Form 8-K ADOBE SYSTEMS INC For: Jun 16

June 16, 2015 4:05 PM

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): June 16, 2015 (June 16, 2015)

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 June 16, 2015, Adobe Systems Incorporated (“Adobe”) issued a press release announcing its financial results for its second fiscal quarter ended May 29, 2015. 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.

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 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 long-term non-GAAP tax rate applied to our non-GAAP financial results. 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 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. Based on our long-term projections, a long-term non-GAAP tax rate of 21% has been applied to our non-GAAP financial results in both fiscal 2014 and fiscal 2015.

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.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

99.1 Press release issued on June 16, 2015 entitled “Adobe Reports Record Revenue”

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: June 16, 2015

EXHIBIT INDEX



Exhibit No.		Description
99.1		Press release issued on June 16, 2015 entitled “Adobe Reports Record Revenue”

Exhibit 99.1

Investor Relations Contact

Mike Saviage

Adobe

408-536-4416

[email protected]

Public Relations Contact

Edie Kissko

Adobe

408-536-3034

[email protected]

FOR IMMEDIATE RELEASE

Adobe Reports Record Revenue

Strong Q2 FY2015 Profit Growth Driven by Cloud Momentum; Creative ARR Tops $2 Billion

SAN JOSE, Calif. - June 16, 2015 - Adobe (Nasdaq: ADBE) today reported financial results for its second quarter fiscal year 2015 ended May 29, 2015.

Quarterly Financial Highlights


•	Adobe achieved record quarterly revenue of $1.16 billion.


•	Digital Media Annualized Recurring Revenue (“ARR”) grew to $2.35 billion exiting the quarter, driven by an increase in Creative ARR of $230 million to $2.02 billion.


•	Adobe Marketing Cloud achieved revenue of $327 million.


•	Diluted earnings per share were $0.29 on a GAAP-basis, and $0.48 on a non-GAAP basis.


•	Year-over-year, operating income grew 43 percent and net income grew 67 percent on a GAAP-basis; operating income grew 28 percent and net income grew 30 percent on a non-GAAP basis.


•	Cash flow from operations was $471 million, and deferred revenue grew to an all-time high of $1.23 billion.


•	The company repurchased approximately 2.6 million shares during the quarter, returning $200 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

"Strong execution against our Creative Cloud, Document Cloud and Marketing Cloud businesses drove record revenue," said Shantanu Narayen, Adobe president and chief executive officer. "We are accelerating the pace of innovation in our Cloud offerings and are thrilled to be launching our best Creative Cloud release to date, which includes Adobe Stock - our new stock content service."

“With our business model transition largely behind us, the positive financial benefits are now reflected in our P&L,” said Mark Garrett, Adobe executive vice president and chief financial officer. “We are driving more profit, earnings per share, cash flow and deferred revenue and unbilled backlog.”

Adobe to Webcast Earnings Conference Call

Adobe will webcast its second quarter fiscal year 2015 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, product innovation, the success of our new stock image service, Adobe Stock, and capabilities and the strength of our cloud business and growth of our revenue, earnings, cash flow, deferred revenue and unbilled backlog, 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, potential interruptions or delays in hosted services provided by us or third parties, 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 2014 ended Nov. 28, 2014, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2015.

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, 2015, which Adobe expects to file in June 2015.

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.

###

© 2015 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo and Creative 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 29, 2015			May 30, 2014			May 29, 2015			May 30, 2014
Revenue:
Subscription	$	773,963		$	476,694		$	1,487,405		$	900,257
Products	274,538			479,247			565,312			950,701
Services and support	113,657			112,267			218,622			217,370
Total revenue	1,162,158			1,068,208			2,271,339			2,068,328

Cost of revenue:
Subscription	103,694			84,147			199,221			160,879
Products	21,467			24,499			41,170			51,997
Services and support	60,012			46,258			111,580			90,537
Total cost of revenue	185,173			154,904			351,971			303,413

Gross profit	976,985			913,304			1,919,368			1,764,915

Operating expenses:
Research and development	208,047			209,092			423,556			418,617
Sales and marketing	426,998			426,830			819,739			836,971
General and administrative	130,208			129,138			275,289			268,122
Restructuring and other charges	34			(366		)	1,789			297
Amortization of purchased intangibles	18,081			13,352			32,353			26,904
Total operating expenses	783,368			778,046			1,552,726			1,550,911

Operating income	193,617			135,258			366,642			214,004

Non-operating income (expense):
Interest and other income (expense), net	3,739			2,563			7,077			5,708
Interest expense	(16,605		)	(17,103		)	(31,150		)	(33,693		)
Investment gains (losses), net	223			553			1,653			144
Total non-operating income (expense), net	(12,643		)	(13,987		)	(22,420		)	(27,841		)
Income before income taxes	180,974			121,271			344,222			186,163
Provision for income taxes	33,481			32,744			111,841			50,590
Net income	$	147,493		$	88,527		$	232,381		$	135,573
Basic net income per share	$	0.30		$	0.18		$	0.47		$	0.27
Shares used to compute basic net income per share	499,290			497,931			499,022			497,439
Diluted net income per share	$	0.29		$	0.17		$	0.46		$	0.27
Shares used to compute diluted net income per share	505,582			506,687			507,061			508,227

