EX-99.1 2 a06-19684_1ex99d1.htm EX-99

 

Exhibit 99.1

Investor Relations Contact:
Mike Saviage
Adobe Systems Incorporated
408-536-4416
ir@adobe.com

Public Relations Contact:
Holly Campbell
Adobe Systems Incorporated
408-536-6401
campbell@adobe.com

Adobe Reports Solid Third Quarter Financial Results

 

 

Company Achieves 24 Percent Year-Over-Year Revenue Growth

SAN JOSE, Calif. September 14, 2006 Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its third quarter ended September 1, 2006.   The Company’s Q3 results reflect the acquisition of Macromedia in December, 2005, and are compared to pre-acquisition results of prior fiscal periods as applicable.

In the third quarter of fiscal 2006, Adobe achieved revenue of $602.2 million, compared to $487.0 million reported for the third quarter of fiscal 2005 and $635.5 million reported in the second quarter of fiscal 2006. On a year-over-year basis, this represents 24 percent revenue growth.  Adobe’s third quarter revenue target range was $580 to $610 million.

“Q3 was a solid quarter for Adobe with revenue and earnings near or above the high end of our financial target ranges,” said Bruce R. Chizen, Adobe chief executive officer. “With new products launching this quarter, our outlook for the remainder of the year remains positive.”

GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.16.  Adobe’s third quarter GAAP EPS target range was $0.13 to $0.16.

Non-GAAP diluted earnings per share, which excludes amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, SFAS 123R stock-based compensation, tax differences due to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, and investment losses, were $0.29.  Adobe’s third quarter non-GAAP EPS target range was $0.25 to $0.27.

GAAP net income was $94.4 million for the third quarter of fiscal 2006, compared to $144.9 million reported in the third quarter of fiscal 2005, and $123.1 million in the second quarter of fiscal 2006.  Non-GAAP net income, which excludes, as applicable, amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a




 

charge for incomplete technology related to a small acquisition, SFAS 123R stock-based compensation, tax differences due to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, and investment gains and losses, was $171.5 million for the third quarter of fiscal 2006, compared to $146.4 million in the third quarter of fiscal 2005, and $189.4 million in the second quarter of fiscal 2006.

GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.16 based on 600.9 million weighted average shares. This compares with GAAP diluted earnings per share of $0.29 reported in the third quarter of fiscal 2005, based on 507.8 million weighted average shares, and GAAP diluted earnings per share of $0.20 reported in the second quarter of fiscal 2006, based on 613.8 million weighted average shares.

Adobe’s GAAP operating income was $110.0 million in the third quarter of fiscal 2006, compared to $183.6 million in the third quarter of fiscal 2005 and $147.9 million in the second quarter of fiscal 2006. As a percent of revenue, GAAP operating income in the third quarter of fiscal 2006 was 18.3 percent, compared to 37.7 percent in the third quarter of fiscal 2005 and 23.3 percent in the second quarter of fiscal 2006.

Adobe’s non-GAAP operating income, which excludes, as applicable, amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, and SFAS 123R stock-based compensation was $207.2 million in the third quarter of fiscal 2006, compared to $183.6 million in the third quarter of fiscal 2005 and $243.1 million in the second quarter of fiscal 2006.  As a percent of revenue, non-GAAP operating income in the third quarter of fiscal 2006 was 34.4 percent, compared to 37.7 percent in the third quarter of fiscal 2005 and 38.3 percent in the second quarter of fiscal 2006.

Adobe Provides Fourth Quarter FY2006 Financial Targets

For the fourth quarter of fiscal 2006, Adobe announced it is targeting revenue of $655 million to  $685 million.  The Company also is targeting a GAAP operating margin of approximately 21 to 24 percent in the fourth quarter.  On a non-GAAP basis, which excludes acquisition-related costs and SFAS 123R stock-based compensation, the Company is targeting a fourth quarter operating margin of approximately 37 to 38 percent.

