Mike Saviage - Vice President, Investor Relations Shantanu Narayen - President and Chief Executive Officer Mark Garrett - Executive Vice President and Chief FinancialOfficer

Jay Vleeschhouwer - Merrill Lynch Heather Bellini - UBS Adam Holt - JP Morgan Thomas Ernst - Deutsche Bank Philip Rueppel - Wachovia Securities Brent Thill - Citigroup Peter C. Kuper - Morgan Stanley Jason Maynard - Credit Suisse Gene Munster - Piper Jaffray Christopher Rowen - Soleil Securities Ross MacMillan - Jeffries & Company Daniel T. Cummins - Bank of America Securities Sasa Zorovic - Goldman Sachs Walter Pritchard - Cowen and Company Steven Ashley - Robert W. Baird

: In the call today, we’ll discuss Adobe's fourth quarter andfiscal year 2007 financial results. By now, you should have a copy of ourearnings press release, which crossed the wire approximately 45 minutes ago. Ifyou need a copy of the press release, you can go to adobe.com under the companyand press links to find an electronic copy. Before we get started, I want to emphasize that some of theinformation discussed in this call, particularly our revenue and operatingtargets and our forward-looking product plans, is based on information as oftoday, December 17, 2007, and contains forward-looking statements that involverisk and uncertainty. Actual results may differ materially from those set forthin such statements. For a discussion of these risks and uncertainties, youshould review the forward-looking statements disclosure in the earnings pressrelease we issued today, as well as Adobe's SEC filings, including our annualreport on Form 10-K for fiscal year 2006 and our quarterly reports on Form 10-Qfor fiscal year 2007. During this call, we will discuss GAAP and non-GAAPfinancial measures. A reconciliation between the two are available in ourearnings release and on our investor relations website. Call participants are advised that the audio of thisconference call is being broadcast live over the Internet and is also beingrecorded for playback purposes. An archive of the call will be made availablein Acrobat Connect under Adobe's investor relations website for approximately45 days and is the property of Adobe Systems. The audio and archive may not bere-recorded or otherwise reproduced or distributed without prior writtenpermission from Adobe Systems. I would now like to turn the call over to Shantanu.

Thanks, Mike and good afternoon. I am pleased to announceAdobe is reporting record quarterly and fiscal year revenue. Revenue in Q4 was$911.2 million, which was above the high end of our targeted range andrepresents 34% year-over-year growth. Driving our results in Q4 were continuedadoption of our Creative Suite family of products, record Acrobat revenue andstrong momentum in our enterprise business. Revenue in fiscal year 2007 was a record $3.16 billion, anincrease of 23% over fiscal year 2006. This was our fifth consecutive year ofdouble-digit revenue growth. 2007 was a great year for Adobe, as our customers continuedto look to us for solutions that enabled rich, engaging experiences across avariety of media and devices and as we continued to execute extremely wellagainst our strategy. In a few minutes, I will comment on additional businesshighlights for the quarter but first I’ll turn it over to Mark for a review ofour financial results.

