8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (date of earliest event reported): September 17, 2013 (September 17, 2013)

Adobe Systems Incorporated

(Exact name of Registrant as specified in its charter)

Delaware	0-15175	77-0019522
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

345 Park Avenue

San Jose, California 95110-2704

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (408) 536-6000

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On September 17, 2013, Adobe Systems Incorporated (“Adobe”) issued a press release announcing its financial results for its third fiscal quarter ended August 30, 2013. A copy of this press release is furnished and attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information in this report and the exhibit attached hereto are being furnished and shall not be deemed filed for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly stated by specific reference in such filing.

The attached press release includes non-GAAP operating income, non-GAAP net income, non-GAAP tax rate, and non-GAAP diluted net income per share.

These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

For our internal budgeting and resource allocation process, we use non-GAAP financial measures, net of the related tax impacts, which exclude: (A) stock-based and deferred compensation expenses; (B) restructuring and other charges; (C) amortization of purchased intangibles and technology license arrangements; (D) investment gains and losses; (E) income tax adjustments; and (F) the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. We use these non-GAAP financial measures in making operating decisions because we believe the measures provide meaningful supplemental information regarding our operational performance and give us a better understanding of how we should invest in research and development and fund infrastructure and go-to-market strategies. We use these measures to help us make budgeting decisions, for example, as between product development expenses and research and development, sales and marketing and general and administrative expenses. In addition, these non-GAAP financial measures facilitate our internal comparisons to our historical operating results and comparisons to competitors’ operating results.

As described above, we exclude the following items from one or more of our non-GAAP measures:

A.     Stock-based and deferred compensation expenses and related tax impact. Stock-based compensation expense consists of charges for employee stock options, restricted stock units, performance shares and employee stock purchases in accordance with current GAAP related to stock-based compensation including expense associated with stock-based compensation related to unvested options and restricted stock units assumed in connection with our acquisitions. As we apply current stock-based compensation standards, we believe that it is useful to investors to understand the impact of the application of these standards to our operational performance, liquidity and our ability to invest in research and development and fund acquisitions and capital expenditures. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense that typically requires or will require cash settlement by us and because such expense is not used by us to assess the core profitability of our business operations. Deferred compensation expense consists of charges associated with movements in our liability related to our deferred compensation plan. Although deferred compensation expense constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense that typically requires current cash settlement by us and because such expense is not used by us to assess the core profitability of our business operations. We further believe these measures are useful to investors in that they allow for greater transparency to certain line items in our financial statements. In addition, excluding these items from various non-GAAP measures facilitates comparisons to our competitors’ operating results.

B.     Restructuring and other charges and related tax impact. During the past several years, we have initiated certain restructuring activities in order to align our costs in connection with both our operating plans and our business strategies based on then-current economic conditions. As a result, we recognized costs related to termination benefits for former Adobe employees whose positions were eliminated and the consolidation of leased facilities. During the second quarter of fiscal 2013 we recorded a write-down associated with certain property assets reclassified as held for sale to their fair value net of estimated costs to sell. Restructuring and other charges are excluded from non-GAAP results because such expense is not used by us to assess the core profitability of our business operations.

C.     Amortization of purchased intangibles and technology license arrangements and related tax impact. We incur amortization of purchased intangibles in connection with our acquisitions. Purchased intangibles include (i) purchased

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technology, (ii) trademarks, (iii) customer contracts and relationships and (iv) other intangibles. We expect to amortize for accounting purposes the fair value of the purchased intangibles based on the pattern in which the economic benefits of the intangible assets will be consumed as revenue is generated. Although the intangible assets generate revenue for us, we exclude this item because this expense is non-cash in nature and because we believe the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding our operational performance, liquidity and our ability to invest in research and development and fund acquisitions and capital expenditures. In addition, excluding this item from various non-GAAP measures facilitates our internal comparisons to our historical operating results and comparisons to our competitors’ operating results. We also incurred charges related to prior activity in connection with technology license arrangements.We exclude these items because these expenses are not reflective of ongoing operating results in the current period.

