0000796343-14-000082.txt : 20140916 0000796343-14-000082.hdr.sgml : 20140916 20140916161439 ACCESSION NUMBER: 0000796343-14-000082 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20140916 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20140916 DATE AS OF CHANGE: 20140916 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADOBE SYSTEMS INC CENTRAL INDEX KEY: 0000796343 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770019522 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15175 FILM NUMBER: 141105593 BUSINESS ADDRESS: STREET 1: 345 PARK AVE CITY: SAN JOSE STATE: CA ZIP: 95110-2704 BUSINESS PHONE: 4085366000 MAIL ADDRESS: STREET 1: 345 PARK AVENUE CITY: SAN JOSE STATE: CA ZIP: 95110-2704 8-K 1 adbe8kq314.htm 8-K ADBE 8K Q314

 

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 16, 2014 (September 16, 2014)
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 16, 2014, Adobe Systems Incorporated (“Adobe”) issued a press release announcing its financial results for its third fiscal quarter ended August 29, 2014. 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; (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.
Through the end of fiscal 2013, we made certain income tax adjustments to our non-GAAP financial measures to reflect the income tax effects of each item we excluded from our pre-tax non-GAAP financial measures, as well as certain discrete one-time income tax adjustments. This approach is consistent with how we evaluate operating performance and plan, forecast and analyze future periods. Beginning in the first quarter of fiscal 2014, we began using a long-term non-GAAP tax rate for evaluating operating performance, as well as planning, forecasting and analyzing future periods. This long-term non-GAAP tax rate eliminates the effects of non-recurring and period specific items which can vary in size and frequency. Based on our current long-term projections, a long-term non-GAAP tax rate of 21% has been applied to our non-GAAP financial results in fiscal 2014.
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 and to facilitate our internal comparisons to our historical operating results. In addition, we believe these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. This allows institutional investors, the analyst community and others to better understand and evaluate our operating results and future prospects in the same manner as management and to compare operating results across accounting periods and to those of our peer companies.
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 restricted stock units, performance shares, stock options 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

2


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. 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 related tax impact. We incur amortization of purchased intangibles in connection with our acquisitions. Purchased intangibles include (i) purchased 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.
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.     Income Tax Adjustments. Our Income tax expense is based on our GAAP taxable income and actual tax rates in effect, which can differ significantly from the 21% long-term non-GAAP tax rate applied to our non-GAAP financial results effective in fiscal 2014. In arriving at our long-term non-GAAP tax rate, certain non-recurring and period specific income tax adjustments, such as a one-time tax charge in connection with an acquisition, reenactment of the Federal Research and Development tax credit and resolution of an income tax audit, are made to help us to assess the core profitability of our business operations. We intend to evaluate this long-term non-GAAP tax rate only on an annual basis. This long-term non-GAAP tax rate could be subject to change for a number of reasons including significant changes in our geographic earnings mix or fundamental tax law changes in major jurisdictions in which we operate.
F.     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.

3




Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1 Press release issued on September 16, 2014 entitled “Adobe Reports Q3 FY2014 Financial Results”



4


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 16, 2014






5



EXHIBIT INDEX
Exhibit No.
 
Description
99.1
 
Press release issued on September 16, 2014 entitled “Adobe Reports Q3 FY2014 Financial Results”


6
EX-99.1 2 adbeex991q314.htm EXHIBIT ADBE EX 99.1 Q314

Exhibit 99.1
Investor Relations Contact
Mike Saviage
Adobe Systems Incorporated
408-536-4416
ir@adobe.com
Public Relations Contact
Colleen Rodriguez
Adobe Systems Incorporated
408-536-6803
corodrig@adobe.com



FOR IMMEDIATE RELEASE

Adobe Reports Q3 FY2014 Financial Results
Creative Cloud and Adobe Marketing Cloud Adoption Accelerates
SAN JOSE, Calif. - Sept. 16, 2014 - Adobe (Nasdaq:ADBE) today reported financial results for its third quarter of fiscal year 2014 ended Aug. 29, 2014.
Third Quarter Financial Highlights
Adobe achieved revenue of $1.005 billion, within its targeted range of $975 million to $1.025 billion.
Adobe exited Q3 with 2 million 810 thousand paid Creative Cloud subscriptions, an increase of 502 thousand when compared to the number of subscriptions as of the end of Q2 fiscal year 2014.
Creative Annualized Recurring Revenue (“ARR”) grew to $1.40 billion, and total Digital Media ARR grew to $1.62 billion.
Adobe Marketing Cloud quarterly revenue was $290 million with strong bookings growth.
Diluted earnings per share were $0.09 on a GAAP-basis, and $0.28 on a non-GAAP basis.
Cash flow from operations was $269 million and deferred revenue grew to a record $997 million.
63 percent of Adobe’s Q3 revenue was from recurring sources.
The company repurchased approximately 1.9 million shares during the quarter, returning approximately $133 million of cash to stockholders.
A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe’s website.
Executive Quotes
“Adoption of Creative Cloud and Adobe Marketing Cloud continues to accelerate,” said Shantanu Narayen, president and chief executive officer, Adobe. “We are the leader in both of these high-growth categories and have a rapidly growing pipeline, setting us up for a strong finish to the year in Q4.”
“In Q3, 63 percent of our revenue was recurring, demonstrating the continued success of our business model transformation,” said Mark Garrett, executive vice president and chief financial officer, Adobe. “In addition to momentum with Creative Cloud adoption, our team drove strong bookings growth with Adobe Marketing Cloud.”