In addition, Adobe is targeting its share count to be between 600 million and 602 million shares in the fourth quarter of fiscal 2006.  The Company also is targeting other income in its fourth quarter to be approximately $16 million to $18 million, with a GAAP and non-GAAP tax rate of approximately 26 percent.

These targets lead to a fourth quarter GAAP earnings per share target range of approximately $0.19 to $0.22.  On a non-GAAP basis, which excludes acquisition-related costs, SFAS 123R stock-based compensation, and tax differences related to the timing and deductibility of the Macromedia

2




 

acquisition-related charges and SFAS 123R stock-based compensation, the Company is targeting earnings per share of approximately $0.32 to $0.34.

Forward Looking Statements Disclosure

This press release contains forward looking statements, including those related to planned product releases, revenue, operating margin, other income, tax rate, share count and earnings per share, 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, delays in development or shipment of Adobe’s new products or major new versions of existing products, introduction of new products by existing and new competitors, failure to successfully manage transitions to new business models and markets, difficulty in predicting revenue from new businesses, failure to anticipate and develop new products in response to changes in demand for application software, computers and printers, intellectual property disputes and litigation, inability to protect Adobe’s intellectual property from unauthorized copying, use, disclosure or malicious attack, failure to realize the anticipated benefits of past or future acquisitions and difficulty in integrating such acquisitions, changes to Adobe’s distribution channel, disruption of Adobe’s business due to catastrophic events, interruptions or terminations in Adobe’s relationships with turnkey assemblers, risks associated with international operations, fluctuations in foreign currency exchange rates, changes in, or interpretations of, accounting rules and regulations, impairment of Adobe’s goodwill or intangible assets, unanticipated changes in tax rates, Adobe’s inability to attract and retain key personnel, and market risks associated with Adobe’s equity investments. For further discussion of these and other risks and uncertainties, individuals should refer to Adobe’s SEC filings. 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.

###

© 2006 Adobe Systems Incorporated. All rights reserved. Adobe, Macromedia, 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.

3




 

Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 1,
2006

 

September 2,
2005

 

September 1,
2006

 

September 2,
2005

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Products

 

$

579,185

 

$

476,054

 

$

1,830,905

 

$

1,424,821

 

Services and support

 

23,006

 

10,985

 

62,220

 

31,129

 

Total revenue

 

602,191

 

487,039

 

1,893,125

 

1,455,950

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenue:

 

 

 

 

 

 

 

 

 

Products

 

53,308

 

21,593

 

165,426

 

65,222

 

Services and support

 

16,171

 

5,887

 

47,406

 

16,661

 

Total cost of revenue

 

69,479

 

27,480

 

212,832

 

81,883

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

532,712

 

459,559

 

1,680,293

 

1,374,067

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

130,440

 

94,586

 

401,268

 

270,681

 

Sales and marketing

 

217,203

 

143,748

 

641,418

 

446,094

 

General and administrative

 

57,311

 

37,637

 

177,324

 

120,788

 

Restructuring and other charges

 

32

 

 

20,251

 

 

Amortization of purchased intangibles

 

17,693

 

 

52,111

 

 

Total operating expenses

 

422,679

 

275,971

 

1,292,372

 

837,563

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

110,033

 

183,588

 

387,921

 

536,504

 

 

 

 

 

 

 

 

 

 

 

Non-operating income:

 

 

 

 

 

 

 

 

 

Investment loss, net

 

(5,113

)

(2,044

)

(3,718

)

(6,299

)

Interest and other income

 

18,092

 

12,420

 

47,563

 

28,352

 

Total non-operating income

 

12,979

 

10,376

 

43,845

 

22,053

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

123,012

 

193,964

 

431,766

 

558,557

 

Provision for income taxes

 

28,616

 

49,048

 

109,201

 

111,969

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

94,396

 

$

144,916

 

$

322,565

 

$

446,588

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.16

 

$

0.29

 

