarily in money market funds for working capital purposes. Outside of the U.S., our fixed income portfolio is primarily invested in U.S. Treasury securities. All investments are made according to policies approved by the Board of Directors. During the six months ended May 30, 2008, we entered into several structured repurchase agreements with large financial institutions, whereupon we provided the financial institutions with prepayments of $250.0 million. We entered into these agreements in order to take advantage of repurchasing shares at a guaranteed discount to the Volume Weighted Average Price ("VWAP") of our common stock over a specified period of time. We only enter into such transactions when the discount that we receive is higher than the foregone return on our cash prepayments to the financial institutions. There were no explicit commissions or fees on these structured repurchases. Under the terms of the agreements, there is no requirement for the financial institutions to return any portion of the prepayment to us. The financial institutions agree to deliver shares to us at monthly intervals during the contract term. The parameters used to calculate the number of shares deliverable are: the total notional amount of the contract, the number of trading days in the contract, the number of trading days in the interval, and the average VWAP of our stock during the interval less the agreed upon discount. The prepayments were classified as treasury stock on our balance sheet at the payment date, though only shares physically delivered to us by May 30, 2008 are excluded from the denominator in the computation of earnings per share. All outstanding structured repurchase agreements as of May 30, 2008 under this program will expire on or before September 19, 2008. As of May 30, 2008 approximately $66.1 million of up-front payments remained under the agreements. During the six months ended May 30, 2008, we repurchased 16.6 million shares at an average price per share of $36.58 through structured repurchase agreements which included prepayments from fiscal 2007. Subsequent to May 30, 2008, we entered into additional structured stock repurchase agreements with large financial institutions whereupon we provided the financial institutions with prepayments of $75.0 million. The $75.0 million will be classified as treasury stock on our balance sheet. See Notes 10 and 17 of our Notes to Condensed Consolidated Financial Statements for further discussion of our stock repurchase programs. Under this stock repurchase program, we have authorization to repurchase 50.0 million shares of our common stock. From the inception of this program, we have repurchased 49.5 million shares and provided prepayments of $1.9 billion under structured share repurchase agreements to large financial institutions. During the six months ended May 30, 2008, we provided prepayments of $1.05 billion and repurchased 31.9 million shares under these structured agreements at an average price per share of $37.15. As of May 30, 2008, there are no up-front payments remaining under these agreements. There were no prepayments under this program as of June 1, 2007. Subsequent to May 30, 2008, as part of Stock Repurchase Program II, we repurchased 0.5 million shares for $18.2 million through open market repurchases. This amount will be classified as treasury stock on our balance sheet. See Notes 10 and 17 of our Notes to Condensed Consolidated Financial Statements for further discussion of our stock repurchase programs. Refer to Part II, Item 2 in this report for share repurchases during the quarter ended May 30, 2008. Our principal commitments as of May 30, 2008 consist of obligations under operating leases, royalty agreements and various service agreements. See Note 13 of our Notes to Condensed Consolidated Financial Statements for more detailed information. With the exception of our adoption of FIN 48 and the borrowings under our credit facility, there have been no other significant changes in our contractual commitments during the six months ended May 30, 2008 as compared to the contractual commitments disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November 30, 2007. As of May 30, 2008, the principal outstanding under the credit facility was $350.0 million which is due in full no later than February 16, 2013. Interest associated with this facility cannot be estimated with certainty by period throughout the term since it is based on a fluctuating interest rate calculation. As a result of adopting FIN 48, we reclassified $197.7 million from current income taxes payable to long-term income taxes payable related to unrecognized tax benefits. We cannot estimate the payments due by period because the total income tax payable and timing of tax payments depend on the resolution of current and future tax examinations which cannot be estimated with certainty. Two of our lease agreements discussed in Note 13 of our Notes to Condensed Consolidated Financial Statements are subject to standard financial covenants. As of May 30, 2008, we were in compliance with all of our financial covenants and we expect to remain in compliance during the next 12 months. We believe these limitations will not impact our credit or cash in the coming fiscal year or restrict our ability to execute our business plan. We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a dollar amount per unit shipped or a percentage of the underlying revenue. The lease agreements for our corporate headquarters provide for residual value guarantees. Under FIN 45, the fair value of a residual value guarantee in lease agreements entered into after December 31, 2002 must be recognized as a liability on our consolidated balance sheet. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As of May 30, 2008, the unamortized portion of the fair value of the residual value guarantees remaining in other long-term liabilities and prepaid rent was $3.4 million. In the normal course of business, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations. To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director's or officer's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. As part of our limited partnership interest in Adobe Ventures, we have provided a general indemnification to Granite Ventures, an independent venture capital firm and sole general partner of Adobe Ventures, for certain events or occurrences while Granite Ventures is, or was serving, at our request in such capacity provided that Granite Ventures acts in good faith on behalf of the partnership. We are unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but believe the risk of having to make any payments under this general indemnification to be remote.