Adobe Systems 8-K 2009
Pursuant to Section 13 or 15(d) of
Date of Report (date of earliest event reported): December 15, 2009
Adobe Systems Incorporated
Registrants telephone number, including area code: (408) 536-6000
(Former name or former address, if changed since last report)
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Section 2 Financial Information
Item 2.02. Results of Operations and Financial Condition.
On December 15, 2009, Adobe issued a press release announcing its financial results for its fourth fiscal quarter and fiscal year ended November 27, 2009. 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, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expressly stated by specific reference in such filing.
The attached press release includes non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP operating expenses, non-GAAP tax rate and non-GAAP diluted earnings per share, and forecasted non-GAAP operating margin, non-GAAP diluted earnings per share and non-GAAP tax rate.
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 charges; (C) amortization of purchased intangibles, incomplete technology and technology license arrangements; (D) investment gains and losses; (E) the resolution of an income tax audit; 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. In addition, these non-GAAP financial measures facilitate our internal comparisons to our historical operating results and comparisons to competitors operating results.
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 stock options, restricted stock units and performance shares and employee stock purchases in accordance with current GAAP related to stock-based compensation including the amortization of stock-based compensation related to unvested options and restricted stock units assumed in connection with our acquisition of Macromedia in December 2005 and our acquisition of Omniture in October 2009. 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 facilitate comparisons to our competitors operating results.
B. Restructuring charges and related tax impact. In November 2009, we initiated restructuring activities to align our costs in connection with our fiscal 2010 operating plan. As a result, we recognized costs associated with former Adobe employee severance arrangements. In November 2008, we initiated restructuring actions associated with realigning our business strategies based on then-current economic conditions. In connection with these restructuring actions, we recognized costs related to termination benefits for former Adobe employees whose positions were eliminated and the consolidation of leased facilities. We also incurred restructuring charges associated with realigning our business upon the acquisition of Macromedia in December 2005 (the Macromedia Restructuring) and the acquisition of Omniture in October 2009 (the Omniture Restructuring). The actions in both the Macromedia Restructuring and Omniture Restructuring were taken to eliminate certain duplicative activities, focus our resources on future growth opportunities and reduce our cost structure. In connection with the Macromedia Restructuring, we recognized costs related to termination benefits for former Adobe employees whose positions were eliminated, the closure of Adobe facilities and the cancellation of certain contracts held by us. We exclude these charges because these expenses are not reflective of ongoing operating results in the current period.
C. Amortization of purchased intangibles, incomplete technology and technology license arrangements and related tax impact. We incur amortization of purchased intangible assets primarily in connection with our acquisition of Macromedia in December 2005 and our acquisition of Omniture in October 2009. Purchased intangibles include (i) developed technology and (ii) core technology and patents. Developed technology relates primarily to Macromedia and Omniture products across all of Macromedia and Omniture product lines that had reached technological feasibility as of December 2005 and October 2009, respectively. Core technology and patents represent primarily a combination of Macromedias and Omnitures processes, patents and trade secrets developed through years of experience in design and development of their products. 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. Further, we incurred charges related to in-process research and development in connection with our acquisition of Omniture in October 2009. We expense this upon acquisition as it represents incomplete Omniture research and development projects that had not reached technological feasibility and had no alternative future use as of the date of the acquisition. We also incurred on-going charges related to (i) amortization of purchased intangible assets in connection with certain small acquisitions and (ii) prior activity in connection with certain technology license arrangements. We exclude these items because these expenses are not reflective of ongoing operating results in the current period.
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 effect of the resolution of an income tax audit. During the fiscal year ended November 28, 2008, we realized a one-time tax benefit as a result of the resolution of an income tax audit for fiscal years 2001 through 2004. We have excluded this item because this tax benefit is unrelated to our ongoing business and operating results.
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. For the fourth quarter and fiscal year ended November 27, 2009, we also excluded a one-time tax charge related to our acquisition of Omniture. The charge was the tax cost of inter-company transactions necessary to license certain Omniture assets so that Omniture services can be offered to customers from Adobe companies going forward.
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.
Section 9 Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits.
99.1 Press release issued on December 15, 2009 entitled Adobe Reports Fourth Quarter and Fiscal 2009 Results
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.