$

0.54

 

$

0.91

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic net income per share

 

586,433

 

491,710

 

594,023

 

489,017

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

0.16

 

$

0.29

 

$

0.53

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

 

600,882

 

507,821

 

612,791

 

507,860

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

 

$

 

$

 

$

0.00625

 

 

4




 

Condensed Consolidated Balance Sheets
(In thousands, except per share data; unaudited)

 

 

September 1,

 

December 2,

 

 

 

2006

 

2005

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

644,754

 

$

420,818

 

Short-term investments

 

1,341,698

 

1,280,016

 

Trade receivables, net

 

284,586

 

173,245

 

Other receivables

 

46,105

 

31,504

 

Deferred income taxes

 

138,504

 

58,710

 

Prepaid expenses and other current assets

 

40,907

 

44,285

 

 

 

 

 

 

 

Total current assets

 

2,496,554

 

2,008,578

 

 

 

 

 

 

 

Property and equipment, net

 

212,875

 

103,549

 

Goodwill

 

2,147,557

 

118,683

 

Purchased and other intangibles, net

 

541,542

 

16,477

 

Investment in lease receivable

 

126,800

 

126,800

 

Other assets

 

95,457

 

66,228

 

 

 

 

 

 

 

Total assets

 

$

5,620,785

 

$

2,440,315

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade and other payables

 

$

38,624

 

$

41,042

 

Accrued expenses

 

253,389

 

226,915

 

Accrued restructuring

 

12,618

 

70

 

Income taxes payable

 

149,557

 

154,529

 

Deferred revenue

 

103,509

 

57,839

 

 

 

 

 

 

 

Total current liabilities

 

557,697

 

480,395

 

 

 

 

 

 

 

Other long-term liabilities

 

 

 

 

 

Deferred revenue

 

21,282

 

9,731

 

Deferred income taxes

 

95,565

 

78,800

 

Accrued restructuring

 

24,218

 

 

Other long-term liabilities

 

8,204

 

7,063

 

 

 

 

 

 

 

Total liabilities

 

706,966

 

575,989

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001 par value

 

56

 

54

 

Additional paid-in-capital

 

2,437,694

 

1,350,692

 

Retained earnings

 

3,161,131

 

2,838,566

 

Accumulated other comprehensive income (loss)

 

1,762

 

(914

)

Treasury stock at cost, net of re-issuances

 

(686,824

)

(2,324,072

)

 

 

 

 

 

 

Total stockholders’ equity

 

4,913,819

 

1,864,326

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

5,620,785

 

$

2,440,315

 

 

5




 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

 

 

Three Months Ended

 

 

 

September 1,
2006

 

September 2,
2005

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

94,396

 

$

144,916

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

70,449

 

17,800

 

Stock compensation expense

 

46,020

 

110

 

Deferred income taxes

 

(26,192

)

15,156

 

Recovery of losses on receivables

 

(564

)

(449

)

Tax benefits from employee stock option plans

 

 

16,260

 

Excess tax benefits from stock-based compensation

 

(35,435

)

 

Net losses on sales and impairments of investments

 

5,259

 

2,061

 

Retirements of property and equipment

 

 

1,041

 

Changes in operating assets and liabilities, net of acquired assets and liabilities:

 

 

 

 

 

Receivables

 

2,060

 

11,963

 

Other current assets

 

2,265

 

2,961

 

Trade and other payables

 

(10,857

)

(1,289

)

Accrued expenses

 

(27,155

)

(8,433

)

Accrued restructuring

 

(6,002

)

 

Income taxes payable

 

47,126

 

(28,127

)

Deferred revenue

 

23,171

 

(1,023

)

 

 

 

 

 

 

Net cash provided by operating activities

 

184,541

 

172,947

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of short-term investments

 

(142,525

)

(441,279

)

Maturities of short-term investments

 

98,030

 

115,445

 

Sales of short-term investments

 

