Adobe Reports Second Quarter Fiscal 2009 Results

SAN JOSE, Calif.--(Business Wire)--
Adobe Systems Incorporated (Nasdaq:ADBE) today announced financial results for
its second quarter ended May 29, 2009.

In the second quarter of fiscal 2009, Adobe achieved revenue of $704.7 million,
compared to $886.9 million reported for the second quarter of fiscal 2008 and
$786.4 million reported in the first quarter of fiscal 2009.

"We are pleased with the solid profit margin and earnings results we were able
to deliver in Q2," said Shantanu Narayen, president and CEO of Adobe. "We
continue to invest in our key business initiatives which will drive long-term
revenue growth once the economy improves."

Second Quarter Fiscal 2009 GAAP Results

Adobe`s GAAP diluted earnings per share for the second quarter of fiscal 2009
were $0.24, based on 528.0 million weighted average shares. This compares with
GAAP diluted earnings per share of $0.40 reported in the second quarter of
fiscal 2008 based on 542.4 million weighted average shares, and GAAP diluted
earnings per share of $0.30 reported in the first quarter of fiscal 2009 based
on 527.8 million weighted average shares.

GAAP operating income was $161.4 million in the second quarter of fiscal 2009,
compared to $260.2 million in the second quarter of fiscal 2008 and $207.9
million in the first quarter of fiscal 2009. As a percent of revenue, GAAP
operating income in the second quarter of fiscal 2009 was 22.9 percent, compared
to 29.3 percent in the second quarter of fiscal 2008 and 26.4 percent in the
first quarter of fiscal 2009.

GAAP net income was $126.1 million for the second quarter of fiscal 2009,
compared to $214.9 million reported in the second quarter of fiscal 2008 and
$156.4 million in the first quarter of fiscal 2009.

Second Quarter Fiscal 2009 Non-GAAP Results

Non-GAAP diluted earnings per share for the second quarter of fiscal 2009 were
$0.35. This compares with non-GAAP diluted earnings per share of $0.50 reported
in the second quarter of fiscal 2008 and non-GAAP diluted earnings per share of
$0.45 reported in the first quarter of fiscal 2009.

Adobe`s non-GAAP operating income was $237.7 million in the second quarter of
fiscal 2009, compared to $349.6 million in the second quarter of fiscal 2008 and
$295.0 million in the first quarter of fiscal 2009. As a percent of revenue,
non-GAAP operating income in the second quarter of fiscal 2009 was 33.7 percent,
compared to 39.4 percent in the second quarter of fiscal 2008 and 37.5 percent
in the first quarter of fiscal 2009.

Non-GAAP net income was $185.0 million for the second quarter of fiscal 2009,
compared to $272.7 million in the second quarter of fiscal 2008 and $236.8
million in the first quarter of fiscal 2009.

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

Third Quarter Fiscal 2009 Financial Targets

For the third quarter of fiscal 2009, Adobe is targeting Q3 revenue of $665
million to $715 million, an operating margin of 20.5 percent to 25.5 percent on
a GAAP basis, and 31.0 percent to 35.0 percent on a non-GAAP basis.

In addition, Adobe is targeting its share count to be between 529 million and
531 million. The Company also is targeting non-operating income to be between $1
million and $3 million. Adobe`s GAAP tax rate is expected to be approximately
22.5 percent and the non-GAAP tax rate is expected to be approximately 23.5
percent.

These targets lead to a third quarter diluted earnings per share target range of
$0.20 to $0.27 on a GAAP basis, and an earnings per share target range of $0.30
to $0.37 on a non-GAAP basis.

Reconciliation between GAAP and non-GAAP financial targets is provided at the
end of this press release.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those related
to revenue, operating margin, non-operating income, tax rate, share count,
earnings per share and business momentum, 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: adverse
changes in general economic or political conditions in any of the major
countries in which Adobe does business, failure to develop, market and
distribute new products or upgrades to existing products that meet customer
requirements, introduction of new products and business models by existing and
new competitors, failure to successfully manage transitions to new business
models and markets, difficulty in predicting revenue from new businesses, costs
related to intellectual property acquisitions, disputes and litigation,
inability to protect Adobe`s intellectual property from third-party infringers,
or unauthorized use, disclosure or malicious attack, failure to realize the
anticipated benefits of past or future acquisitions and difficulty in
integrating such acquisitions, failure to manage Adobe`s sales and distribution
channels effectively, disruption of Adobe`s business due to catastrophic events,
risks associated with international operations, fluctuations in foreign currency
exchange rates, changes in, or interpretations of, accounting principles,
impairment of Adobe`s goodwill or intangible assets, unanticipated changes in,
or interpretations of, tax rules and regulations, Adobe`s inability to attract
and retain key personnel, impairment of Adobe`s investment portfolio due to
deterioration of the capital markets, market risks associated with Adobe`s
equity investments, and interruptions or terminations in Adobe`s relationships
with turnkey assemblers. For further discussion of these and other risks and
uncertainties, individuals should refer to Adobe`s SEC filings.

