We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended November 28, 2008 on file with the SEC.

There have been no material changes in our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended November 28, 2008.

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the threesix months ended February 27,May 29, 2009, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended November 28, 2008, that are of significance, or potential significance, to us.

In December 2008,May 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff PositionStatement of Financial Accounting Standards (“FSP”SFAS”) No. 140-4165, “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for and FASB Interpretation (“FIN”) FIN 46R-8 (“FSP 140-4disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The provisions of SFAS 165 are effective for interim and FIN 46R-8”), “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assetsannual reporting periods ending after June 15, 2009 and Interests in Variable Interest Entities.” FSP 140-4 and FIN 46R-8 require additional disclosures about transfers of financial assets and involvement with variable interest entities. The requirements apply to transferors, sponsors, servicers, primary beneficiaries and holders of significant variable interests in a variable interest entity or qualifying special purpose entity. FSP 140-4 and FIN 46R-8 waswill be effective for us beginning in the firstthird quarter of fiscal 2009. However, noSince SFAS 165 only requires additional significant disclosures, were required andwe do not expect the adoption did notto have an impact on our consolidated financial position, results of operations or cash flows.

In September 2008, the FASB issued FSP No. 133-1 and FINFASB Interpretation (“FIN”) No. 45-4, (“FSP FAS 133-1 and FIN 45-4”), “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Financial Accounting Standard (“SFAS”) No. 133 and FIN No. 45; and Clarification of the Effective Date of SFAS No. 161.”161” (“FSP FAS 133-1 and FIN 45-4”).  FSP FAS 133-1 and FIN 45-4 amends SFAS No. 133, (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities,”Activities” (“SFAS 133”) to require disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments.  FSP FAS 133-1 and FIN 45-4 also amend FIN No. 45, (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” an interpretation of SFAS No. 5, 57, and 107 and rescission of  FIN No. 34” (“FIN 45”), to require additional disclosure about the current status of the payment/performance risk of a guarantee.  The provisions of the FSP that amend SFAS 133 and FIN 45 are effective for reporting periods ending after November 15, 2008. FSP FAS 133-1 and FIN 45-4 also clarifies the effective date in SFAS No. 161, (“SFAS 161”), “Disclosures about Derivative

In April 2008, the FASB issued FSP No. 142-3, (“FSP 142-3”), “Determination of the Useful Life of Intangible Assets.”Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets.”  This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008.2008 and interim periods within those fiscal years. FSP 142-3 is effective for us beginning in the secondfirst quarter of fiscal 2009.2010. Early adoption is prohibited. SinceAs this guidance willis to be applied prospectively, on adoption, there will beis no impact to our current consolidated financial statements.

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

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

In September 2006, the FASB issued SFAS No. 157, (“SFAS 157”), “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. Effective November 29, 2008, we adopted SFAS 157 for all nonfinancial assets and nonfinancial liabilities measured at fair value on a non-recurring basis. Examples include goodwill, intangibles, and other long-lived assets. The adoption of SFAS 157 did not have a material impact on our consolidated financial position, results of operations or cash flows.

We measure certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, available-for-sale fixed income and equity securities, other equity securities and foreign currency derivatives.basis. The fair value of these financial assets and liabilities was determined using the following inputs at February 27,May 29, 2009 (in thousands):

Fixed income available-for-sale securities include United States (“U.S.”) treasury securities, Agency or U.S. Government guaranteed securities (86%(79% of total), corporate bonds (9%(12% of total) and obligations of foreign governments and their agencies (5%(9% of total) at May 29, 2009 and U.S. treasury securities, Agency or U.S. Government guaranteed securities (78% of total), corporate bonds (10% of total), obligations of foreign governments and their agencies (10% of total), and obligations of multi-lateral government agencies (2% of total) at November 28, 2008. These are all high quality, investment grade securities with a minimum credit rating of A and a weighted average credit rating better than AA+. We value these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, we classify all of our fixed income available-for-sale securities as having Level 2 inputs. Our procedures include controls to ensure that appropriate fair values are recorded such as comparing prices obtained from multiple independent sources.

The investments of limited partnership relate to our interest in Adobe Ventures IV L.P. (“Adobe Ventures”), which are consolidated in our condensed consolidated financial statements. The Level 1 investments of limited partnership relate to investments in publicly-traded companies and the Level 3 investments relate to investments in privately-held companies. These investments are remeasured at fair value each period with any gains or losses recognized in investment gains (losses), net in our condensed consolidated statements of income. We estimated fair value of the Level 3 investments by considering available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data.

A reconciliation of the beginning and ending balances for investments of limited partnership using significant unobservable inputs (Level 3) as of February 27,May 29, 2009 and November 28, 2008 was as follows (in thousands):

We also have direct investments in privately-held companies accounted for under the cost method, which are periodically assessed for other-than-temporary impairment.  If we determine that an other-than-temporary impairment has occurred, we write-down the investment to its fair value. We estimated fair value of our cost method investments considering available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. During the first quarter ofthree and six months ended May 29, 2009, we determined that certain of our cost method investments were other-than-temporarily impaired which resulted in a charge of $10.6$3.3 million and $13.9 million, respectively, included in investment gains (losses), net in the condensed consolidated statements of income.  The fair value of cost method investments that were impaired was estimated using Level 3 inputs.

