Adobe Reports Record Quarterly And Annual Revenue

For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for the fiscal year ended December 2, 2011 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 2, 2012, June 1, 2012 and Aug. 31, 2012.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Annual Report on Form 10-K for our year ended Nov. 30, 2012, which Adobe expects to file in Jan. 2013.

Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

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Condensed Consolidated Statements of Income (In thousands, except per share data; unaudited)
		Three Months Ended								Year Ended
		November 30, 2012				December 2, 2011				November 30, 2012				December 2, 2011
Revenue:
Products		$	852,843			$	931,895			$	3,342,843			$	3,416,483
Subscription		194,537				128,437				673,206				458,634
Services and support		106,048				91,829				387,628				341,141
Total revenue		1,153,428				1,152,161				4,403,677				4,216,258
Cost of revenue:
Products		28,687				34,048				121,663				125,640
Subscription		59,308				51,334				219,102				194,033
Services and support		36,983				30,997				143,017				118,200
Total cost of revenue		124,978				116,379				483,782				437,873
Gross profit		1,028,450				1,035,782				3,919,895				3,778,385
Operating expenses:
Research and development		195,047				195,403				742,823				738,053
Sales and marketing		402,181				368,330				1,516,159				1,385,822
General and administrative		111,449				119,586				434,982				414,605
Restructuring and other related charges		(275		)		94,502				(2,917		)		97,773
Amortization of purchased intangibles		12,283				11,830				48,657				42,833
Total operating expenses		720,685				789,651				2,739,704				2,679,086
Operating income		307,765				246,131				1,180,191				1,099,299
Non-operating income (expense):
Interest and other income (expense), net		(718		)		(1,351		)		(3,414		)		(2,974		)
Interest expense		(16,767		)		(16,774		)		(67,487		)		(66,952		)
Investment gains (losses), net		351				5,174				9,504				5,857
Total non-operating income (expense), net		(17,134		)		(12,951		)		(61,397		)		(64,069		)
Income before income taxes		290,631				233,180				1,118,794				1,035,230
Provision for income taxes		68,298				59,461				286,019				202,383
Net income		$	222,333			$	173,719			$	832,775			$	832,847
Basic net income per share		$	0.45			$	0.35			$	1.68			$	1.67
Shares used to compute basic net income per share		494,906				491,523				494,731				497,469
Diluted net income per share		$	0.44			$	0.35			$	1.66			$	1.65
Shares used to compute diluted net income per share		502,154				496,288				502,721				503,921

Condensed Consolidated Balance Sheets (In thousands, except par value; unaudited)
		November 30, 2012				December 2, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	1,425,052			$	989,500
Short-term investments		2,113,301				1,922,192
Trade receivables, net of allowances for doubtful accounts of $12,643 and $15,080, respectively		617,233				634,373
Deferred income taxes		59,537				91,963
Prepaid expenses and other current assets		116,237				133,423
Total current assets		4,331,360				3,771,451
Property and equipment, net		664,302				527,828
Goodwill		4,133,259				3,849,217
Purchased and other intangibles, net		545,036				545,526
Investment in lease receivable		207,239				207,239
Other assets		93,327				89,922
Total assets		$	9,974,523			$	8,991,183
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables		$	49,759			$	86,660
Accrued expenses		590,140				554,941
Capital lease obligations		11,217				9,212
Accrued restructuring		9,287				80,930
Income taxes payable		49,886				42,634
Deferred revenue		561,463				476,402
Total current liabilities		1,271,752				1,250,779
Long-term liabilities:
Debt and capital lease obligations		1,496,938				1,505,096
Deferred revenue		58,102				55,303
Accrued restructuring		12,263				7,449
Income taxes payable		155,096				156,958
Deferred income taxes		265,106				181,602
Other liabilities		50,084				50,883
Total liabilities		3,309,341				3,208,070
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized		—				—
Common stock, $0.0001 par value		61				61
Additional paid-in-capital		3,038,665				2,753,896
Retained earnings		7,003,003				6,528,735
Accumulated other comprehensive income		30,712				29,950
Treasury stock, at cost (106,702 and 109,294 shares, respectively), net of reissuances		(3,407,259		)		(3,529,529		)
Total stockholders' equity		6,665,182				5,783,113
Total liabilities and stockholders' equity		$	9,974,523			$	8,991,183