D.     Investment gains and losses and related tax impact. We incur investment gains and losses principally from realized gains or losses from the sale and exchange of marketable equity investments, other-than-temporary declines in the value of marketable and non-marketable equity securities, unrealized holding gains and losses associated with our deferred compensation plan assets (classified as trading securities) and gains and losses on the sale of equity securities held indirectly through investment partnerships. We do not actively trade publicly held securities nor do we rely on these securities positions for funding our ongoing operations. We exclude gains and losses and the related tax impact on these equity securities because these items are unrelated to our ongoing business and operating results.

E.        Resolution of income tax examinations and related tax impact. During the fiscal quarter ended August 30, 2013 we realized a one-time tax benefit as a result of the resolution of income tax examinations. We have excluded this item because this tax benefit is unrelated to our ongoing business and operating results.

F.     Income Tax Adjustments. Income Tax adjustments include the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Excluding the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and the effective tax rate related to our ongoing operations.

We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our financial results as determined in accordance with GAAP and that these measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures and that is why we qualify the use of non-GAAP financial information in a statement when non-GAAP information is presented.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

99.1 Press release issued on September 17, 2013 entitled “Adobe Creative Cloud Surpasses One Million Subscriptions in Q3”

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ADOBE SYSTEMS INCORPORATED
By:	/s/ MARK GARRETT
	Mark Garrett
	Executive Vice President and Chief Financial Officer

Date: September 17, 2013

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EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release issued on September 17, 2013 entitled “Adobe Creative Cloud Surpasses One Million Subscriptions in Q3”

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EX-99.1

Exhibit 99.1

Investor Relations Contact

Mike Saviage

Adobe Systems Incorporated

408-536-4416

ir@adobe.com

Public Relations Contact

Jodi Sorensen

Adobe Systems Incorporated

408-536-2084

jsorensen@adobe.com

FOR IMMEDIATE RELEASE

Adobe Creative Cloud Surpasses One Million Subscriptions in Q3

Adobe Marketing Cloud Achieves Year-Over-Year Revenue Growth of 28 Percent

SAN JOSE, Calif. - Sept. 17, 2013- Adobe (Nasdaq:ADBE) today reported financial results for its third quarter of fiscal year 2013 ended Aug. 30, 2013.

Third Quarter Financial Highlights

• Adobe achieved revenue of $995.1 million, within its targeted range of $975 million to $1.025 billion. The acquisition of Neolane during the quarter contributed approximately $6 million of revenue to third quarter results.

• Diluted earnings per share were $0.16 on a GAAP-basis, and $0.32 on a non-GAAP basis.

• Operating income was $110.4 million and net income was $83.0 million on a GAAP basis. Operating income was $223.0 million and net income was $164.4 million on a non-GAAP basis.

• Cash flow from operations was $215.5 million.

• Deferred revenue grew by $42.7 million to a record $734.0 million.

• Adobe exited Q3 with 1 million 31 thousand paid Creative Cloud subscriptions, an increase of 331 thousand when compared to the number of subscriptions as of the end of Q2 fiscal year 2013, and enterprise adoption of Creative Cloud was stronger than expected.

• Creative Annualized Recurring Revenue (“ARR”) grew to $546 million, and total Digital Media ARR grew to $655 million.

• Including revenue from Neolane, Adobe Marketing Cloud quarterly revenue was $254.9 million, representing 28 percent year-over-year growth. Excluding revenue from Neolane, Adobe Marketing Cloud year-over-year growth was 25 percent.

A reconciliation between GAAP and non-GAAP results is provided at the end of this press release.

Executive Quotes

“We exceeded one million subscriptions during Q3, demonstrating that the transition to Creative Cloud is happening sooner than expected,” said Shantanu Narayen, president and chief executive officer, Adobe. “We successfully completed the acquisition of Neolane, adding a critical cross-channel campaign management solution to the Adobe Marketing Cloud, which will further extend our leadership position in digital marketing.”

“Our customers are overwhelmingly choosing subscriptions instead of perpetual model licenses which is accelerating our business model transition,” said Mark Garrett, executive vice president and chief financial officer, Adobe. “During Q3, 41 percent of our revenue was recurring and we exited the quarter with record deferred revenue on our balance sheet. These results are building a stronger, more predictable revenue model for Adobe which will drive higher long-term growth.”

Adobe to Webcast Earnings Conference Call

Adobe will webcast its third quarter fiscal year 2013 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. A copy of Adobe management's prepared remarks, including financial targets and conference call slides, has been posted to Adobe's investor relations website in advance of the conference call for reference.