106,219

 

323,248

 

Acquisitions of property and equipment

 

(18,852

)

(17,396

)

Purchases of long-term investments and other assets

 

(8,215

)

(7,454

)

Proceeds from sale of equity securities

 

 

1,084

 

 

 

 

 

 

 

Net cash provided by (used for) investing activities

 

34,657

 

(26,352

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Purchases of treasury stock

 

(100,147

)

(46

)

Proceeds from issuance of treasury stock

 

64,856

 

52,344

 

Excess tax benefits from stock-based compensation

 

35,435

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

144

 

52,298

 

 

 

 

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

 

20

 

1,973

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

219,362

 

200,866

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

425,392

 

253,302

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

644,754

 

$

454,168

 

 

6




 

Non-GAAP Results

(In thousands, except per share data)

The following table shows Adobe’s non-GAAP results reconciled to GAAP results included in this release.

 

 

September 1,
2006

 

September 2,
2005

 

June 2,
2006

 

 

 

 

 

 

 

 

 

GAAP operating income

 

$

110,033

 

$

183,558

 

$

147,908

 

SFAS 123R stock-based compensation*

 

27,186

 

 

26,622

 

Amortization of Macromedia deferred compensation*

 

15,471

 

 

15,259

 

Restructuring and other charges

 

32

 

 

1,235

 

Amortization of purchased intangibles and incomplete technology*

 

54,527

 

 

52,041

 

Non-GAAP operating income

 

$

207,249

 

$

183,588

 

$

243,065

 

 

 

 

 

 

 

 

 

GAAP net income.

 

$

94,396

 

$

144,916

 

$

123,097

 

SFAS 123R stock -based compensation, net of tax

 

20,487

 

 

19,085

 

Amortization of Macromedia deferred compensation, net of tax

 

11,659

 

 

10,939

 

Restructuring and other charges, net of tax

 

24

 

 

885

 

Amortization of purchased intangibles and incomplete technology, net of tax

 

41,092

 

 

37,308

 

Investment (gain)loss, net of tax

 

3,831

 

1,527

 

(1,909

)

Non-GAAP net income

 

$

171,489

 

$

146,443

 

$

189,405

 

 

 

 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income

 

$

0.16

 

$

0.29

 

$

0.20

 

SFAS 123R stock -based compensation, net of tax

 

0.03

 

 

0.03

 

Amortization of Macromedia deferred compensation, net of tax

 

0.02

 

 

0.02

 

Restructuring and other charges, net of tax

 

0.00

 

 

0.00

 

Amortization of purchased intangibles and incomplete technology, net of tax

 

0.07

 

 

0.06

 

Investment (gain)loss, net of tax

 

0.01

 

0.00

 

0.00

 

Non-GAAP net income

 

$

0.29

 

$

0.29

 

$

0.31

 

 

 

 

 

 

 

 

 

Shares used computing diluted net income per share

 

600,882

 

507,821

 

613,804

 


*                    See table below for classification on the Consolidated Statements of Income.

7




 

The following table shows the Company’s classification of SFAS 123R stock-based compensation, amortization of Macromedia deferred compensation, and amortization of purchased intangibles and incomplete technology on the Consolidated Statements of Income for the quarter ended September 1, 2006.

 

 

Total Stock-based Compensation

 

 

 

Income Statement Classifications

 

SFAS 123R

 

Amortization of
Macromedia
Deferred
Compensation(a)

 

Amortization of
Purchased Intangibles
and Incomplete
Technology

 

 

 

 

 

 

 

 

 

Cost of revenue – products

 

$

 

$

 

$

34,534

(a)

Cost of revenue – services and support

 

569

 

249

 

 

 

Research and development

 

11,983

 

802

 

2,300

(b)

Sales and marketing

 

8,979

 

14,104

 

 

General and administrative

 

5,655

 

316

 

 

Amortization of purchased intangibles

 

 

 

17,693

(a)

Total

 

$

27,186

 

$

15,471

 

$

54,527

 


(a)             Relates to Macromedia acquisition

(b)            Charge for incomplete technology related to a small acquisition

The following table shows the Company’s reconciliation of non-GAAP to GAAP operating expenses as a percent of revenue and effective tax rate for the quarter ended September 1, 2006.