Thanks, Shantanu. I will first comment on our full yearfiscal 2007 results. Adobe achieved record revenue of $3.158 billion in theyear compared to $2.575 billion in fiscal 2006. This represents 23%year-over-year revenue growth. GAAP operating profit in fiscal 2007 was $857.6million, compared to $551.3 million in fiscal 2006. Non-GAAP operating profitin fiscal 2007 was $1.2089 billion compared to $959.1 million in fiscal 2006. Our GAAP operating profit margin for the year was 27.2%compared to 21.4% in fiscal 2006. Our non-GAAP operating profit margin was38.3% in fiscal 2007 compared to 37.2% in fiscal 2006. Adobe's annual GAAP net income was $723.8 million in fiscal2007 compared to $505.8 million in fiscal 2006. Adobe's annual non-GAAP netincome was $965.8 million in fiscal 2007 compared to $757.3 million in fiscal2006. GAAP diluted earnings per share in fiscal 2007 were $1.21 compared to$0.83 in fiscal 2006. Non-GAAP diluted earnings per share were $1.61 in fiscal2007 compared to $1.24 in fiscal 2006. Looking at our various businesses in fiscal 2007, weachieved strong growth in our key segments during the year. Our CreativeSolutions business achieved revenue of $1.9 billion, which represents 32%growth when compared to fiscal 2006. Revenue for our Knowledge Worker businessgrew $728.5 million, which represents 11% year-over-year growth. Revenue in ourenterprise and developer segment grew 22% year over year to $230.9 million, andour mobile business grew 40% year over year, while our other segment revenue declined2%. Now I would like to discuss our Q4 fiscal 2007 results. Forthe fourth quarter of fiscal 2007, Adobe achieved record revenue of $911.2million. This compares to $682.2 million reported for the fourth quarter offiscal 2006 and $851.7 million reported last quarter. GAAP operating expenses for the fourth quarter of fiscal2007 were $536.8 million compared to $504 million last quarter. Non-GAAPoperating expenses were $480.3 million compared to $448.4 million last quarter.In the quarter, we had approximately $25 million of Q4 specific expenses thataffected both our GAAP and non-GAAP results. These Q4 items included year-endvariable compensation and legal settlements and were partially offset by alower-than-anticipated tax rate. GAAP operating income in the fourth quarter of fiscal 2007was $275.8 million, or 30.3% of revenue. This compares to GAAP operating incomeof $163.4 million, or 23.9% of revenue in the fourth quarter of fiscal 2006 and$255 million, or 29.9% of revenue last quarter. Non-GAAP operating income in the fourth quarter of fiscal2007 was $362.2 million, or 39.7% of revenue. This compares to non-GAAPoperating income of $256.4 million, or 37.6% of revenue in the fourth quarterof fiscal 2006, and $340.9 million, or 40% of revenue last quarter. Adobe's effective tax rate for the quarter for both GAAP andnon-GAAP measures was 23.6%, below our GAAP target range of 25% to 26%. Thedecrease in the fourth quarter tax rate can be attributed to geographic revenuemix and to the settlement of two state income tax audits. GAAP net income for the fourth quarter of fiscal 2007 was$222.2 million compared to $183.2 million reported in the fourth quarter offiscal 2006 and $205.2 million last quarter. Non-GAAP net income was $289.6 millioncompared to $198.9 million reported in the fourth quarter of fiscal 2006 and$269.4 million last quarter. GAAP diluted earnings per share for the fourth quarter offiscal 2007 were $0.38 based on 587.9 million weighted average shares. Thiscompares with GAAP diluted earnings per share of $0.30 reported in the fourthquarter of fiscal 2006 based on 602.2 million weighted average shares and GAAPdiluted earnings per share of $0.34 reported last quarter, based on 597.3million weighted average shares. Non-GAAP diluted earnings per share for the fourth quarterof fiscal 2007 were $0.49. This compares with non-GAAP diluted earnings pershare of $0.33 in the fourth quarter of fiscal 2006 and $0.45 reported lastquarter. I will now discuss Adobe's revenue in Q4 by businesssegment. Creative Solutions segment revenue was a record $570.5million, compared to $364.1 million in Q4 of fiscal 2006 and $545.5 millionlast quarter. On a year-over-year basis, this represents 57% growth. Knowledge Worker segment revenue was a record $192.1million, compared to $180.9 million in Q4 of fiscal 2006 and $176.8 millionlast quarter. On a year-over-year basis, this represents 6% growth. Enterprise and developer segment revenue was a record $68.4million compared to $52 million in Q4 of fiscal 2006 and $59.3 million lastquarter. On a year-over-year basis, this represents 32% growth. Mobile and device segment revenue was $13.5 million comparedto $12.1 million in Q4 of fiscal 2006 and $13 million last quarter. On ayear-over-year basis, this represents 12% growth. Finally, our other segment revenue was $66.7 million,compared to $73.1 million in Q4 of fiscal 2006 and $57.1 million last quarter.On a year-over-year basis, this represents a decline of 9%. Turning to our geographic results, we experienced soliddemand in all of our major geographic markets in Q4. Results on a percent ofrevenue basis were as follows: the Americas, 47%; Europe, 35%; and Asia, 18%. Regular employees at the end of the fourth quarter totaled6,794 versus 6,677 at the end of third quarter of fiscal 2007. The majority ofthe headcount increase from last quarter was in research and development. Our trade DSO in the fourth quarter of fiscal 2007 was 32days. This compares to 48 days in Q4 of fiscal 2006 and 28 days last quarter. In regard to our global channel inventory position, we endedthe quarter within company policy. During the quarter, cash flow from operations was $398million. Our ending cash and short-term investment position was $2 billion,approximately the same as it was at the end of last quarter. Today we announced an increase to the 20 million sharerepurchase program we announced in April of this year. In fiscal 2007, 17.7million shares were repurchased under this program. Our board of directors hasauthorized the repurchase of an additional 30 million shares, which increasesthe original 20 million authorization to a total of 50 million shares. Thisprogram is in addition to the ongoing stock repurchase program we initiated in1998 to manage dilution from employee stock programs. Under both share repurchase programs, in Q4 we repurchased11.4 million shares at a cost of $477 million for an average cost per share of$41.97. For the year, we repurchased a total of 39.7 million shares, returningapproximately $1.6 billion in cash to our stockholders as part of our sharerepurchase programs. This concludes my discussion of our financial results. Iwould now like to comment on our financial targets. For the first quarter of fiscal 2008, we are targeting arevenue range of $855 million to $885 million. In addition, we are targeting aGAAP operating margin of 30% to 31% and a non-GAAP operating margin ofapproximately 40%. We are targeting our share count to be 586 million to 588million shares. For other income, we are targeting $15 million to $17 million.For our GAAP and non-GAAP effective tax rate, we are targeting approximately27%. This tax rate target does not include a potential one point benefit ifthere is a reinstatement of the R&D tax credit in 2008. These targets lead to a GAAP earnings per share range of$0.34 to $0.36 and a non-GAAP earnings per share range of $0.44 to $0.46. As we first indicated on November 12th, we are targetingannual revenue growth of approximately 13% in fiscal year 2008 and we arereaffirming that target today. Based on the results we reported for Q4, thisequates to revenue of approximately $3.57 billion for the year. We are targeting a full year GAAP operating margin in fiscalyear 2008 of approximately 30% and a non-GAAP operating margin of approximately39%. Our full year financial targets include the followingassumptions: we expect revenue in Q2 and Q3 to be approximately the same asrevenue in Q1; new product releases in the second half of the year will offsetnormal seasonal weakness in Q3 and will also help to make Q4 the highestrevenue quarter of the year, which we believe will set us up for a successful2009. As a reminder, our targets assume a baseline of current economicconditions in our major markets. If the economy were to weaken in any of ourmarkets, this could impact our ability to achieve these targets. Finally, we are making some business segment modificationsas we enter fiscal year 2008. The most significant change is the combining ofour prior knowledge worker solution segment with our enterprise and developersolution segment into one new business segment called business productivitysolutions. This segment change corresponds to changes we’ve made internally onhow we run these businesses within one business unit. Our investor relations data sheet will reflect this changestarting with our Q1 fiscal year 2008 earnings report in March. Segment revenuefor prior periods going back to fiscal year 2006 in our data sheet will beadjusted accordingly. In addition, we plan to continue to break out KnowledgeWorker and Enterprise product revenue in the data sheet so that you are able totrack our progress in these areas. This concludes my section. I’ll now turn the call back overto Shantanu.