A reconciliation between GAAP and non-GAAP financial targets is also provided on the website.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those related to the transition of our business as we migrate to a subscription model, adoption of Creative Cloud, growth in annualized recurring revenue and Adobe Marketing Cloud revenue and long-term revenue growth, which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to develop, market and distribute products and services that meet customer requirements, introduction of new products and business models by competitors, failure to successfully manage transitions to new business models and markets, including our increased emphasis on a cloud and subscription strategy, fluctuations in subscription renewal or upgrade rates, continued uncertainty in economic conditions and the financial markets, difficulty in predicting revenue from new businesses and the potential impact on our financial results from changes in our business models, and failure to realize the anticipated benefits of past or future acquisitions.

For a discussion of these and other risks and uncertainties, please refer to Adobe's Annual Report on Form 10-K for fiscal year 2012, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2013.

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 Quarterly Report on Form 10-Q for our quarter ended Aug. 30, 2013, which Adobe expects to file in Sept. 2013.

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

About Adobe Systems Incorporated

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

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© 2013 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo, Creative Cloud and Adobe Marketing Cloud are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. All other trademarks are the property of their respective owners.

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Condensed Consolidated Statements of Income

(In thousands, except per share data; unaudited)

	Three Months Ended						Nine Months Ended
	August 30, 2013			August 31, 2012			August 30, 2013			August 31, 2012
Revenue:
Products	$	582,178		$	810,457		$	1,902,866		$	2,490,000
Subscription	299,346			172,920			778,133			478,669
Services and support	113,595			97,203			332,542			281,580
Total revenue	995,119			1,080,580			3,013,541			3,250,249
Cost of revenue:
Products	32,564			27,234			111,351			92,976
Subscription	71,656			56,191			200,763			159,794
Services and support	42,856			36,196			126,927			106,034
Total cost of revenue	147,076			119,621			439,041			358,804
Gross profit	848,043			960,959			2,574,500			2,891,445
Operating expenses:
Research and development	208,700			189,145			621,435			547,776
Sales and marketing	388,673			368,556			1,188,914			1,113,978
General and administrative	128,043			110,249			381,766			323,533
Restructuring and other charges	(791		)	2,374			24,203			(2,642		)
Amortization of purchased intangibles	13,064			12,331			38,295			36,374
Total operating expenses	737,689			682,655			2,254,613			2,019,019
Operating income	110,354			278,304			319,887			872,426
Non-operating income (expense):
Interest and other income (expense), net	1,732			1,217			4,246			(2,696		)
Interest expense	(16,747		)	(17,253		)	(50,786		)	(50,720		)
Investment gains (losses), net	(2,079		)	944			(5,476		)	9,153
Total non-operating income (expense), net	(17,094		)	(15,092		)	(52,016		)	(44,263		)
Income before income taxes	93,260			263,212			267,871			828,163
Provision for income taxes	10,258			61,855			43,206			217,721
Net income	$	83,002		$	201,357		$	224,665		$	610,442
Basic net income per share	$	0.16		$	0.41		$	0.45		$	1.23
Shares used to compute basic net income per share	504,116			494,051			502,039			494,672
Diluted net income per share	$	0.16		$	0.40		$	0.44		$	1.22
Shares used to compute diluted net income per share	514,058			499,757			513,155			502,167

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Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

	August 30, 2013			November 30, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	819,085		$	1,425,052
Short-term investments	2,344,852			2,113,301
Trade receivables, net of allowances for doubtful accounts of $10,481 and $12,643,      respectively	522,409			617,233
Deferred income taxes	47,710			59,537
Prepaid expenses and other current assets	128,495			116,237
Assets held for sale	23,573			—
Total current assets	3,886,124			4,331,360
Property and equipment, net	659,747			664,302
Goodwill	4,752,315			4,133,259
Purchased and other intangibles, net	637,957			545,036
Investment in lease receivable	207,239			207,239
Other assets	90,774			93,327
Total assets	$	10,234,156		$	9,974,523
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables	$	71,070		$	49,759
Accrued expenses	547,997			590,140
Capital lease obligations	17,462			11,217
Accrued restructuring	4,841			9,287
Income taxes payable	4,604			49,886
Deferred revenue	683,143			561,463
Total current liabilities	1,329,117			1,271,752
Long-term liabilities:
Debt and capital lease obligations	1,502,369			1,496,938
Deferred revenue	50,932			58,102
Accrued restructuring	7,242			12,263
Income taxes payable	120,525			155,096
Deferred income taxes	328,310			265,106
Other liabilities	60,902			50,084
Total liabilities	3,399,397			3,309,341
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized	—			—
Common stock, $0.0001 par value	61			61
Additional paid-in-capital	3,266,170			3,038,665
Retained earnings	6,878,216			7,003,003
Accumulated other comprehensive income	12,966			30,712
Treasury stock, at cost (99,028 and 106,702 shares, respectively), net of re-issuances	(3,322,654		)	(3,407,259		)
Total stockholders' equity	6,834,759			6,665,182
Total liabilities and stockholders' equity	$	10,234,156		$	9,974,523