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 May 29, 2009, which the Company expects to file in June 2009.
Adobe does not undertake an obligation to update forward-looking statements.

About Adobe Systems Incorporated

Adobe revolutionizes how the world engages with ideas and information - anytime,
anywhere and through any medium. For more information, visit www.adobe.com.

© 2009 Adobe Systems Incorporated. All rights reserved. Adobe and the Adobe logo
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.

Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
Three Months Ended Six Months Ended
May 29, May 30, May 29, May 30,
2009 2008 2009 2008

Revenue:
Products $ 660,055 $ 841,301 $ 1,402,254 $ 1,693,263
Services and support 44,618 45,585 88,809 84,068
Total revenue 704,673 886,886 1,491,063 1,777,331

Total cost of revenue:
Products 55,758 58,229 114,676 118,034
Services and support 16,250 24,637 34,685 47,307
Total cost of revenue 72,008 82,866 149,361 165,341

Gross profit 632,665 804,020 1,341,702 1,611,990

Operating expenses:
Research and development 138,470 170,300 288,387 338,785
Sales and marketing 243,209 279,365 492,700 541,960
General and administrative 70,818 77,078 144,869 160,007
Restructuring charges 3,531 - 15,801 1,431
Amortization of purchased intangibles 15,284 17,099 30,676 34,198
Total operating expenses 471,312 543,842 972,433 1,076,381

Operating income 161,353 260,178 369,269 535,609

Non-operating income (expense):
Interest and other income, net 4,802 12,150 18,086 25,440
Interest expense (620 ) (3,828 ) (1,412 ) (5,637 )
Investment gains (losses), net (1,805 ) 9,506 (19,051 ) 18,238
Total non-operating income (expense), net 2,377 17,828 (2,377 ) 38,041
Income before income taxes 163,730 278,006 366,892 573,650
Provision for income taxes 37,659 63,096 84,386 139,361
Net income $ 126,071 $ 214,910 $ 282,506 $ 434,289
Basic net income per share $ 0.24 $ 0.40 $ 0.54 $ 0.79
Shares used in computing basic net income per share 524,159 533,391 527,324 547,996
Diluted net income per share $ 0.24 $ 0.40 $ 0.53 $ 0.78
Shares used in computing diluted net income per share 528,013 542,376 531,338 557,703

Condensed Consolidated Balance Sheets
(In thousands, except per share data; unaudited)
May 29, November 28,
2009 2008

ASSETS

Current assets:
Cash and cash equivalents $ 1,226,780 $ 886,450
Short-term investments 1,437,405 1,132,752
Trade receivables, net of allowances for doubtful accounts of $6,474 and $4,128, respectively 262,598 467,234
Deferred income taxes 76,907 110,713
Prepaid expenses and other assets 84,079 137,954
Total current assets 3,087,769 2,735,103

Property and equipment, net 291,720 313,037
Goodwill 2,134,997 2,134,730
Purchased and other intangibles, net 148,507 214,960
Investment in lease receivable 207,239 207,239
Other assets 193,513 216,529
Total assets $ 6,063,745 $ 5,821,598

LIABILITIES AND STOCKHOLDERS` EQUITY

Current liabilities:
Trade payables $ 42,258 $ 55,840
Accrued expenses 363,431 399,969
Accrued restructuring 11,728 35,690
Income taxes payable 11,024 27,136
Deferred revenue 185,191 243,964
Total current liabilities 613,632 762,599

Long-term liabilities:
Deferred revenue 28,124 31,356
Debt 350,000 350,000
Income taxes payable 137,240 123,182
Deferred income taxes 104,490 117,328
Accrued restructuring 6,559 6,214
Other liabilities 22,659 20,565
Total liabilities 1,262,704 1,411,244

Stockholders` equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized - -
Common stock, $0.0001 par value 61 61
Additional paid-in-capital 2,361,224 2,396,819
Retained earnings 5,195,911 4,913,406
Accumulated other comprehensive income 27,310 57,222
Treasury stock, at cost (76,304 and 74,723 shares, respectively), net of reissuances (2,783,465 ) (2,957,154 )
Total stockholders` equity 4,801,041 4,410,354
Total liabilities and stockholders` equity $ 6,063,745 $ 5,821,598

Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three Months Ended
May 29, May 30,
2009 2008
Cash flows from operating activities:
Net income $ 126,071 $ 214,910
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion 64,725 68,656
Stock-based compensation expense, net of tax 40,959 48,387
Net investment losses 714 914
Changes in deferred revenue (11,971 ) 1,795
Changes in operating assets and liabilities 41,031 (2,871 )

Net cash provided by operating activities 261,529 331,791

Cash flows from investing activities:
Purchases of short-term investments, net of sales and maturities (203,571 ) (27,100 )
Purchases of property and equipment (10,312 ) (22,403 )
Purchases of long-term investments and other assets, net of sales (3,869 ) (19,599 )

Net cash used for investing activities (217,752 ) (69,102 )