Thanks, Mark. I’ll spend the next few minutes reviewinghighlights from our performance in Q4. Our Creative Solutions businesscontinued to perform exceptionally well, driven by the ongoing success ofCreative Suite 3. Based on results thus far, CS3 penetration into our creativeprofessional customer base is mirroring the adoption of CS1 and CS2. Version over version through the end of Q4, we have achieveda 37% increase in revenue with our CS3 family of products for the comparableCS2 time period, and approximately 65% of the revenue we’ve achieved in ourcreative business in fiscal 2007 is suites-based revenue. We remain excitedabout the long-term market dynamics that drove the CS3 performance and weremain confident about our expectations for a long tail in fiscal 2008. With an estimated 76% of broadcasters who stream video onthe web using Flash video, we continue to focus on the dynamic media market asa strategic growth opportunity. We achieved 37% year-over-year growth with ourvideo products in Q4. We just released an updated version of the Adobe FlashPlayer that includes H.264 support and we announced the new Adobe Flash MediaServer Version 3 family of products, which includes significant improvements inperformance, security, and mobile device support. Finally, our digital imaging and digital video hobbyistbusiness achieved record revenue and benefited from the release of new versionsof Adobe Photoshop Elements and Adobe Premiere Elements. Turning to our Knowledge Worker solutions business, thefocus by our field organization helped to achieve record revenue with ourAcrobat family of products. This is a significant achievement given the compareagainst the launch quarter a year ago. Acrobat Professional revenue continuesto outpace Acrobat Standard, reflecting demand for advanced collaboration andsecurity capabilities. We achieved solid performance in the real-time collaborationand web conferencing market with our Acrobat Connect product line. Winsincluded the U.S. Army, the U.S. Marine Corps, and the borders group. In our enterprise and developer solutions business, we had arecord quarter with 32% year-over-year growth. Helping to drive this growth wasthe increase in the number of Q4 enterprise transactions with licensing revenuegreater than $50,000. In total, transactions greater than $50,000 in Q4 were154, up from 104 last quarter. Enterprise wins during the quarter included AIR France KLMGroup, which is using Lifecycle ES PDF Generator to support and administratethe flow and exchange of electronic documents; KBC, the second-largest bank inBelgium, which is standardizing on Adobe Lifecycle for all its electronicforms; and NATO, which just announced last week it will leverage Adobe Flex andAdobe Lifecycle data services ES for its new mission support system to improveNATO’s operational readiness and the delivery of information to flight crews. In our mobile business, we had another solid quarter. InOctober, we launched Flash Lite 3, which supports Flash video and enables thedelivery of engaging experiences and dynamic web content on mobile devices. NTTDoCoMo and Nokia have announced their commitment to deliver Flash Lite 3enabled devices in upcoming deployments of their respective handsets. Turning to our platform business, our focus remains on AdobeAIR. In the same way that Adobe technology contributed to the desktoppublishing revolution, we believe the Adobe integrated run-time is going torevolutionize today’s web experience. AIR lets developers use their existingweb development skills and standards, such as HTML, Ajax, and Flash, to buildand deploy rich Internet applications to the desktop without the constraintsand limitations inherent in web browsers. Developer feedback has been positive and we’ve alreadyshowcased many applications developed on the beta version of AIR, includinganthropology, AOL, business objects, eBay, the NASDAQ stock market,Nickelodeon, PayPal, Philips, QVC, Salesforce.com, SAP, and Yahoo!. These andmany other companies are already building next generation user experiencesbased on Adobe AIR. And finally, our print and classic publishing businesscelebrated a milestone this quarter with the release of the Adobe Technical CommunicationsSuite, an integrated solution for offering, managing, and publishing technicalinformation and training content across multiple formats and languages. Looking forward, as Adobe celebrates its 25th anniversary,we are more focused than ever on the enormous opportunities we have to continueto revolutionize how the world engages with ideas and information. During fiscal 2008, we will not only launch new versions ofseveral of our leading software products, we will also deliver Adobe AIR, our platformfor developing rich Internet applications that will enable rich, engagingexperiences across the web, on the desktop, and on mobile devices. We are performing exceptionally well against our strategyand the company is better positioned than ever to lead the next wave ofsoftware innovation and continue delivering solid financial performance. Now I will turn the call back over to Mike.

Thanks, Shantanu. Before we start Q&A, I would like togo over a few items. First, we have set the date for our next financial analystmeeting. The date is Thursday, May 1st, with the location being in the Bayarea. More information will be provided in early 2008. We have posted several new documents on our investorrelations webpage today. They include today’s earnings release, our updatedinvestor data sheet, a table providing reconciliation for GAAP to non-GAAPfinancial data, and information related to our new business segmentclassifications for fiscal 2008. To access these documents and other investorrelated information, you can go to our website at www.adobe.com/adbe. For those who with to listen to a play-back of today’sconference call, a web-based Acrobat Connect archive of the call will beavailable from the IR page on adobe.com later today. Alternatively, you canlisten to a phone replay by calling 888-203-1112. Use conference ID number3846445. Again, that phone number is 888-203-1112, with ID number 3846445.International callers should dial 719-457-0820. The phone play-back servicewill be available beginning at 4:00 p.m. Pacific Time today and ending at 4:00p.m. Pacific Time on Thursday, December 20, 2007. We will now be happy to take your questions. Operator.

(Operator Instructions) We’ll take our first question fromJay Vleeschhouwer with Merrill Lynch. Jay Vleeschhouwer -Merrill Lynch: Thanks. Shantanu, the first question has to do with how youthink about the long tail for Creative Suite. What if any are the key leadingor coincidental indicators that you look at to substantiate the view that youwill have the long tail? For example, do you look at OS mix? Do you look atupgrade volume versus new units or what if anything are the variables that youtake into account versus how products would have behaved in the past? Secondly, with respect to Acrobat, can you comment at all onhow the increase in the installed base compared with the previous couple ofyears? I believe in ’05 and ’06, based on your disclosures, you increased thebase by about 5 million a year each. And the question therefore is how thatbase increase performed in ’07.