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Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

	Three Months Ended
	August 30, 2013			August 31, 2012
Cash flows from operating activities:
Net income	$	83,002		$	201,357
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	82,175			74,110
Stock-based compensation expense	76,094			74,013
Unrealized investment (gains) losses	2,825			(851		)
Changes in deferred revenue	35,885			(32,445		)
Changes in other operating assets and liabilities	(64,456		)	(52,844		)
Net cash provided by operating activities	215,525			263,340
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net	262,478			(37,426		)
Purchases of property and equipment	(46,798		)	(77,432		)
Purchases of long-term investments, intangibles and other assets, net of sales	(4,896		)	(4,362		)
Acquisitions, net of cash	(608,019		)	—
Net cash used for investing activities	(397,235		)	(119,220		)
Cash flows from financing activities:
Purchases of treasury stock	(400,000		)	—
Re-issuance of treasury stock	162,663			60,948
Proceeds from debt and capital lease obligations	—			3,152
Repayment of debt and capital lease obligations	(10,034		)	(2,316		)
Excess tax benefits from stock-based compensation	—			1,172
Net cash (used for) provided by financing activities	(247,371		)	62,956
Effect of exchange rate changes on cash and cash equivalents	1,756			4,066
Net (decrease) increase in cash and cash equivalents	(427,325		)	211,142
Cash and cash equivalents at beginning of period	1,246,410			951,238
Cash and cash equivalents at end of period	$	819,085		$	1,162,380

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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
	August 30, 2013			August 31, 2012			May 31, 2013
Operating income:
GAAP operating income	$	110,354		$	278,304		$	111,309
Stock-based and deferred compensation expense	81,111			80,682			79,624
Restructuring and other charges	(791		)	2,374			24,992
Amortization of purchased intangibles & technology license arrangements	32,315			30,410			31,359
Non-GAAP operating income	$	222,989		$	391,770		$	247,284
Net income:
GAAP net income	$	83,002		$	201,357		$	76,546
Stock-based and deferred compensation expense	81,111			80,682			79,624
Restructuring and other charges	(791		)	2,374			24,992
Amortization of purchased intangibles & technology license arrangements	32,315			30,410			31,359
Investment (gains) losses	2,079			(944		)	4,245
Resolution of income tax examinations	9,527			—			—
Income tax adjustments	(42,863		)	(22,685		)	(33,915		)
Non-GAAP net income	$	164,380		$	291,194		$	182,851
Diluted net income per share:
GAAP diluted net income per share	$	0.16		$	0.40		$	0.15
Stock-based and deferred compensation expense	0.16			0.16			0.16
Restructuring and other charges	—			—			0.05
Amortization of purchased intangibles & technology license arrangements	0.06			0.06			0.06
Investment (gains) losses	—			—			0.01
Resolution of income tax examinations	0.02			—			—
Income tax adjustments	(0.08		)	(0.04		)	(0.07		)
Non-GAAP diluted net income per share	$	0.32		$	0.58		$	0.36
Shares used in computing diluted net income per share	514,058			499,757			512,446

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Non-GAAP Results (continued)

	Three Months Ended
	August 30, 2013
Effective income tax rate:
GAAP effective income tax rate	11.0	%
Stock-based and deferred compensation expense	(1.0	)
Resolution of income tax examinations	11.0
Non-GAAP effective income tax rate	21.0	%

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 and other charges, amortization of purchased intangibles , investment gains and losses, resolution of income tax examinations and the related tax impact of all of these items, income tax adjustments including 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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