Cash flows from financing activities:
Purchases of treasury stock - (150,161 )
Reissuances of treasury stock 20,215 108,957
Repayment of borrowings under credit facility - (100,000 )
Excess tax benefits from stock-based compensation - 9,329

Net cash provided by (used for) financing activities 20,215 (131,875 )

Effect of exchange rate changes on cash and cash equivalents 13,863 (1,094 )
Net increase in cash and cash equivalents 77,855 129,720
Cash and cash equivalents at beginning of period 1,148,925 1,032,733
Cash and cash equivalents at end of period $ 1,226,780 $ 1,162,453

Second Quarter Fiscal Year 2009 Non-GAAP Results
(In thousands, except per share data)
The following tables show Adobe`s non-GAAP results reconciled to GAAP results included in this release.

Three Months Ended
May 29, May 30, February 27,
2009 2008 2009

Operating income:

GAAP operating income $ 161,353 $ 260,178 $ 207,916
Stock-based and deferred compensation expense 43,284 48,388 45,007
Restructuring charges 3,531 - 12,270
Amortization of purchased intangibles and technology license arrangements 29,528 41,071 29,782
Non-GAAP operating income $ 237,696 $ 349,637 $ 294,975

Net income:

GAAP net income $ 126,071 $ 214,910 $ 156,435
Stock-based and deferred compensation expense 43,284 48,388 45,007
Restructuring charges 3,531 - 12,270
Amortization of purchased intangibles and technology license arrangements 29,528 41,071 29,782
Investment loss (gain) 1,805 (9,506 ) 17,246
Income tax adjustments (19,182 ) (22,125 ) (23,990 )
Non-GAAP net income $ 185,037 $ 272,738 $ 236,750

Diluted earnings per share:

GAAP diluted earnings per share $ 0.24 $ 0.40 $ 0.30
Stock-based and deferred compensation expense 0.08 0.09 0.09
Restructuring charges 0.01 - 0.02
Amortization of purchased intangibles and technology license arrangements 0.06 0.08 0.06
Investment loss (gain) - (0.02 ) 0.03
Income tax adjustments (0.04 ) (0.05 ) (0.05 )
Non-GAAP diluted earnings per share $ 0.35 $ 0.50 $ 0.45

Shares used in computing diluted earnings per share 528,013 542,376 527,830

Three Months Ended
May 29, May 30, February 27,
2009
2008 2009

Operating expenses:

GAAP operating expenses $ 471,312 $ 543,842 $ 501,121
Stock-based and deferred compensation expense (41,892 ) (47,200 ) (44,904 )
Restructuring charges (3,531 ) - (12,270 )
Amortization of purchased intangibles (15,284 ) (17,099 ) (15,392 )
Non-GAAP operating expenses $ 410,605 $ 479,543 $ 428,555

Three Months Ended
May 29, May 30, February 27,
2009 2008 2009

Operating margin:

GAAP operating margin 22.9 % 29.3 % 26.4 %
Stock-based and deferred compensation expense 6.1 5.5 5.7
Restructuring charges 0.5 - 1.6
Amortization of purchased intangibles and technology license arrangements 4.2 4.6 3.8
Non-GAAP operating margin 33.7 % 39.4 % 37.5 %

Effective income tax rate:

GAAP effective income tax rate 23.0 %
Stock-based and deferred compensation expense 0.3
Amortization of purchased intangibles 0.2
Non-GAAP effective income tax rate 23.5 %

Third Quarter Fiscal Year 2009 Non-GAAP Financial Targets
(In millions, except per share data)
The following tables show the Company`s third quarter fiscal year 2009 non-GAAP financial targets reconciled to GAAP financial targets included in this release.

Third Quarter
Fiscal 2009
Low High

Operating margin:

GAAP operating margin 20.5 % 25.5 %
Stock-based and deferred compensation expense 5.9 5.2
Restructuring charges 0.1 0.1
Amortization of purchased intangibles 4.5 4.2
Non-GAAP operating margin 31.0 % 35.0 %

Third Quarter
Fiscal 2009
Low High
Diluted earnings per share:

GAAP diluted earnings per share $ 0.20 $ 0.27
Stock-based and deferred compensation expense 0.07 0.07
Amortization of purchased intangibles 0.06 0.06
Income tax adjustments (0.03 ) (0.03 )
Non-GAAP diluted earnings per share $ 0.30 $ 0.37

Shares used in computing diluted earnings per share 531.0 529.0

Third Quarter

Fiscal 2009

GAAP effective income tax rate 22.5 %
Stock-based and deferred compensation expense 0.6
Amortization of purchased intangibles 0.4
Non-GAAP effective income tax rate 23.5 %

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 impact, restructuring charges, amortization of purchased
intangibles and technology license arrangements, investment gains and losses,
and the related tax impact of all of these items, 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.

Adobe Systems Incorporated
Mike Saviage, 408-536-4416
Investor Relations
ir@adobe.com
Holly Campbell, 408-536-6401
Public Relations
campbell@adobe.com

Copyright Business Wire 2009