On the first question associated with CS3, first, we arereally pleased with the performance that we had for CS3 in Q4 and as you know,we do a lot of research by talking to our creative customers to understandadoption cycles and the research continues to indicate that the key trends thatwe talked about prior to the release of CS3, namely the excitement around thefact that it was our first release of the integrated Adobe Macromedia products,that fact that we were supporting Mactel on this, the amount of video that weare seeing on the web -- those trends are absolutely continuing. Mac performance also continues to be strong. That’s clearlyone of the indicators that we do look at and our research tells us that Maccustomers, while we are seeing adoption, there is still a fair amount ofadoption left to go. So fundamentally, the slope of CS3 adoption is very similarto that of CS2 and CS1, with the one exception that the revenue issignificantly outpacing those other two previous cycles, which is why wecontinue to be optimistic about CS3 and we continue to believe that we will seea fairly long tail for CS3 this cycle. With respect to your second question on Acrobat, we’re notupdating the total number right now but when you look at Acrobat units, both asstandalone, the fact that we had a record quarter a year after the release wasvery, very pleasing. We are starting to see some significant adoption withinenterprises and when you consider the Acrobat adoption within each of thesuites as well, two things come to mind: one is, it’s clear that higher valueusers of PDF are really what are driving the PDF usage, both within the suitesas well as through Acrobat Professional and there continues to be significantunpenetrated seats with the knowledge workers that we are continuing to targetagainst. Jay Vleeschhouwer -Merrill Lynch: Lastly, for Mark, as part of the 13% outlook for ’08, canyou comment at all on any specific geographic assumption? It’s clear thatEurope was a strong performer for you throughout the year as it’s been for manytechnology companies. Are you seeing any indications, however, in some parts ofEurope at all that the growth may be beginning to decelerate there, compoundingperhaps the concerns that investors have about U.S. growth?

I’m not going to give any guidance on regional breakouts for2008 but I will say that we have not seen any regional problems relative toperformance. All our geographies continue to do well, including Europe and wewould expect that to continue. Jay Vleeschhouwer -Merrill Lynch: Thanks, Mark. Thanks, Shantanu.

We’ll take our next question from Heather Bellini with UBS. Heather Bellini - UBS: Thank you. I was wondering if you could help out with acouple of things. First, you mentioned new product releases that you aretargeting to help offset seasonality in the August quarter. Could you sharewith us what product segments you are referring to? And then, I had a question regarding operating margins thisquarter and I may have missed this, so I apologize, but can you walk usthrough? You guys fell a little bit short in the quarter versus yourexpectations. Can you walk us through the thought process behind that?

I’ll take the first one and let me start off by saying ifyou look at our current suite of products, whether it’s Acrobat 8, CS3, orLifecycle ES, we believe that they are absolutely stellar releases andperforming really well in the marketplace. What we are doing is while we are not announcing any newproducts, we wanted to share the excitement that we had about some of the newproducts that are on track for delivery in the second half of the year and theyshould really allow us to both close 2008 strong as well as enter 2009 withmomentum. So the goal there was primarily as we talked about revenuefrom a quarterization perspective to give you some color. But one of the thingswe’ve learned is for competitive reasons, we don’t want to share productlaunches well before we are ready to do that. Heather Bellini - UBS: Okay, fair enough. And then on the margin front?

I’ll take that one. I did mention we had about $25 millionof Q4 specific expenses in the quarter -- $10 million of that hit our cost ofsales line, so that lowered our gross margin and that was driven by somelitigation settlements in intellectual property. And we had some compensationand commission charges that made up a lot as well of the $25 million. And withthose $25 million worth of expenses pulled out, operating margins would havebeen over 42%. Heather Bellini - UBS: Okay, great. Thank you.

We’ll take our next question from Adam Holt with JP Morgan. Adam Holt - JP Morgan: Good afternoon. My first question is about the penetrationaround CS. You suggested that it’s tracking in line with the previous cycles.Presumably the installed base is much -- well, not presumably. The installedbase is much larger this time around. Are you talking about penetration on arelative or an absolute basis? And then my second question would be on the 37%cycle-on-cycle growth, could you talk a little bit in further detail about themix between units and ASPs driving that growth?

Well, as it relates to your second part, I mean clearly weare seeing an uplift in ASP as people are moving from the individual pointproducts to the suites and we are seeing adoption of the suites. When one looksat CS3 performance for the entire year, the design premium and the designstandard for the entire year were primary drivers of revenue. Remember thatMaster Collection was not available for the entire year but Master Collectionalso continues to do well. So we are clearly seeing customers adopt the versionof our suites. When we talk about penetration, what we are doing is we arelooking at first the number of creative professionals that exist in thecommunity and understanding how many of them have moved to CS3 versus those whoare still in the process, such as large customers of evaluating the productsand have not completely moved, as well as the mix that we are seeing betweencreative professionals and non-creative professionals. We have stated in the past that about 60% of the units aregoing to creative professionals but the rest is going to aficionados, peoplewho like creative. So it is really mirroring prior releases quite a bit andthat gives us a great degree of confidence. Adam Holt - JP Morgan: If I could ask just one more follow-up, you left the thirdquarter with quite a bit of backlog heading into Q4. I believe it was over 5%of sales. Can you talk at all about the kind of backlog and visibility you haveon the first quarter? Thank you.

In Q4, the end of Q4 we will exit with approximately 7% inshippable backlog. Like you said, that’s up from 6% at the end of Q3. Youshould know that backlog is not indicative of future performance and it isfactored into our guidance. Adam Holt - JP Morgan: Great. Thank you very much.