In countries outside the U.S., we transact business in U.S. dollars and in various other currencies. In Europe and Japan, transactions that are denominated in Euro and Yen are subject to exposure from movements in exchange rates. We may use foreign exchange option contracts or forward contracts to hedge operational (“cash flow”) exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, may have maturities between one and twelve months. We enter into these foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course of business and accordingly, they are not speculative in nature.

We record changes in the intrinsic value of these cash flow hedges in accumulated other comprehensive income (loss), on our condensed consolidated balance sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss on the cash flow hedge to revenue. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, we reclassify the gain or loss on the related cash flow hedge from accumulated other comprehensive income (loss) to interest and other income, net on our condensed consolidated statementstatements of income at that time.

We also hedge our net recognized foreign currency assets and liabilities with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates.  These derivative instruments hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes in the fair value recorded to interest and other income, net on our condensed consolidated statementstatements of income. These derivative instruments do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged.

We mitigate concentration of risk related to foreign currency hedges as well as interest rate hedges through a policy that establishes counterparty limits. The bank counterparties in these contracts expose us to credit-related losses in the event of their nonperformance. However, to mitigate that risk, we only contract with counterparties who meet our minimum requirements under our counterparty risk assessment process. In addition, our hedging policy establishes maximum limits for each counterparty. We monitor ratings, credit spreads and potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, we will adjust our exposure to various counterparties.

Goodwill as of February 27,May 29, 2009 and November 28, 2008 was $2.132 billion and $2.135 billion respectively. The change includes reductions infor both periods. During the second quarter of fiscal 2009, we completed our annual goodwill primarily relatedimpairment test. Based on this analysis, we determined that there was no impairment of goodwill.

Purchased and other intangible assets subject to the unrecognized tax benefits associated with the acquisitionamortization as of Macromedia in addition to foreign currency translation adjustments.May 29, 2009 were as follows (in thousands):

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

Amortization expense related to purchased and other intangible assets was $39.0$36.4 million and $49.5$75.4 million for the three and six months ended February 27,May 29, 2009, respectively. Comparatively, amortization expense was $48.1 million and February 29,$97.6 million for the three and six months ended May 30, 2008, respectively. Of these amounts, $23.6$21.1 million and $32.4$44.7 million waswere included in cost of sales for the three and six months ended February 27,May 29, 2009, respectively, and February 29,$30.9 million and $63.3 million were included in cost of sales for the three and six months ended May 30, 2008, respectively.

Also included in investments are our direct investments in privately-held companies of approximately $25.6 million and $37.6 million as of May 29, 2009 and November 28, 2008, respectively, which are accounted for based on the cost method. We assess these investments for impairment in value as circumstances dictate.

Accrued expenses as of February 27,May 29, 2009 and November 28, 2008 consisted of the following (in thousands):

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

The assumptions used to value option grants during the three and six months ended February 27,May 29, 2009 and February 29,May 30, 2008 were as follows:

The expected term of employee stock purchase plan (“ESPP”) shares is the average of the remaining purchase periods under each offering period. The assumptions used to value employee stock purchase rights during the three and six months ended February 27,May 29, 2009 and February 29,May 30, 2008 were as follows:

Information regarding stock options outstanding at February 27,May 29, 2009 and February 29,May 30, 2008 is summarized below:

Restricted stock unit activity for the threesix months ended February 27,May 29, 2009 and February 29,the fiscal year ended November 28, 2008 was as follows (in thousands):

Effective January 26, 2009, the Executive Compensation Committee adopted the 2009 Performance Share Program (the “2009 Program”). The purpose of the 2009 Program is to align key management and senior leadership with stockholders’ interests and to retain key employees. The measurement period for the 2009 Program is our fiscal 2009 year. All members of our executive management and other key senior leaders are participating in the 2009 Program. Awards granted under the 2009 Program were granted in the form of performance shares pursuant to the terms of our 2003 Equity Incentive Plan. If pre-determined performance goals are met, shares of stock will be granted to the recipient, with 25% vesting on the later of the date of certification of achievement or the first anniversary date of the grant, and the remaining 75% vesting evenly on the following three annual anniversary dates of the grant, contingent upon the recipient’s continued service to Adobe. Participants in the 2009 Program have the ability to receive up to 115% of the target number of shares originally granted.

The following table sets forth the summary of performance share activity under our 2009 Program for the threesix months ended February 27,May 29, 2009 (in thousands):

In the first quarter of fiscal 2009, the Executive Compensation Committee certified the actual performance achievement of participants in the 2008 Performance Share Program (the “2008 Program”). Based upon the achievement of goals outlined in the 2008 Program, participants had the ability to receive up to 200% of the target number of shares originally granted. Actual performance resulted in participants achieving approximately 124% of target or approximately 1.0 million shares for the 2008 Program. Shares under the 2008 Program vested 25% in the first quarter of fiscal 2009, and the remaining 75% vest evenly on the following three annual anniversary dates of the grant, contingent upon the recipient’s continued service to Adobe.

The following table sets forth the summary of performance share activity under our 20072008 and 2008prior 2007 programs, based upon share awards actually achieved, for the threesix months ended February 27,May 29, 2009 and February 29,the fiscal year ended November 28, 2008 (in thousands):

As of February 27,May 29, 2009, there was $296.3$253.0 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards which will be recognized over a weighted average period of 2.82.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Total stock-based compensation costs that have been included in our condensed consolidated statements of income for the three months ended February 27,May 29, 2009 and February 29,May 30, 2008 were as follows (in thousands):