Adobe 8K Results of Operations and Financial Condition | ADBE 18 Jun 13

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 Reports Strong Q2 FY2013 Financial Results

Creative Cloud Subscriptions Hit 700 Thousand; Adobe Marketing Cloud Bookings Grow Over 25 Percent

SAN JOSE, Calif. - June 18, 2013 - Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its second quarter of fiscal year 2013 ended May 31, 2013.

Second Quarter Financial Highlights


•	Adobe achieved revenue of $1.011 billion, within its targeted range of $975 million to $1.025 billion.


•	Diluted earnings per share were $0.15 on a GAAP-basis, and $0.36 on a non-GAAP basis.


•	Operating income was $111.3 million and net income was $76.5 million on a GAAP basis. Operating income was $247.3 million and net income was $182.9 million on a non-GAAP basis.


•	Adobe ended Q2 with 700 thousand paid Creative Cloud subscriptions, an increase of 221 thousand when compared to the number of subscriptions as of the end of Q1 fiscal year 2013.


•	Adobe Marketing Cloud quarterly revenue was $229.6 million, with bookings growth of greater than 25 percent.

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

Executive Quotes

“Our Q2 results reflect our leadership position in Digital Media and Digital Marketing,” said Shantanu Narayen, president and chief executive officer, Adobe. “Creative Cloud is revolutionizing the creative process, and Adobe Marketing Cloud is quickly becoming the platform of choice for the world's leading brands, advertising agencies and media companies.”

“Adoption of Creative Cloud continued to accelerate and we drove strong Adobe Marketing Cloud bookings growth in Q2,” said Mark Garrett, executive vice president and chief financial officer, Adobe.

Adobe to Webcast Earnings Conference Call

Adobe will webcast its second 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 and growth in revenue and bookings for Adobe Marketing Cloud solutions in our Digital Marketing business, 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 May 31, 2013, which Adobe expects to file in June 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.

Condensed Consolidated Statements of Income

(In thousands, except per share data; unaudited)



	Three Months Ended						Six Months Ended
	May 31, 2013			June 1, 2012			May 31, 2013			June 1, 2012
Revenue:
Products	$	644,899		$	871,022		$	1,320,688		$	1,679,543
Subscription	254,521			159,519			478,787			305,749
Services and support	111,129			93,908			218,947			184,377
Total revenue	1,010,549			1,124,449			2,018,422			2,169,669

Cost of revenue:
Products	26,805			40,074			78,787			65,742
Subscription	66,527			54,823			129,107			103,603
Services and support	41,949			36,021			84,071			69,838
Total cost of revenue	135,281			130,918			291,965			239,183

Gross profit	875,268			993,531			1,726,457			1,930,486

Operating expenses:
Research and development	203,097			180,903			412,735			358,631
Sales and marketing	402,208			386,459			800,241			745,422
General and administrative	120,870			110,603			253,723			213,284
Restructuring and other charges	24,992			(2,191		)	24,994			(5,016		)
Amortization of purchased intangibles	12,792			12,614			25,231			24,043
Total operating expenses	763,959			688,388			1,516,924			1,336,364

Operating income	111,309			305,143			209,533			594,122

Non-operating income (expense):
Interest and other income (expense), net	1,268			(1,128		)	2,514			(3,913		)
Interest expense	(17,205		)	(16,629		)	(34,039		)	(33,467		)
Investment gains (losses), net	(4,245		)	7,188			(3,397		)	8,209
Total non-operating income (expense), net	(20,182		)	(10,569		)	(34,922		)	(29,171		)
Income before income taxes	91,127			294,574			174,611			564,951
Provision for income taxes	14,581			70,698			32,948			155,866
Net income	$	76,546		$	223,876		$	141,663		$	409,085
Basic net income per share	$	0.15		$	0.45		$	0.28		$	0.83
Shares used to compute basic net income per share	503,384			495,950			500,996			494,983
Diluted net income per share	$	0.15		$	0.45		$	0.28		$	0.81
Shares used to compute diluted net income per share	512,446			501,377			511,535			502,154

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)



	May 31, 2013			November 30, 2012
ASSETS

Current assets:
Cash and cash equivalents	$	1,246,410		$	1,425,052
Short-term investments	2,619,298			2,113,301
Trade receivables, net of allowances for doubtful accounts of $10,908 and $12,643, respectively	470,052			617,233
Deferred income taxes	54,525			59,537
Prepaid expenses and other current assets	143,799			116,237
Assets held for sale	23,573			—
Total current assets	4,557,657			4,331,360