We’ll take our next question from Tom Ernst with DeutscheBank. Thomas Ernst -Deutsche Bank: Good afternoon, gentlemen. Thanks for taking my questions.With the long tail forecast here into next year and a new product cycle coming,I’m curious -- and you are forecasting a bit lower operating margin from Q2through Q4 than in Q1. You must be investing for this product cycle or perhapsyou are investing in AIR. Would you walk us through what the investments areand why you forecast a little bit lower operating margin as we get past Q1?

Let me start and then Shantanu might want to add on to this.Let me give you a little bit of color about revenue as we go through the year.We gave you a range for Q1 on revenue of 855 to 885. And we anticipate that CS3revenue in the first quarter would be approximately the same as Q4 but overall creativebusiness unit would decline due to hobbyist seasonality. We would expectAcrobat in Q1 to be approximately the same as Q4. We would expect enterprisewould decline sequentially due to seasonality and that mobile and other wouldbe approximately the same as Q4, so that gives you a little flavor into thefirst quarter. And then, as I said in my comments, as we go through theyear, Q2 is very similar to Q1, Q3 is very similar to Q2 because the launchesoffset some seasonality and with revenue tracking that way, obviously we aregoing to continue to invest in the business. So margin is a little higher inQ1. It will come down in Q2 and Q3 as we continue to invest and then it willjump back up in Q4 to hit that 39% for the year.

As a company we continue to be really excited about ourlong-term growth rates and if you think about what we have done from a marginperspective -- in ’06 they were approximately 37%. In ’07, they actually wentup to approximately 38.3% and we are targeting 39% for ’08 which frankly ishigher than most other companies were at this revenue rate. So we are bullish about our organic growth rates and wecontinue to balance between investing for the future and returning to ourshareholders. Thomas Ernst -Deutsche Bank: Is there any particular concentration to the investment? Isit more on the AIR side or is it just general across the board?

Well, I think research and development continues to be theprimary area, as Mark mentioned, for our investments. At the same time as theproduct launches are coming, we certainly want to make sure that we get themessage out and get that right, much like we did for CS3 and earlier versionsof Acrobat. Thomas Ernst -Deutsche Bank: All right. Thank you again.

We’ll take our next question from Philip Rueppel withWachovia Securities. Philip Rueppel -Wachovia Securities: Thank you very much. On CS3, could you talk a little bitabout corporate adoption? Last quarter, if I recall, you said the majority orat least a significant amount of large customers hadn’t upgraded. Are youseeing a pick-up in that now? Is it an ’07 budget item or are many of yourcustomers waiting for ’08 budgets?

Well, the one thing I first want to clarify is that when youtalk about CS3 adoption, there are a number of large customers who adopt rightoff the bat. There are other large customers, what they tend to do is eitherfor one section of a newspaper or a magazine or a certain percentage of theirworkforce, they move it and then after testing it, they actually deploy itenterprise wide. In Q4 we continued to see some significant adoptions bylarger enterprises, which is why the revenue was very well, and we continue tobake that into our targets for the next year. But we do expect to continue tosee adoption of CS3 by both individuals as well as larger enterprisesthroughout 2008. Philip Rueppel -Wachovia Securities: Okay, thanks. And then on AIR, are there metrics we shouldbe looking at to assess the progress that you are making there, whether it’sdownloads or downloads of the SDK? And could you talk a little bit aboutcompetition in that space, whether it’s Silverlight or others? How do you see AIRpositioned over the long term? Thanks.

What’s exciting about AIR, frankly, is the fact that thecurrent web experience as it takes us today has some significant deficienciesand I think we have a unique opportunity to make the web experience a lotbetter. What we are doing to measure the success of AIR in the earlygoing frankly is new adoption by developers, so one of the things we try to dois give you a smattering of the applications that people have developed on AIRbecause it’s still frankly quite early in the process. Adobe itself will bealso offering some AIR applications. We have the application called Buzzword,which we acquired, which we will be offering as well as the Adobe Media Player. So in the short run, I would really look for new applicationadoption and new application delivery that highlights functionality of AIR. With respect to competition, I think there are multiplecompanies that look at the opportunity to really change the web experience.What Microsoft is doing with Silverlight is really focusing more on the mediaaspects of it, much like we did with Flash Player. But I think you willcontinue to see other companies also target the entire web experience as anarea for innovation. We think we are uniquely positioned because frankly ourstrategy leverages the broad reach that we already have off PDF and Flash andthe fact that AIR is actually built on existing standards rather than trying toreinvent web standards as some other companies are trying to do. Philip Rueppel -Wachovia Securities: Great. Thank you very much.

We’ll take our next question from Brent Thill withCitigroup. Brent Thill -Citigroup: Thanks. Shantanu, regarding an earlier question around unitson CS3, there’s a pretty dramatic price increase in the design premium when yougo off lifts, so I guess I’m just trying to reconcile the price lift versus theunits sold through. If you just took the price lift, it would assume that someof the units seem to be flat at this point in the cycle. Can you just help usout in terms of trajectory of how the units are selling through?

The challenge with that, as we mentioned in the past, isthat how do you consider a unit of a suite? I mean, do you consider a suitethat has multiple products in it as multiple units or as one unit? Which is whythere has been a challenge associated with looking at units when we talk abouthow CS3 has performed. The other challenge frankly is that as we’ve changedversions of the suites to have different applications post the Macromediaacquisition, that also makes the comparison on a version-over-version basisreally hard, which is why we look at penetration within the existing installbase and we look at revenue and we’ve been trying to share that with you. But overall the adoption and the customer reception hasclearly been great. Brent Thill -Citigroup: Okay. Despite the broader number of SKUs and the higherprice points, you haven’t heard any concerns from evaluating customers thatthere are maybe too many selections and the price point is too high?

