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Adobe Systems Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: October 7, 2011 06:36AM
Adobe Systems Inc. (ADBE) filed Quarterly Report for the period ended 2011-09-02. Adobe Systems Inc. has a market cap of $12.51 billion; its shares were traded at around $25.33 with a P/E ratio of 14.3 and P/S ratio of 3.3. Adobe Systems Inc. had an annual average earning growth of 11.9% over the past 10 years. GuruFocus rated Adobe Systems Inc. the business predictability rank of 4.5-star.
Highlight of Business Operations:Our subscription revenue is comprised primarily of fees we charge for our hosted service offerings including our hosted online business optimization services. We recognize subscription revenues ratably over the term of agreements with our customers, beginning on the commencement of the service. Of the $111.9 million and $327.3 million in subscription revenue for the three and nine months ended September 2, 2011, approximately $96.2 million and $283.7 million, respectively, is from our Omniture segment with the remaining amounts representing our other business offerings. Of the $98.6 million and $286.4 million in subscription revenue for the three and nine months ended September 3, 2010, approximately $86.5 million and $251.9 million, respectively, is from our Omniture segment with the remaining amounts representing our other business offerings.
In February 2010, we issued $600.0 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900.0 million of 4.75% senior notes due February 1, 2020 (the “2020 Notes” and, together with the 2015 Notes, the “Notes”). On February 1, 2010, we repaid our $1.0 billion outstanding credit facility with a portion of the proceeds from our Notes. The increase in interest expense during the nine months ended September 2, 2011 is primarily due to interest associated with higher borrowings resulting from the issuance of the Notes as well as an increase in our average borrowing rate due to the Notes.
The lease agreements for our corporate headquarters provide for residual value guarantees. The fair value of a residual value guarantee in lease agreements entered into after December 31, 2002, must be recognized as a liability on our Condensed Consolidated Balance Sheets. As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers and Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry recorded as prepaid rent in other assets. The balance will be amortized to our Condensed Consolidated Statements of Income over the life of the leases. As of September 2, 2011 and December 3, 2010, the unamortized portion of the fair value of the residual value guarantees, for both leases, remaining in other long-term liabilities and prepaid rent was $0.3 million and $0.7 million, respectively.
During the past several years, we have initiated various restructuring plans. In connection with our Fiscal 2009 Restructuring Plan, we accrued $17.7 million and $6.6 million during the nine months ended September 3, 2010 for termination benefits and closing redundant facilities, respectively. During the three months ended September 3, 2010 we recorded insignificant charges for termination benefits and facilities-related liabilities. During the three and nine months ended September 2, 2011 we recorded $3.1 million and $3.7 million, respectively, for closing redundant facilities. In connection with all of our restructuring plans, we recorded favorable adjustments for changes in previous estimates during the periods presented.
Revenue from Digital Media Solutions decreased $6.6 million year-over-year during the three months ended September 2, 2011. The decrease during the three months ended September 2, 2011 was due to lower revenue with our digital imaging products. Contributing to the decrease in revenue was a 10% decrease in our Photoshop point product revenue due to the release of Photoshop and Photoshop Extended in fiscal 2010 for which a comparable release did not occur in the current period. The decrease in Lightroom revenue also contributed to the overall decrease in Digital Media Solutions due to the launch of Lightroom 3 during the third quarter of fiscal 2010 for which a comparable release did not occur in the current period. The overall number of units licensed for Digital Media Solutions increased year-over during the three months ended September 2, 2011 and unit average selling prices remained relatively stable. Revenue from Digital Media Solutions increased $11.8 million year-over during the nine months ended September 2, 2011. The increase was due to increased licensing of our image editing and video authoring products. Our overall number of units licensed for Digital Media Solutions also increased year-over-year during the nine months ended September 2, 2011. Our Photoshop point product revenue and our unit average selling prices for Digital Media Solutions during the nine months ended September 2, 2011 remained relatively stable when compared to the same period in the prior year.
Stocks Discussed: ADBE,