Property and equipment, net	645,865			664,302
Goodwill	4,225,169			4,133,259
Purchased and other intangibles, net	551,265			545,036
Investment in lease receivable	207,239			207,239
Other assets	93,174			93,327
Total assets	$	10,280,369		$	9,974,523

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade payables	$	53,685		$	49,759
Accrued expenses	538,402			590,140
Capital lease obligations	20,083			11,217
Accrued restructuring	6,671			9,287
Income taxes payable	7,129			49,886
Deferred revenue	638,885			561,463
Total current liabilities	1,264,855			1,271,752

Long-term liabilities:
Debt and capital lease obligations	1,505,560			1,496,938
Deferred revenue	52,376			58,102
Accrued restructuring	8,790			12,263
Income taxes payable	161,937			155,096
Deferred income taxes	286,104			265,106
Other liabilities	73,445			50,084
Total liabilities	3,353,067			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	3,189,883			3,038,665
Retained earnings	6,855,463			7,003,003
Accumulated other comprehensive income	27,461			30,712
Treasury stock, at cost (97,782 and 106,702 shares, respectively), net of re-issuances	(3,145,566		)	(3,407,259		)
Total stockholders' equity	6,927,302			6,665,182
Total liabilities and stockholders' equity	$	10,280,369		$	9,974,523

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)



	Three Months Ended
	May 31, 2013			June 1, 2012
Cash flows from operating activities:
Net income	$	76,546		$	223,876
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	80,950			77,174
Stock-based compensation expense	73,528			62,959
Write-down of assets held for sale	23,838			—
Unrealized investment (gains) losses	4,312			(4,235		)
Changes in deferred revenue	(8,770		)	43,814
Changes in other operating assets and liabilities	48,744			44,630
Net cash provided by operating activities	299,148			448,218

Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net	(275,455		)	(106,627		)
Purchases of property and equipment	(46,249		)	(60,767		)
Purchases of long-term investments, intangibles and other assets, net of sales	(12,735		)	19,195
Acquisitions, net of cash	—			(61		)
Net cash used for investing activities	(334,439		)	(148,260		)

Cash flows from financing activities:
Purchases of treasury stock	(200,000		)	(225,000		)
Re-issuance of treasury stock	184,655			75,871
Repayment of debt and capital lease obligations	(7,297		)	(2,290		)
Excess tax benefits from stock-based compensation	—			2,684
Net cash used for financing activities	(22,642		)	(148,735		)
Effect of exchange rate changes on cash and cash equivalents	(2,039		)	(1,248		)
Net (decrease) increase in cash and cash equivalents	(59,972		)	149,975
Cash and cash equivalents at beginning of period	1,306,382			801,263
Cash and cash equivalents at end of period	$	1,246,410		$	951,238

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
	May 31, 2013			June 1, 2012			March 1, 2013
Operating income:

GAAP operating income	$	111,309		$	305,143		$	98,224
Stock-based and deferred compensation expense	79,624			70,714			85,086
Restructuring and other charges	24,992			(2,191		)	2
Amortization of purchased intangibles & technology license arrangements	31,359			30,704			57,377
Non-GAAP operating income	$	247,284		$	404,370		$	240,689

Net income:

GAAP net income	$	76,546		$	223,876		$	65,117
Stock-based and deferred compensation expense	79,624			70,714			85,086
Restructuring and other charges	24,992			(2,191		)	2
Amortization of purchased intangibles & technology license arrangements	31,359			30,704			57,377
Investment (gains) losses	4,245			(7,188		)	(848		)
Income tax adjustments	(33,915		)	(16,290		)	(28,840		)
Non-GAAP net income	$	182,851		$	299,625		$	177,894

Diluted net income per share:

GAAP diluted net income per share	$	0.15		$	0.45		$	0.13
Stock-based and deferred compensation expense	0.16			0.14			0.17
Restructuring and other charges	0.05			—			—
Amortization of purchased intangibles & technology license arrangements	0.06			0.06			0.11
Investment (gains) losses	0.01			(0.01		)	—
Income tax adjustments	(0.07		)	(0.04		)	(0.06		)
Non-GAAP diluted net income per share	$	0.36		$	0.60		$	0.35

Shares used in computing diluted net income per share	512,446			501,377			507,840

Non-GAAP Results (continued)



	Three Months Ended
	May 31, 2013
Effective income tax rate:

GAAP effective income tax rate	16.0	%
Stock-based and deferred compensation expense	2.5
Restructuring and other charges	1.5
Amortization of purchased intangibles & technology license arrangements	1.0
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 and prior activity in connection with technology license agreements, investment gains and losses and the related tax impact of all of these items, income tax adjustments, the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever Adobe uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

Adobe (ADBE) 8-KResults of Operations and Financial Condition