No, actually one of the things that we’ve got kudos about isafter we put together the Macromedia Studio and the Adobe Creative Suiteproducts, that the segmentation has actually been very clear, the designsegmentation, the web segmentation, the video and what we are seeing withproduction, premium and the master collection. And remember, as more and morepeople use master collection, that all goes well for future releases becausethey will be all then using the standard as master collection rather than asthe individual point products. The one other thing that I will mention is that in theeducation segment, we are seeing quite a bit of adoption of the mastercollection, which is good because it means that the next generation of creativeprofessional is actually familiar with all of our products. Brent Thill - Citigroup: Real quickly, just on the business productivity solutions,the combination, can you just walk through the rational and were there anydisruptions as it relates to who’s heading that business or associated salesstructure behind that?

No, this was actually something that we had done a whileago. As you know, we are required to report external segments much in the waywe run the business internally, which is why we will be reporting it as abusiness productivity solutions in order to maintain the transparency that wecurrently have for each of the individual business lines. We will continue todo that and no, there has been no disruption internally. Brent Thill -Citigroup: Thanks.

We’ll go next to Peter Kuper with Morgan Stanley. Peter C. Kuper -Morgan Stanley: I think this question has been danced around and not asked,but let me make sure we get to it -- looking forward to the ’08 guidance, Ithink you said specifically and rightly that based on current market conditions,of the product lines, the major products lines that you guys are offering themarket, are any in particular would you say more subject to enterprise spendingpressure? I.E., is it Knowledge Worker, et cetera, or it’s just a too broadanalysis at this point?

You know, what we have said is that when you look at each ofthe individual point products in the enterprise space as it relates to theLifecycle business, the value proposition really is about saving costs andfrankly it tends to be below the capital spending thresholds for CIOs, which iswhy we haven’t seen any impact thus far. When you look at the creative customer, for the creativecustomer as long as they are in business and there is marketing spend, franklythe product more than pays for itself in a few uses because if you are afreelancer and you have the ability to take a few more jobs, the price of thesoftware is not an inhibiting factor. So while I would not say that Adobe is recession proof byany means, the price points of our products tend to be lower than some of thoseof the much larger enterprise software companies. Peter C. Kuper -Morgan Stanley: Great. Just following on mobile and device solutions, Imean, that line I think we’ve been looking for that to start to ratchet up. Iknow Flash Lite has been getting a lot of share on the handsets. Is thereanything we should look forward to ’08 to see some -- either an inflectionpoint from the ramp or just the penetration and the revenues will follow basedon AIR down the road, or how should we look at that line item going forward?

Well, I think from a revenue perspective, we expect to seethat continue to be in the range that it is right now, Peter. What’s misleadinga little bit when you look at the revenue is that it does not actually reflectthe penetration that we are seeing on handsets. We’ll update the install base on handsets at the analystmeeting but the reality is that because Macromedia both had a number of prepaysas well as for accounting reasons, the revenue there doesn’t fully reflect whatthe adoption is. The adoption of Flash Lite on handsets if anything isaccelerating and we are really pleased. We’ve said that we’ve crossed 300million and we continue to see adoption by handset manufacturers worldwide, sovery excited about the adoption we are seeing on handsets. Peter C. Kuper -Morgan Stanley: Great. That’s helpful. Thank you.

And we’ll go next to Jason Maynard with Credit Suisse. Jason Maynard -Credit Suisse: I just wanted to touch a little bit on what you are thinkingabout in the Flash Media Server product and just some commentary around therecent price reduction and how you think that will affect adoption and unitgrowth.

Well, a couple of things. First with the Flash Media Server3 product, we are excited about Flash Media Server 3 because first as we nowsupport industry standard video up to HD quality, which was clearly one of theimportant things that our media customers wanted, support for things like H.264as well as AAC. And the other key features in the product were more streams perserver, significant performance improvements as well as parody between Windowsand Linux, as well as support for content production, which was an importantthing that our customers wanted. What we are finding in the marketplace is that people wantto use Flash streaming but frankly they are choosing less secure and lessefficient methods, such as not having security but having unsecured downloadand really the goal for us right now in our end-to-end video workflow is tomake sure that Flash video is supported by all of these media players. So the price thing is also to make sure that as we addsupport for mobile devices, we have the ability to meet the needs of all ourcustomers, so very excited about what’s happening with Flash video. Jason Maynard -Credit Suisse: Okay, and I just have one follow-up for Mark and I apologizeif I missed it; what is left than on the share repurchase authorization postthe buy-back that you completed in Q4?

Of the 20 million that we announced earlier in the year,we’ve completed 17.7, so there is 2.3 million on the 20, and then we’ve raisedthe 20 now by an additional 30 million to a total of 50. Jason Maynard -Credit Suisse: Okay. That’s what I needed. Thank you very much.

We’ll take our next question from Gene Munster with PiperJaffray. Gene Munster - PiperJaffray: Good afternoon. You guys have talked a little bit about AIRhere. Can you give us some thoughts, Shantanu, in terms of how we should bemodeling AIR in 2008?

I think in terms of 2008, AIR is really all about gettingthe distribution of AIR and brand new applications. Clearly long term, webelieve that AIR has some significant synergies with respect to revenue that wemight see on our tools, new applications that we will develop, such as theAdobe media player which allow us to start to have new monetization mechanisms,such as advertising. But in 2008, our expectations are more around getting broaddistribution of the run-time and seeing some phenomenal new applications thattake advantage of that functionality. Gene Munster - PiperJaffray: At some point, we will model that as a separate businesslike we do Acrobat? That’s kind of the idea?