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)



	May 29, 2015			November 28, 2014
ASSETS

Current assets:
Cash and cash equivalents	$	956,147		$	1,117,400
Short-term investments	2,457,101			2,622,091
Trade receivables, net of allowances for doubtful accounts of $7,226 and $7,867, respectively	502,617			591,800
Deferred income taxes	71,218			95,279
Prepaid expenses and other current assets	191,314			175,758
Total current assets	4,178,397			4,602,328

Property and equipment, net	785,199			785,123
Goodwill	5,388,971			4,721,962
Purchased and other intangibles, net	583,198			469,662
Investment in lease receivable	80,439			80,439
Other assets	149,179			126,315
Total assets	$	11,165,383		$	10,785,829

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade payables	$	56,539		$	68,377
Accrued expenses	647,784			683,866
Debt and capital lease obligations	—			603,229
Accrued restructuring	1,695			17,120
Income taxes payable	55,473			23,920
Deferred revenue	1,175,542			1,097,923
Total current liabilities	1,937,033			2,494,435

Long-term liabilities:
Debt	1,904,376			911,086
Deferred revenue	52,613			57,401
Accrued restructuring	4,347			5,194
Income taxes payable	244,799			125,746
Deferred income taxes	326,922			342,315
Other liabilities	85,190			73,747
Total liabilities	4,555,280			4,009,924

Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized	—			—
Common stock, $0.0001 par value	61			61
Additional paid-in-capital	3,994,652			3,778,495
Retained earnings	6,879,444			6,924,294
Accumulated other comprehensive income (loss)	(129,473		)	(8,094		)
Treasury stock, at cost (102,558 and 103,350 shares, respectively), net of reissuances	(4,134,581		)	(3,918,851		)
Total stockholders' equity	6,610,103			6,775,905
Total liabilities and stockholders' equity	$	11,165,383		$	10,785,829

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)



	Three Months Ended
	May 29, 2015			May 30, 2014
Cash flows from operating activities:
Net income	$	147,493		$	88,527
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	85,929			77,653
Stock-based compensation expense	84,649			83,005
Unrealized investment gains, net	(276		)	(352		)
Changes in deferred revenue	44,772			47,517
Changes in other operating assets and liabilities	108,917			71,186
Net cash provided by operating activities	471,484			367,536

Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net	3,541			(117,967		)
Purchases of property and equipment	(35,730		)	(27,198		)
Purchases and sales of long-term investments, intangibles and other assets, net	(1,083		)	(2,767		)
Acquisitions, net of cash	(5,637		)	—
Net cash used for investing activities	(38,909		)	(147,932		)

Cash flows from financing activities:
Purchases of treasury stock	(200,000		)	(150,000		)
Proceeds of reissuance of treasury stock, net	2,911			12,824
Repayment of debt and capital lease obligations	—			(3,626		)
Debt issuance costs	(153		)	—
Excess tax benefits from stock-based compensation	11,140			4,875
Net cash used for financing activities	(186,102		)	(135,927		)
Effect of exchange rate changes on cash and cash equivalents	(3,210		)	(573		)
Net increase in cash and cash equivalents	243,263			83,104
Cash and cash equivalents at beginning of period	712,884			733,916
Cash and cash equivalents at end of period	$	956,147		$	817,020

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 29, 2015			May 30, 2014			February 27, 2015
Operating income:

GAAP operating income	$	193,617		$	135,258		$	173,025
Stock-based and deferred compensation expense	85,374			83,600			86,597
Restructuring and other charges	34			(366		)	1,755
Amortization of purchased intangibles	40,080			31,835			33,791
Non-GAAP operating income	$	319,105		$	250,327		$	295,168

Net income:

GAAP net income	$	147,493		$	88,527		$	84,888
Stock-based and deferred compensation expense	85,374			83,600			86,597
Restructuring and other charges	34			(366		)	1,755
Amortization of purchased intangibles	40,080			31,835			33,791
Investment (gains) losses	(223		)	(553		)	(1,430		)
Income tax adjustments	(30,829		)	(16,771		)	18,728
Non-GAAP net income	$	241,929		$	186,272		$	224,329

Diluted net income per share:

GAAP diluted net income per share	$	0.29		$	0.17		$	0.17
Stock-based and deferred compensation expense	0.17			0.16			0.17
Amortization of purchased intangibles	0.08			0.06			0.07
Income tax adjustments	(0.06		)	(0.02		)	0.03
Non-GAAP diluted net income per share	$	0.48		$	0.37		$	0.44

Shares used in computing diluted net income per share	505,582			506,687			507,526

Non-GAAP Results (continued)



	Three Months Ended
	May 29, 2015
Effective income tax rate:

GAAP effective income tax rate	18.5	%
Resolution of income tax examinations	6.0
Amortization of purchased intangibles, stock-based and deferred compensation expense	(2.5	)
Income tax adjustments	(1.0	)
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.

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Form 8-K ADOBE SYSTEMS INC For: Jun 16

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