 

 

Operating Expense as a Percent of Revenue

 

 

 

 

 

Research and
Development

 

Sales and
Marketing

 

General and
Administrative

 

Effective
Tax Rate

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

21.7

%

36.1

%

9.5

%

23.3

%

SFAS 123R stock-based compensation

 

(2.0

)%

(1.6

)%

(0.9

)%

(0.7

)%

Amortization of Macromedia deferred compensation

 

(0.1

)%

(2.3

)%

(0.1

)%

1.0

%

Amortization of purchased intangibles and incomplete technology

 

(0.4

)%

 

 

0.3

%

Non-GAAP

 

19.2

%

32.2

%

8.5

%

23.9

%

 

8




 

The following table shows the Company’s reconciliation of non-GAAP to GAAP operating expenses for the quarter ended September 1, 2006.

 

Operating
Expenses

 

 

 

 

 

GAAP

 

$

422,679

 

SFAS 123R stock –based compensation

 

(26,617

)

Amortization of Macromedia deferred compensation

 

(15,222

)

Restructuring and other charges

 

(32

)

Amortization of purchased intangibles and incomplete technology

 

(19,993

)

Non-GAAP

 

$

360,815

 

 

The following table shows the Company’s reconciliation of non-GAAP to GAAP gross margin for the quarter ended September 1, 2006.

 

Gross
Margin

 

 

 

 

 

GAAP

 

88.5

%

SFAS 123R stock –based compensation

 

0.1

%

Amortization of Macromedia deferred compensation

 

0.0

%

Amortization of purchased intangibles and incomplete technology

 

5.7

%

Non-GAAP

 

94.3

%

 

9




 

Fourth Quarter Fiscal Year 2006 Non-GAAP Financial Targets

The following table shows Adobe’s non-GAAP financial targets reconciled to GAAP financial targets included in this release.

 

 

Fourth Quarter
Fiscal 2006

 

 

 

Low

 

High

 

 

 

 

 

 

 

GAAP operating margin

 

21

%

24

%

Amortization of purchased technology

 

5

 

5

 

Amortization of purchased intangibles

 

3

 

2

 

SFAS 123R stock-based compensation

 

6

 

6

 

Amortization of Macromedia deferred compensation

 

2

 

1

 

Non-GAAP operating margin

 

37

%

38

%

 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

GAAP net income per share

 

$

0.19

 

$

0.22

 

Amortization of purchased technology, net of tax

 

0.04

 

0.04

 

Amortization of purchased intangibles, net of tax

 

0.02

 

0.02

 

SFAS 123R stock-based compensation, net of tax

 

0.06

 

0.05

 

Amortization of Macromedia deferred compensation, net of tax

 

0.01

 

0.01

 

Non-GAAP net income per share

 

$

0.32

 

$

0.34

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

 

602.0

 

600.0

 

 

Adobe continues to provide all information required in accordance with GAAP, but it believes that 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 compensation impact of SFAS 123R, restructuring and other charges, amortization of purchased intangibles and incomplete technology, amortization of Macromedia deferred compensation,  investment gains and losses, tax differences related to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, 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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For all fiscal 2006 periods presented, Adobe’s GAAP financial information and targets include the stock compensation impact of SFAS 123R, restructuring and other charges, amortization of purchased intangibles and incomplete technology, amortization of Macromedia deferred compensation, and tax differences related to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation. Also, in accordance with GAAP, Adobe incurs investment gains and losses from its venture program. These charges are otherwise unrelated to Adobe’s ongoing business operations and are excluded from its non-GAAP financial information and targets.

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