Adobe to Webcast Earnings Conference Call
Adobe will webcast its third quarter fiscal year 2014 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. Earnings documents, including Adobe management’s prepared conference call remarks with slides, financial targets and an investor datasheet are posted to Adobe’s investor relations website in advance of the conference call for reference. A reconciliation between GAAP and non-GAAP earnings results and financial targets is also provided on the website.
Forward-Looking Statements Disclosure
This press release contains forward-looking statements, including those related to business momentum, the strength of our cloud business and growth of our revenue, recurring revenue and bookings, all of 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, fluctuations in subscription renewal rates, risks associated with cyber-attacks and information security, uncertainty in economic conditions and the financial markets, 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 our fiscal year 2013 ended Nov. 29, 2013 and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2014.
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. 29, 2014, which Adobe expects to file in Sept. 2014.
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.
###
© 2014 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.







2



Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
 
Three Months Ended
 
Nine Months Ended
 
August 29,
2014
 
August 30,
2013
 
August 29,
2014
 
August 30,
2013
Revenue:
 
 
 
 
 
 
 
Products
$
349,151

 
$
582,178

 
$
1,299,852

 
$
1,902,866

Subscription
547,373

 
299,346

 
1,447,630

 
778,133

Services and support
108,885

 
113,595

 
326,255

 
332,542

Total revenue
1,005,409

 
995,119

 
3,073,737

 
3,013,541

 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
Products
23,172

 
32,564

 
75,169

 
111,351

Subscription
86,670

 
71,656

 
247,549

 
200,763

Services and support
47,882

 
42,856

 
138,419

 
126,927

Total cost of revenue
157,724

 
147,076

 
461,137

 
439,041

 
 
 
 
 
 
 
 
Gross profit
847,685

 
848,043

 
2,612,600

 
2,574,500

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Research and development
212,049

 
208,700

 
630,666

 
621,435

Sales and marketing
406,475

 
388,673

 
1,243,446

 
1,188,914

General and administrative
141,676

 
128,043

 
409,798

 
381,766

Restructuring and other charges
201

 
(791
)
 
498

 
24,203

Amortization of purchased intangibles
13,108

 
13,064

 
40,012

 
38,295

Total operating expenses
773,509

 
737,689

 
2,324,420

 
2,254,613

 
 
 
 
 
 
 
 
Operating income
74,176

 
110,354

 
288,180

 
319,887

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Interest and other income (expense), net
1,454

 
1,732

 
7,162

 
4,246

Interest expense
(13,361
)
 
(16,747
)
 
(47,054
)
 
(50,786
)
Investment gains (losses), net
669

 
(2,079
)
 
813

 
(5,476
)
Total non-operating income (expense), net
(11,238
)
 
(17,094
)
 
(39,079
)
 
(52,016
)
Income before income taxes
62,938

 
93,260

 
249,101

 
267,871

Provision for income taxes
18,252

 
10,258

 
68,842

 
43,206

Net income
$
44,686

 
$
83,002

 
$
180,259

 
$
224,665

Basic net income per share
$
0.09

 
$
0.16

 
$
0.36

 
$
0.45

Shares used to compute basic net income per share
498,468

 
504,116

 
497,782

 
502,039

Diluted net income per share
$
0.09

 
$
0.16

 
$
0.35

 
$
0.44

Shares used to compute diluted net income per share
507,811

 
514,058

 
508,575

 
513,155


3



Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
 
August 29,
2014
 
November 29,
2013
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
903,329

 
$
834,556

Short-term investments
2,616,868

 
2,339,196

Trade receivables, net of allowances for doubtful accounts of $7,879 and $10,228, respectively
528,331

 
599,820

Deferred income taxes
79,713

 
102,247

Prepaid expenses and other current assets
151,227

 
170,110

Total current assets
4,279,468

 
4,045,929

 
 
 
 
Property and equipment, net
785,856

 
659,774

Goodwill
4,746,781

 
4,771,981

Purchased and other intangibles, net
490,839

 
605,254

Investment in lease receivable
80,439

 
207,239

Other assets
110,297

 
90,121

Total assets
$
10,493,680

 
$
10,380,298

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Trade payables
$
53,791

 
$
62,096

Accrued expenses
630,679

 
656,939

Debt and capital lease obligations
606,426

 
14,676

Accrued restructuring
2,351

 
6,171

Income taxes payable
4,438

 
10,222

Deferred revenue
947,563

 
775,544

Total current liabilities
2,245,248

 
1,525,648

 
 