Condensed Consolidated Statements of Cash Flows (In thousands; unaudited)
		Three Months Ended
		November 30, 2012				December 2, 2011
Cash flows from operating activities:
Net income		$	222,333			$	173,719
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		78,621				73,290
Stock-based compensation expense		73,535				72,527
Unrealized investment gains		(281		)		(5,811		)
Changes in deferred revenue		59,232				47,399
Changes in other operating assets and liabilities		40,219				135,629
Net cash provided by operating activities		473,659				496,753
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net		(33,250		)		18,826
Purchases of property and equipment		(81,789		)		(74,897		)
Purchases of long-term investments, intangibles and other assets, net of sales		(14,436		)		(51,684		)
Acquisitions, net of cash		—				(151,925		)
Net cash used for investing activities		(129,475		)		(259,680		)
Cash flows from financing activities:
Purchases of treasury stock		(100,000		)		—
Reissuance of treasury stock		19,089				1,191
Repayment of debt and capital lease obligations		(2,985		)		(2,243		)
Excess tax benefits from stock-based compensation		3,477				853
Net cash used for financing activities		(80,419		)		(199		)
Effect of exchange rate changes on cash and cash equivalents		(1,093		)		(16,586		)
Net increase in cash and cash equivalents		262,672				220,288
Cash and cash equivalents at beginning of period		1,162,380				769,212
Cash and cash equivalents at end of period		$	1,425,052			$	989,500

Non-GAAP Results (In thousands, except per share data) The following tables show Adobe's GAAP results reconciled to non-GAAP results included in this release.
		Three Months Ended												Year Ended
		November 30, 2012				December 2, 2011				August 31, 2012				November 30, 2012				December 2, 2011
Operating income:
GAAP operating income		$	307,765			$	246,131			$	278,304			$	1,180,191			$	1,099,299
Stock-based and deferred compensation expense			76,248				75,450				80,682				300,277				286,048
Restructuring and other related charges			(275	)			94,502				2,374				(2,917	)			97,773
Amortization of purchased intangibles			30,912				28,444				30,410				119,890				104,005
Non-GAAP operating income		$	414,650			$	444,527			$	391,770			$	1,597,441			$	1,587,125
Net income:
GAAP net income		$	222,333			$	173,719			$	201,357			$	832,775			$	832,847
Stock-based and deferred compensation expense			76,248				75,450				80,682				300,277				286,048
Restructuring and other related charges			(275	)			94,502				2,374				(2,917	)			97,773
Amortization of purchased intangibles			30,912				28,444				30,410				119,890				104,005
Investment (gains) losses			(351	)			(5,174	)			(944	)			(9,504	)			(5,857	)
Income tax adjustments			(20,962	)			(34,347	)			(22,685	)			(57,290	)			(131,400	)
Non-GAAP net income		$	307,905			$	332,594			$	291,194			$	1,183,231			$	1,183,416
Diluted net income per share:
GAAP diluted net income per share		$	0.44			$	0.35			$	0.40			$	1.66			$	1.65
Stock-based and deferred compensation expense			0.15				0.15				0.16				0.60				0.57
Restructuring and other related charges			—				0.19				—				(0.01	)			0.19
Amortization of purchased intangibles			0.06				0.06				0.06				0.24				0.21
Investment (gains) losses			—				(0.01	)			—				(0.02	)			(0.01	)
Income tax adjustments			(0.04	)			(0.07	)			(0.04	)			(0.12	)			(0.26	)
Non-GAAP diluted net income per share		$	0.61			$	0.67			$	0.58			$	2.35			$	2.35
Shares used in computing diluted net income per share			502,154				496,288				499,757				502,721				503,921
Operating expenses:
GAAP operating expenses		$	720,685			$	789,651			$	682,655			$	2,739,704			$	2,679,086
Stock-based and deferred compensation expense			(70,658	)			(71,435	)			(75,762	)			(280,746	)			(270,268	)
Restructuring and other related charges			275				(94,502	)			(2,374	)			2,917				(97,773	)
Amortization of purchased intangibles			(12,283	)			(11,830	)			(12,331	)			(48,657	)			(42,833	)
Non-GAAP operating expenses		$	638,019			$	611,884			$	592,188			$	2,413,218			$	2,268,212

		Three Months Ended
		November 30, 2012
Effective income tax rate:
GAAP effective income tax rate		23.5	%
Stock-based and deferred compensation expense		(0.7	)
Amortization of purchased intangibles		(0.3	)
Non-GAAP effective income tax rate		22.5	%

Adobe continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, Adobe uses non-GAAP financial information to evaluate its ongoing operations and for internal planning and forecasting purposes. Adobe's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adobe presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Adobe's operating results in a manner that focuses on what Adobe believes to be its ongoing business operations. Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the stock-based and deferred compensation expenses, restructuring charges, amortization of purchased intangibles, investment gains and losses and the related tax impact of all of these items, income tax adjustments, the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever Adobe uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

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