I think it’s a little early for us to give you a finalresponse on that but what I would say is clearly there’s a tool synergyassociated with as we deliver the next version of Creative Suite people usingthose tools to create AIR applications. I think you will see synergy with ourserver products as people use streaming video servers or image servers tostream this next generation of rich Internet applications, and the newapplications that we will develop from scratch. So you’ll see some uplift in our existing segments butyou’ll also see hopefully new applications that we develop on AIR. Gene Munster - PiperJaffray: Okay, and one final question; as you had a healthy increasein guidance for the first quarter but maintain the full year 13%, how should weread that?

Well, overall -- I’ll start and then I’ll let Mark add. Imean, it was clear that 2007 was a really banner year and we are very pleasedwith the outlook for double-digit growth that we’ve again provided for 2008.And you know, we take our targets seriously. This is over $400 million inadditional revenue for 2008 and it’s clear our strategy is working and we areexecuting against it, so we are very pleased.

I don’t have anything to add to that. I think Shantanu saidit very well. Gene Munster - PiperJaffray: Okay, great. Thank you.

(Operator Instructions) We’ll take our next question fromChris Rowen with Soleil Securities. Christopher Rowen -Soleil Securities: Of the $25 million in fourth quarter specific costs, howmuch of a decrease would you expect to see sequentially? In the first quarterof ’07, we only saw a $1.5 million sequential decrease in pro forma operatingexpenses, so is there a reason why we’d see a bigger increase this year and howmuch?

Of the 25 that I’m talking about, that was Q4 specific anddoes not carry through into Q1. That was the reason I wanted to break that outfor you. Also, because of the fact that it impacted the margin in Q4 but whenyou look at Q1, I’m not going to give you guidance on operating expenses. I’vekind of given you top line and I’ve given you operating margins, so you cankind of figure out the math in between there but we get back to an extremelyhealthy 40% operating margin in Q1, which is what’s driving the EPS number. Christopher Rowen -Soleil Securities: Okay. Thanks a lot.

We’ll take our next question from Ross MacMillan withJeffries. Ross MacMillan - Jeffries& Company: Thanks. Just a quick one on the quarter, just on Asia; youmentioned that obviously all regions were strong but Asia was actually downsequentially. Was that a surprise and if so, can you add any color to that?Thanks.

Again, as we said in the prepared remarks, we had solidperformance across the board, so EMEA was a very strong quarter for us and --but the demand for whether it’s CS3 as well as for Acrobat products continuesto be worldwide. Ross MacMillan -Jeffries & Company: Okay, and then just Mark, on the buy-back, can you justclarify -- I understand the 17.7 but I think you’ve done an incrementalbuy-back since then. Is that correct? So the 11.7 in 4Q or is that all includedin that 17.7?

There’s two programs that we have in place. So there’s aprogram to offset dilution and there’s a program that’s opportunistic, which weannounced earlier in the year. In Q4, we bought back a total of 11 millionshares under both programs and the opportunistic program for the year, webought back 17.7 million shares. Ross MacMillan -Jeffries & Company: Got it. So I should just add that residual and then the 30million and that’s the opportunistic piece still to be used?

Correct. Ross MacMillan -Jeffries & Company: And then one final one just on -- you mentioned productreleases in ’08. Are you precluding first half launches or should we notnecessarily read into that, your comments that -- in other words, it is stillpossible we see new product releases in the first half of the year?

Again, we are not giving anymore color other than the colorthat we gave -- again, primarily to give you some idea to model from aquarterization perspective. Ross MacMillan -Jeffries & Company: Okay. Thank you.

We’ll go next to Daniel Cummins with Bank of America. Daniel T. Cummins -Bank of America Securities: Thank you. I wanted to ask a couple of questions aboutproducts. Could you clarify whether you believe the monetization of AIR islikely to be largely from server licenses or from some sort of royalty model onthe client side over the long run? I had a question about voice-over IP andalso a question about the Flash Media Server as well.

With respect to AIR, as people deliver this next generationof applications, first we believe that they will use our authoringapplications, both our designer tools and our developer tools, to author thisnext generation of web applications. So much like desktop publishing drove ourdesign tools and web publishing drove our web tools, we expect AIR to have animpact on our authoring tools. The second thing is when you look at some of the AIRapplications that are already in beta applications like the one that eBay isdelivering or applications like QVC, in order to stream that rich data down todesktops, we believe that people will use our set of server products, whetherit’s the Flash Media Server or whether it’s the Scene 7 imaging server in orderto be able to do that. So we definitely believe there’s a revenue streamassociated with AIR that accrues to our current server products. And the third is the new applications that we will developand we highlight the Adobe Media Player as one of the new applications thatwe’ve developed. And there we will actually be monetizing it with our mediapartners through the delivery of ads in the media. So what AIR allows us to do is actually have multiplemonetization mechanisms for the various products. Daniel T. Cummins -Bank of America Securities: Okay, but nothing explicit around royalty on the client sideyet?

Well again, on the client side clearly today we deliverFlash Lite for mobile devices. The client run-time is free on desktops and wecontinue to expect the client run-time to be free on desktops. But on mobile asFlash Lite gives way and moves to AIR, we continue to think that that’s amonetization opportunity not just for handsets but also consumer electronicdevices. Daniel T. Cummins -Bank of America Securities: Okay. Thank you. Let me just ask about Flash Media Serverfirst; could you give us your sense of what the price change wasapples-to-apples? The trade press has picked it up as a massive price cut. Iknow there was some simplifications in the licensing. What’s your view on thedegree to which you changed pricing? And if you could comment if you feel itwas in response to Microsoft’s messaging around Silverlight, that would behelpful.

