Microsoft Word - Q308 10-Q Draft 4.doc debyoung

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Specifications	Microsoft Word - Q308 10-Q Draft 4.doc debyoung
Business section

27 Cost of Revenue for the Three and Nine Months Ended August 29, 2008 and August 31, 2007 Three Months Percent Nine Months P

Specifications	Microsoft Word - Q308 10-Q Draft 4.doc debyoung
Outline	Table of Contents Part I - Financial Information Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Income Condensed Consolidated Statements of Cash Flows Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Note 2. Financial Instruments Note 3. Goodwill and Purchased and Other Intangibles Note 4. Other Assets Note 5. Trade and Other Payables and Accrued Expenses Note 6. Income Taxes Note 7. Stock-Based Compensation Note 8. Employee Benefit Plan Note 9. Restructuring and Other Charges Note 10. Stockholders Equity Note 11. Comprehensive Income Note 12. Net Income Per Share Note 13. Commitments and Contingencies Note 14. Credit Agreement Note 15. Non-Operating Income (Expense) Note 16. Industry Segments Note 17. Subsequent Events
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Content	27 Cost of Revenue for the Three and Nine Months Ended August 29, 2008 and August 31, 2007 Three Months Percent Nine Months Percent 2008 2007 Change 2008 2007 Change Product. $84.7 $ 69.0 23% $ 202.7 $ 193.5 5% Percentage of total revenue. 10%8% 8 % 9% Services and support. 26.2 23.6 11% 73.5 62.6 17% Percentage of total revenue. 3%3% 3 % 3% Total cost of revenue. $ 110.9 $ 92.6 20% $276.2 $ 256.1 8% Product Cost of product revenue includes product packaging, third-party royalties, excess and obsolete inventory, amortization related to localization costs and acquired rights to use technology and the costs associated with the manufacturing of our products. Cost of product revenue increased (decreased) due to the following: % Change 2007 to 2008 QTD % Change 2007 to 2008YTD Amortization of acquired rights to use technology. 42 % 8% Royalties for licensed technologies. 2 4 Amortization of purchased intangibles. (10 ) (10) Localization costs related to our product launches. (14 ) 2 Various individually insignificant items. 3 1 Total change. 23 % 5% Amortization of acquired rights to use technology increased primarily due to the fact that we entered into certain technology licensing arrangements totaling $100.0 million during the third quarter of fiscal 2008. An estimated $56.0 million of this cost is 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 nine years. Of the remaining costs, we estimated that approximately $27.2 million was related to historical use of licensing rights which was expensed as cost of sales, and the residual of $16.8 million was expensed as general and administrative costs. In connection with these licensing arrangements, we have the ability to acquire additional rights to use technology in the future. See Note 13 of our Notes to Condensed Consolidated Financial Statements for further information regarding our contractual commitments. Amortization expense decreased during the three and nine months ended August 29, 2008 as compared to the three and nine months ended August 31, 2007, due to a decrease in amortization expense primarily associated with intangible assets purchased through the Macromedia acquisition. Localization costs which are amortized over the product life cycle, decreased during the three months ended August 29, 2008 as compared to the three months ended August 31, 2007, primarily due to increased localization costs in the third quarter of fiscal 2007 associated with the release of the localized versions of our CS3 family of products. 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 increased during the three and nine months ended August 29, 2008 as compared to the three and nine months ended August 31, 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.
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