Adobe Reports First Billion Dollar Quarter

Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its fourth quarter and fiscal year ended Dec. 3, 2010.

In the fourth quarter of fiscal 2010, Adobe achieved record revenue of $1.008 billion, compared to $757.3 million reported for the fourth quarter of fiscal 2009 and $990.3 million reported in the third quarter of fiscal 2010. This represents 33 percent year-over-year revenue growth. Adobe’s fourth quarter revenue target range was $950 million to $1 billion.

The Company also reported record revenue of $3.800 billion in fiscal year 2010, compared to $2.946 billion in fiscal 2009. This represents 29 percent year-over-year revenue growth.

"We posted our first billion dollar quarter and record annual revenue in 2010, driven by outstanding performance across all of our major businesses,” said Shantanu Narayen, president and CEO of Adobe. "Adobe is transforming how the world is creating, measuring and delivering digital experiences. We are one of the most diversified software companies in the world and are entering 2011 with strong momentum.”

Fourth Quarter Fiscal 2010 GAAP Results

Adobe’s GAAP diluted earnings per share for the fourth quarter of fiscal 2010 were $0.53, based on 511.9 million weighted average shares. This compares with GAAP diluted loss per share of $0.06 reported in the fourth quarter of fiscal 2009 based on 532.0 million weighted average shares, and GAAP diluted earnings per share of $0.44 reported in the third quarter of fiscal 2010 based on 523.2 million weighted average shares.

GAAP operating income was $286.9 million in the fourth quarter of fiscal 2010, compared to $153.6 million in the fourth quarter of fiscal 2009 and $302.0 million in the third quarter of fiscal 2010. As a percent of revenue, GAAP operating income in the fourth quarter of fiscal 2010 was 28.5 percent, compared to 20.3 percent in the fourth quarter of fiscal 2009 and 30.5 percent in the third quarter of fiscal 2010.

GAAP net income was $268.9 million for the fourth quarter of fiscal 2010, compared to a GAAP net loss of $32.0 million reported in the fourth quarter of fiscal 2009 and GAAP net income of $230.1 million in the third quarter of fiscal 2010.

Fourth Quarter Fiscal 2010 Non-GAAP Results

Adobe’s non-GAAP diluted earnings per share for the fourth quarter of fiscal 2010 were $0.56. This compares with non-GAAP diluted earnings per share of $0.39 reported in the fourth quarter of fiscal 2009 and non-GAAP diluted earnings per share of $0.54 reported in the third quarter of fiscal 2010.

Adobe’s non-GAAP operating income was $384.0 million in the fourth quarter of fiscal 2010, compared to $265.2 million in the fourth quarter of fiscal 2009 and $384.9 million in the third quarter of fiscal 2010. As a percent of revenue, non-GAAP operating income in the fourth quarter of fiscal 2010 was 38.1 percent, compared to 35.0 percent in the fourth quarter of fiscal 2009 and 38.9 percent in the third quarter of fiscal 2010.

Non-GAAP net income was $285.7 million for the fourth quarter of fiscal 2010, compared to $206.8 million in the fourth quarter of fiscal 2009 and $284.0 million in the third quarter of fiscal 2010.

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

Fiscal Year 2010 Results

In fiscal year 2010, Adobe achieved annual revenue of $3.800 billion, compared to $2.946 billion in fiscal 2009. This represents 29 percent year-over-year revenue growth.

Adobe’s annual GAAP operating income in fiscal 2010 was $993.1 million, compared to $690.5 million in fiscal 2009. The annual GAAP operating margin was 26.1 percent in fiscal 2010, compared to 23.4 percent in fiscal 2009. Adobe’s annual non-GAAP operating income in fiscal 2010 was $1.393 billion, compared to $1.035 billion in fiscal 2009. The annual non-GAAP operating margin was 36.6 percent in fiscal 2010, compared to 35.1 percent in fiscal 2009.

The Company’s annual GAAP net income was $774.7 million in fiscal 2010, compared to $386.5 million in fiscal 2009. Adobe’s annual non-GAAP net income was $1.016 billion in fiscal 2010, compared to $814.7 million in fiscal 2009.

Adobe’s annual GAAP diluted earnings per share for fiscal 2010 were $1.47, compared to $0.73 in fiscal 2009. Non-GAAP diluted earnings per share for fiscal 2010 were $1.93, compared to $1.54 in fiscal 2009.

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

First Quarter Fiscal 2011 Financial Targets

For the first quarter of fiscal 2011, Adobe is targeting revenue of $1 billion to $1.05 billion. The Company’s operating margin is targeted to be 28 percent to 29.5 percent on a GAAP basis, and 37 percent to 38 percent on a non-GAAP basis. In addition, the Company is targeting its share count to be between 508 million and 510 million shares, and it is targeting non-operating expense between $16 million and $20 million. Adobe's GAAP and non-GAAP tax rates are expected to be approximately 15 percent and 22 percent, respectively.

These targets lead to a first quarter diluted earnings per share target range of $0.43 to $0.49 on a GAAP basis, and an earnings per share target range of $0.54 to $0.59 on a non-GAAP basis.

Reconciliation between these 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 expense, 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: failure to develop, market and distribute new products and services or upgrades or enhancements to existing products and services that meet customer requirements, introduction of new products, services and business models by existing and new competitors, failure to successfully manage transitions to new business models and markets, continued uncertainty in economic conditions and the financial markets and other adverse changes in general political conditions in any of the major countries in which Adobe does business, difficulty in predicting revenue from new businesses, failure to realize the anticipated benefits of past or future acquisitions, and difficulty in integrating such acquisitions, costs related to intellectual property acquisitions, disputes and litigation, inability to protect Adobe’s intellectual property from third-party infringers, or unauthorized copying, use or disclosure, security vulnerabilities in our products and systems, interruptions or delays in our service or service from third-party service providers that host or deliver services, security or privacy breaches, or failure in data collection, failure to manage Adobe’s sales and distribution channels and third-party customer service and technical support providers effectively, disruption of Adobe’s business due to catastrophic events, risks associated with global operations, currency fluctuations, risks associated with our debt service obligations, changes in, or interpretations of, accounting principles, impairment of Adobe’s goodwill or amortizable intangible assets, 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, 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.

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 Annual Report on Form 10-K for our fiscal year ended Dec. 3, 2010, which Adobe expects to file in Jan. 2011. Adobe does not undertake an obligation to update forward-looking statements.

About Adobe Systems Incorporated

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

© 2010 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.

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 charges, amortization of purchased intangibles and incomplete technology, the resolution of an income tax audit, investment gains and losses, the R&D tax benefit, 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.