When one looks at the overall workflow for delivering Flashvideo on the web, we continue to believe that we have the best offering withrespect to from the authoring applications all the way out to the media playerthrough the Flash Media Server to be able to deliver video on the web. The pricing decrease was in response to making sure that wehad a competitive offering but it really wasn’t in response to any oneindividual party and it is our continuing desire to make sure that Flash video,we talk about it being 76% of video streams on the Internet, we want people touse secure Flash media streaming as opposed to unsecured. Daniel T. Cummins -Bank of America Securities: Okay, thanks. And just going back to MAX, you talked alittle bit about voice-over IP. Can you give us a sense whether your productcycles over the next let’s say two years are going to have distinct offeringsaround a voice-over IP type client application or are these just more webservices we are talking about that will be embedded in other things you aredoing?

What I think you are referring you is at MAX we showedprototypes of some early components that we were also building on top of theFlash player, one of which was real-time collaboration, a component calledCocomo that we talked about and a component called Pacifica that we talkedabout that has voice capabilities. These were really indications of some of the innovationthat’s happening within our labs. At this point, we’re not announcing anyproducts based on those technologies. Daniel T. Cummins -Bank of America Securities: Okay. Thank you.

We’ll take our next question from Sasa Zorovic with GoldmanSachs. Sasa Zorovic -Goldman Sachs: Thank you. My first question would be regarding your -- I’m not sure that youmentioned the currency impact in the quarter, if you could.

In the fourth quarter, we had approximately $26 million ofbenefit primarily driven by the Euro, when you look at Q4 this year over Q4last year. So our 34% revenue growth for the company would still have beennorth of 30%, even despite the currency benefit. Sasa Zorovic -Goldman Sachs: And on the bottom line?

On the bottom line? It flows down to margin, if you think ofit as -- if you view it as incremental revenue. I don’t understand yourquestion. Sasa Zorovic -Goldman Sachs: What was the impact to EPS based on currencies?

The impact to EPS based on currency -- well, I guess youwould just take $26 million less variable cost off the EPS number but I’m not goingto do that math. Sasa Zorovic -Goldman Sachs: -- all the way down to the bottom line? Okay, fair enough.That’s clear. That’s clear enough. And then my second question would beregarding geographies and sort of specifically regarding the outlook and thedifference amongst these geographies. Obviously we should anticipate Japan tobe strong going into the coming quarter and the color you could provide to usin Europe, and also specifically if you could mention a little bit maybeemerging markets to the point that it’s becoming material at this point, on onehand with strong growth there offset unfortunately by piracy there, if youcould comment on that please as well.

We’ll do that. Let me just add to my comment that thecurrency impact was factored into our guidance so going into the quarter, weobviously knew that we had changing currency rates. And then I’ll let Shantanutalk about emerging markets.

Emerging markets is an area of investment for us in 2008with what’s happening in some of the Eastern European countries, what’shappening in India and China as well as in the Latin America countries. Weclearly see that as an opportunity for our particular products in thosemarkets. We were very pleased with what we saw in Eastern Europe this year andwe have plans to continue to keep that revenue momentum growing in 2008. But as a number of you know, we also have significant piracyissues in some of those emerging markets. But as a whole, the emerging marketgrowth rate is a good growth rate for us in 2007 and we continue to beoptimistic about it in 2008 and beyond. Sasa Zorovic -Goldman Sachs: Thank you.

Operator, we’re running close to our scheduled stop time.Why don’t we take two more questions?

Thank you, sir. We will go next to Walter Pritchard withCowen. Walter Pritchard -Cowen and Company: Thanks for taking my question. Mark, maybe you could talk alittle bit about DSOs. If I look at it year over year are quite low versus wherethey were at the end of 2006. Is that just better collections? Is thatlinearity of business or another factor?

It’s really a combination of exactly both of those -- bettercollections and better linearity as we go through the quarter as the demand forthe products has really picked up. Walter Pritchard -Cowen and Company: Any way to attribute it among those two?

No, I wouldn’t want to try to do that. Walter Pritchard -Cowen and Company: Okay, then Shantanu made a comment on the two best-sellingproducts and alluded to master collection picking up here. Could you tell usexiting the quarter or this quarter, was master collection the number threeproduct as you predicted it might be back at analyst day in April or May?

What we tried to do is give you some flavor for the entireyear with respect to the suites. The way that we looked at that business, thefact that 65% of the revenue was suites, was a very encouraging indicator to usthat people are using suites. And as I said for the entire year, design premiumwas the best selling from a revenue perspective product. And again, remember that as it relates to master collection,a lot of the master collection we’re also seeing adoption within education. Sowe are overall pleased. We are trying not to give you at the end of everyquarter every single SKU but from a big picture perspective, we are clearlyseeing adoption of the suites. Walter Pritchard -Cowen and Company: Thanks a lot.

We’ll take our final question from Steven Ashley with RobertW. Baird. Steven Ashley -Robert W. Baird: Thank you. I would just like to talk about the Elementsbusiness a little. You mentioned that it was very strong. Maybe you could giveus a little bit more color there. And then in addition, is there an opportunityfor new SKUs or new products in the consumer business as well? Thanks.

As you know, traditionally in time for the holiday season,we do release a new version of our Premiere Elements and Photoshop Elementsproducts. They did very well in the marketplace which I think is just anindication of the fact that as consumers and high end consumers are moving fromanalog photography to digital photography as well as buying new video camcordersthat have HD, our brand certainly has a lot of say in that particularmarketplace. I think moving forward, the opportunity continues to be howcan we extend those offerings through hosted services? You’ve seen that we’vetalked about Premiere Express and having Premiere Express offered inconjunction with partners but even for our desktop applications, we see anopportunity to augment the functionality that exists in those desktop productswith services that we might provide through the web. So one can imagine thatthrough partners, when you have Photoshop Elements, you might do printingservices, for example. So when we have more installed base with each of thoseconsumer applications, I think it opens up opportunities for us to offer newservices. Steven Ashley -Robert W. Baird: Thank you.

Thanks, everyone, for joining us today. This now concludesour call.