 
 
Long-term liabilities:
 
 
 
Debt and capital lease obligations
901,830

 
1,499,297

Deferred revenue
48,975

 
53,268

Accrued restructuring
5,776

 
7,717

Income taxes payable
141,473

 
132,545

Deferred income taxes
344,715

 
375,634

Other liabilities
74,403

 
61,555

Total liabilities
3,762,420

 
3,655,664

 
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.0001 par value; 2,000 shares authorized

 

Common stock, $0.0001 par value
61

 
61

Additional paid-in-capital
3,675,629

 
3,392,696

Retained earnings
6,850,790

 
6,928,964

Accumulated other comprehensive income
20,067

 
46,103

Treasury stock, at cost (102,235 and 104,573 shares, respectively), net of reissuances
(3,815,287
)
 
(3,643,190
)
Total stockholders' equity
6,731,260

 
6,724,634

Total liabilities and stockholders' equity
$
10,493,680

 
$
10,380,298



4



Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
 
Three Months Ended
 
August 29,
2014
 
August 30,
2013
Cash flows from operating activities:
 
 
 
Net income
$
44,686

 
$
83,002

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
80,154

 
82,175

Stock-based compensation expense
82,986

 
76,094

Unrealized investment (gains) losses, net
(576
)
 
2,825

Changes in deferred revenue
67,934

 
35,885

Changes in other operating assets and liabilities
(6,664
)
 
(64,456
)
Net cash provided by operating activities
268,520

 
215,525

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases, sales and maturities of short-term investments, net
(110,346
)
 
262,478

Purchases of property and equipment
(54,966
)
 
(46,798
)
Purchases and sales of long-term investments, intangibles and other assets, net
(5,082
)
 
(4,896
)
Acquisitions, net of cash

 
(608,019
)
Net cash used for investing activities
(170,394
)
 
(397,235
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(125,000
)
 
(400,000
)
Proceeds from reissuance of treasury stock, net
91,500

 
162,663

Repayment of debt and capital lease obligations
(3,372
)
 
(10,034
)
Excess tax benefits from stock-based compensation
27,078

 

Net cash used for financing activities
(9,794
)
 
(247,371
)
Effect of exchange rate changes on cash and cash equivalents
(2,027
)
 
1,756

Net increase (decrease) in cash and cash equivalents
86,305

 
(427,325
)
Cash and cash equivalents at beginning of period
817,020

 
1,246,410

Cash and cash equivalents at end of period
$
903,325

 
$
819,085


5



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 29,
2014
 
August 30,
2013
 
May 30,
2014
Operating income:
 
 
 
 
 
 
 
 
 
 
 
GAAP operating income
$
74,176

 
$
110,354

 
$
135,258

Stock-based and deferred compensation expense
83,682

 
81,111

 
83,600

Restructuring and other charges
201

 
(791
)
 
(366
)
Amortization of purchased intangibles
31,780

 
32,315

 
31,835

Non-GAAP operating income
$
189,839

 
$
222,989

 
$
250,327

 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
 
 
 
 
GAAP net income
$
44,686

 
$
83,002

 
$
88,527

Stock-based and deferred compensation expense
83,682

 
81,111

 
83,600

Restructuring and other charges
201

 
(791
)
 
(366
)
Amortization of purchased intangibles
31,780

 
32,315

 
31,835

Investment (gains) losses
(669
)
 
2,079

 
(553
)
Income tax adjustments
(19,114
)
 
(33,336
)
 
(16,771
)
Non-GAAP net income
$
140,566

 
$
164,380

 
$
186,272

 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted net income per share
$
0.09

 
$
0.16

 
$
0.17

Stock-based and deferred compensation expense
0.16

 
0.16

 
0.16

Amortization of purchased intangibles
0.06

 
0.06

 
0.06

Income tax adjustments
(0.03
)
 
(0.06
)
 
(0.02
)
Non-GAAP diluted net income per share
$
0.28

 
$
0.32

 
$
0.37

 
 
 
 
 
 
Shares used in computing diluted net income per share
507,811

 
514,058

 
506,687


6



Non-GAAP Results (continued)


 
Three Months
Ended
 
August 29,
2014
Effective income tax rate:
 
 
 
GAAP effective income tax rate
29.0
 %
Stock-based and deferred compensation expense
(4.5
)
Amortization of purchased intangibles
(1.7
)
Income tax adjustments
(1.8
)
Non-GAAP effective income tax rate
21.0
 %





Use of Non-GAAP Financial Information

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. 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. Adobe believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. This allows institutional investors, the analyst community and others to better understand and evaluate our operating results and future prospects in the same manner as management.

Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information that may include items such as stock-based and deferred compensation expenses, restructuring and other charges, amortization of purchased intangibles and certain activity in connection with technology license arrangements, investment gains and losses, loss contingencies 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.







7
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